Changes to the Moody’s Analytics outlook for the U.S. economy were small in August, with most adjustments the result of a revised outlook for interest rates.

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 slowed in the second quarter, according to the advance report from the Bureau of Economic Analysis. Real GDP grew 2.1%, after growing 3.1% in the first quarter after annual revision. The weakening came despite an acceleration in consumer spending growth as inventory accumulation slowed, the trade deficit widened, and fixed investment fell.

The forecast for several GDP components changed this month mostly in response to newly released history, as well as a change in our forecast for interest rates. August’s forecast incorporates the BEA’s annual benchmark revisions to NIPA data, which extend back to 2014. More information on the revisions can be found here.

In addition to the changes resulting from NIPA revisions, the forecast path for real exports was adjusted to bring U.S. exports more in line with projected imports of the top five U.S. trading partners.The forecast for real imports was simultaneously downgraded to ensure consistency with the change in exports and the overall trade deficit forecast.

On the whole, Moody’s Analytics expects GDP to grow by 2.3% this year, a moderate downgrade from July’s forecast. Growth will clock in at 1.7% in 2020 and 2.1% in 2021.

Fiscal policy

Movements in the government spending forecast resulted from revised assumptions on federal spending, which were impacted by the recent deal struck between Congress and the administration.

Prior forecasts had assumed that Congress would raise spending caps in fiscal 2020 and fiscal 2021 by a cumulative $303 billion. The recent deal will raise the caps by $321 billion, resulting in $18 billion in additional stimulus not included in previous forecast vintages. This necessitated upgrades to the forecasts for both federal defense spending and federal nondefense spending.

Monetary policy

Escalation in the trade tensions between the U.S. and China have prompted us to downgrade our forecast for the federal funds rate. The August baseline has two additional rate cuts this year, one in September and one in December. We had previously called for rates to hold steady this year, following the decrease in July. More information on this change can be found here.

Labor market

Our near-term unemployment rate forecast changed moderately from July, the result of a revised forecast for the number of unemployed. The outlook for the number of unemployed was impacted by recently released history. The jobless rate will average 3.6% this year and 3.7% in 2020. The forecast for total employment held steady. Job additions will continue at a healthy clip through the middle of 2020.

Energy

The forecast for WTI oil prices in 2019 was downgraded this month because of recently released historical data. Prices for 2019 and 2020 are projected to come in modestly lower than in the previous baseline forecast. The oil market will be slightly oversupplied next year due to non-OPEC production increases and weak demand growth. Moody’s Analytics expects oil prices to average near $59.50/barrel this year and $62.30/barrel in 2020.

Inflation

The forecast path for CPI changed very slightly in response to newly released history. CPI gains will average 1.9% 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.

The change to our federal funds rate forecast coupled with the recent drop in the 10-year Treasury yield has lowered our forecast for long-term rates this year and next. The August baseline shows the 10-year Treasury yield averaging around 2.3% in the fourth quarter of this year, compared with the 2.4% in the July baseline.

Changes to historical data: Global Macro Model Historical Data Changes

A summary of this month’s major changes to historical dataset(s) used in the global model.