Changes to the Moody’s Analytics outlook for the U.S. economy were modest in May, with most changes caused by the release of new historical data.
View Comparison Table: U.S. Macro Forecast M/M Comparison
A tabular comparison of the current and prior vintages including an assessment of whether meaningful changes can be attributed to new or revised data, changed assumptions, or model changes.
National income
U.S. GDP growth improved in the first quarter despite the government shutdown and concerns about residual seasonality, according to the initial report from the Bureau of Economic Analysis. Real GDP grew 3.2%, after growing 2.2% in the fourth quarter. The improvement came despite a slowing in consumer spending growth as inventory accumulation increased and the trade deficit narrowed. Growth in fixed investment slowed.
The forecast for several GDP components changed this month mostly in response to newly released history. On the whole, Moody’s Analytics expects GDP to grow by 2.6% this year, a moderate downgrade from April’s forecast. Growth will clock in at 1.7% in 2020 and 2.1% in 2021.
Fiscal policy
Movements in the government spending forecast were minor this month and the result of model-driven changes to the forecast for federal government spending.
Monetary policy
The forecast for the federal funds rate held steady this month. Moody’s Analytics expects no additional rate hikes in 2019, and one in 2020. We anticipate that the Fed will continue raising rates in 2021 to return the federal funds rate to its long-run equilibrium level, which we estimate at 3% to 3.25%.
Labor market
Our near-term unemployment rate changed moderately from April, the result of a lower labor-force forecast. The jobless rate will average 3.6% this year and 3.4% in 2020. The forecast for total employment held mostly steady. Job additions will continue at a robust pace over the next several quarters.
Energy
The forecast for WTI oil prices in 2019Q2 and 2019Q3 was raised. This was due to a combination of higher recent history and the administration’s decision not to extend waivers to countries that currently import Iranian crude oil. The Iran announcement is not expected to have an impact on oil prices in six months’ time because any lost Iranian barrels will be replaced by either the U.S., Russia or Saudi Arabia. As a result, the forecast was unchanged in 2020 and beyond.
Inflation
The forecast path for CPI was changed in response to newly released history, which raised expectations for near-term inflation. CPI gains will average 2% this year and 2.1% in 2020.
CCAR variables
The only stochastic CCAR variable that received a qualitative overlay this month was the 10-year Treasury rate. It was updated to reflect the most recent historical data in order to keep the forecast and history consistent.
Changes to historical data