37th Annual Economic Outlook Symposium

RICK MATTOON: So good morning. My name is Rick Mattoon. I'm Vice President of Regional Analysis and Engagement and also the Detroit Regional Executive here at the Federal Reserve Bank of Chicago. And it's my real pleasure to welcome you to the 37th Annual Economic Outlook Symposium I was reassured that we actually have had a program that has been here at the Fed longer than I've been at the Fed-- so something that actually predates me, which is hard to do. Believe me.

One of the things I want to say is this conference has always had a tradition of presenting very timely and important topics, in terms of the economic outlook, what's happening in key sectors of the economy. And it's something that's always been very important to us, in terms of our ability to understand better how people with boots on the ground are viewing how the economy is operating. This year is not different from any of our previous years, in the sense of identifying some really key issues in the economy that we want to follow.

So we're going to hear extremely interesting perspectives from a really expert group of people today on what's happening with the consumer, what's happening with inflation, what are the issues in immigration that we're facing at this point, where the auto sector is, particularly after coming out of the UAW strike. We're also going to dive into commercial real estate, which I know is of everybody's interest.

And for me, I have a personal favorite interest in state and local government issues. And so therefore, I'm particularly happy we're also going to be looking at that. A special feature of this year's program is going to be a fireside chat with our President, Austan Goolsbee. I can assure you this will not only be informative, but usually with Austan, it also means it'll be very entertaining.

When you arrived here-- and in front of you, you will see that there are two QR codes. If you scan one of them, it will take you to the program and you'll be able to see speaker bios and any materials that were provided. And if you scan the other one, it will take you to Pigeonhole, which is an app we're using, which will allow you to submit questions to any of the panelists or any of the speakers today. And we'll be calling through those. We'll try to get to as many of those as possible.

We've also received a number of questions in advance of the program. So there's clearly a lot of interest. And again, we're very happy we're here. My last duty is to really turn the program over to Tom Wahlstrom, who's going to kick us off. I really want to recognize that Tom is the mastermind behind this program. And really, the excellence of today's agenda really reflects his hard work and his commitment here at the bank.

I've had the good fortune of having been a colleague with Tom ever since he arrived at the bank. I can assure you that not only is he a leader, in terms of gathering information about what's happening on the ground in our economy, he leads our Beige Book effort. And he's also quite an excellent researcher, and has published a number of really, I think, very important papers-- except for the ones that I co-wrote with him, which probably weren't very good.

One of the things Tom has always reminded me, again, is a real purpose of this event is for us to thank you. Many of you in this room are the people who we rely on in contact calls and round tables and in various other ways to give us insights into the economy. And that's very, very important, in terms of making us better monetary policy makers. So in part, I would like to salute you and congratulate you for all you do to help us do our job better.

The last thing is I'm going to turn it over to Tom, and Tom's going to walk you through one of the other elements that we've always had in this particular program, which is the forecast outlook results. So Tom will tell you who were the winners last year, in terms of forecasting in what I think most of us would agree was probably a pretty unpredictable and difficult year. And he'll tell you what the forecasts were that were submitted for this coming year in 2024. So with that, I'll turn things over to Tom. So thanks, Tom.

THOMAS WALSTRUM: All right. And I really hope that this symposium lives up to the introduction that Rick gave to it. I guess he placed the burden entirely on my shoulders if things go awry, so hopefully that doesn't happen either.

All right. Yeah, so I'm here to give you the consensus outlook. And again, like what Rick said, this is going to be a compilation of forecasts submitted by participants in this symposium today. And I think we got about 16 or 17 submissions, which is pretty good. I don't know if maybe-- I think I'm guessing Blue Chip or something gets more. But we've still got enough to drop the top and bottom and have a median and some range.

But first I want to look back at last year and announce our winners from last year's forecast competition. So this was forecasting for this year. And let's go to this chart. So here's the results from last year. Our overall winner was Dave Lauer from the Bureau of Labor statistics.

And I'm wondering, Dave, are you in-- I think I saw that you were going to attend in person. Oh, Dave's right back there. So Dave, you have to come down and you have to get a Certificate of Forecasting Excellence. Yeah. OK. So here we go. Everyone on this list up here, congratulations.

Everyone on this list up here, also I have certificates for you. But I'm not going to call you all down. It's going to use up all my time. So after the fireside chat, come see me and you can have your Certificate of Forecasting Excellence. It's conveniently on 8 and 1/2 by 11 paper so you can easily frame it.

OK. So before we go on to the forecast, I want to note that I looked into why did Dave win. And Dave, the reason you won is that you were the most optimistic out of any of the forecast submitters for real GDP. And so actually the overall winning is if you have the smallest error on real GDP, unemployment, and inflation. So Dave, you were the most optimistic on real GDP.

And I guess that's a lesson for the rest of you that if you want to win, maybe be either the most optimistic or the most pessimistic. So if it was 2019, it was definitely the most pessimistic forecaster won that year-- or won in 2020. But even as I'm saying that, also please don't. I actually want you to submit your expected forecast or it's going to mess up everything else I'm trying to do. So don't try to game the competition. Just give me your best guess.

All right. So let's look at what we got. This is the chart. For real GDP, I'm going to take a little time to explain it. There's a lot of dots and lines and shading. And then we'll go a little bit faster through the next ones.

So this is the overall outlook for real GDP growth. It's in 1/4% change-- terms at a seasonally adjusted annual rate. So that's the number that gets published in the newspaper. And just to remind you, the idea here is that you take the quarter over quarter percent change, and then you extend that to be-- the thought experiment is suppose that the quarter over quarter percent change lasted the entire year. That's the number that we're putting up here.

And so the blue line is what's actually happened. The dashed part of the blue line is the median forecast from those of you who submitted this round. And then I've got a forecast range up here in gray, where we've dropped the bottom two and the top two forecasts.

The black dots are prior median EOS forecasts. And you can see they're in groups of four. And I want to point your attention to the last four, which were for last year. You can see that there was some pretty-- the outlook was definitely more pessimistic than things turned out to be. There was, of course, worry about a recession.

And while our forecasters didn't predict the recession, they definitely predicted slow growth. And so I think one question that I think we're going to be covering a lot today is why did growth come in faster than expected? And my guess as to what our experts are going to say is that there was a nice, positive supply shock where we saw a really strong labor market that was stronger than expected. And we saw people coming to the labor force that maybe we weren't expecting to come into the labor force a year ago.

And we also had a big resolution of-- the supply chain issues got a lot better over the year. And that allowed us to have good growth, but also have inflation come down at the same time. OK. So what's the outlook for the coming year? The median forecast for the coming year for this quarter through the fourth quarter of next year is 1.5% growth in real GDP.

You can see there's a range of expectations up to maybe as high as 3% and as low as 1%, but not really any expectation for a recession. And I'll note, too, that this is actually exactly the same as what the September FOMC summary of economic projections put out for 2024-- a 1.5% growth. So not sure if you all were cribbing from the FOMC or not. I'm hoping not as well. That's going to mess up my answers, too.

But you're right in line with what at least the FOMC was thinking in September. The other thing to note is that the September SEP, the median FOMC participant has long thought that longer run growth is about 1.8%. So that means that growth is coming in slightly below trend, which is one way that we can get at least a little bit more downward pressure on inflation.

OK. So let's look at the next indicator. This is the unemployment rate. One other thing I'll point out here is we just had a meeting with the entire research group. And the editor at our meeting who edits all of our work said, what is the post-pandemic? And you guys keep using the word post-pandemic in terms of talking about the current state of the economy. And I have no idea what this means.

And I guess as I was reflecting on my charts I realized, at least to me, what that means is that I don't actually have the pandemic on my slides anymore. And part of that is because it messes up the scale. You can't really see anything when you see the huge gyration. But it's also-- I think in a sense we are, I think you could argue pretty easily, in many ways, in a post-pandemic economy now. And now we're talking about forecast errors that are much smaller than they were a couple of years ago.

So let's now again look at this unemployment forecast. So here we have, really, I would call a soft landing consensus. There's really no one out of our participants who thinks that we're going to see much of an increase in the unemployment rate over the next year. And I'm guessing probably not-- if you were going to extend this out further, there would be reluctance to have it go up in 2025 either.

And so actually, again, we're right in line with what the September SCP said. And we're going to be slightly above what the FOMC thinks is the longer run rate of about 4%. Take this and this, and I think we've got a really nice forecast for 2024. A good-looking year to come if this comes true.

All right. Next indicator, inflation. So this is, of course-- we're going to be talking more. We're going to be diving into this and talking about this a lot, because you can see that in, I guess-- if I'm calling this the post-pandemic era now, it definitely wasn't post-pandemic in '21 and '22, at least in terms of inflation.

So I've got the Consumer Price Index up. That's what we asked people to forecast. We're presenting it here as a 1/4% change, seasonally adjusted annual rate again, which is not what's reported in the newspapers. That's usually the year over year percent change, so it's a little bit different. But the story is the same. We saw that inflation came down faster than expected, at least in the first two quarters of the year.

And then for the third quarter of this year, inflation came in at just a little bit above what's expected. And it looks like really what the forecast is doing is just drawing a line down to 2, where we reach to hopefully sometime in 2025, although the bottom of the forecast, we actually do have someone predicting that we will get down to the target of 2 by the end of this year. This is also in line, not surprisingly at this point, with what the FOMC thinks. The FOMC forecast-- not the CPI, but the PCE, which tends to be a little bit higher.

And so I would call a-- so over the next year, we're talking about a 2.8% CPI forecast versus a 2.5% for the PCE from the FOMC. I think those are pretty much the same. And still above 2% target, and so still some perhaps cooling that needs to happen, but definitely much closer to 2% for the coming year than we saw at the beginning of 2022, when CPI was at over 9%.

OK. Next indicator-- and I think this is my final indicator that I want to highlight. And this is the short run interest rates. And the one that we ask you to forecast is the yield on the one-year T Bill, which is not the same as the Fed Funds Rate, of course, but they track each other pretty closely.

But this one leads the Fed Funds Rate typically, a little bit. But it gives you an idea of where participants think the short run rates are going. And the answer is that there's the expectation that they're going to start to fall here in the coming year a little bit. And I [AUDIO OUT]

The idea here is that, yeah, inflation is coming down enough that the Fed can start lowering rates a little bit. And we start seeing rates fall. There's a little bit less agreement here towards the end of the forecast range. But overall, generally a pretty solid agreement that rates might be able to start falling next year if this nice, rosy forecast comes true.

One other thing I'll point out here is that the SCP and the FOMC's forecasts-- the median expected long run rate that the Fed would set rates at is sitting at 2.5%. So even as rates start to come down, we're still talking about being in tightening territory, I guess, for the forecast period.

The Fed's still putting on the brakes pretty hard here in this forecast. And definitely well above neutral. Although there's of course fuzziness, in terms of thinking about what neutral is. But definitely well above neutral, I would say-- and then also well above stimulus, too.

All right. So with that, I'm going to put up all of the indicators that were forecasted by our participants, not because I'm going to go through all these. I don't want to do that. But because I want you to have access to them when this presentation gets put on the website. But I do want to highlight two things here that I think are interesting that I haven't highlighted already, which is the interest rate sensitive parts of GDP.

I'm highlighting here the forecast for business and residential investment. And you can see that they're coming in positive, despite really high rates. And I think we're going to be talking and thinking about how high rates are affecting you all and affecting the economy today. But still the expectation that business investment is positive-- maybe coming to cooling, but positive. But on the residential side, actually, the expectation that we're going to start moving up. At least for residential investment, the recession is over.

So definitely interesting to see what's going to happen in the coming year. And again, let's hope that this rosy forecast-- or at least what I would call a slightly below trend being rosy, in my view, would be great. The last thing I want to do is talk about the forecast from participants in our monthly survey, the Chicago Fed Survey of Economic Conditions.

So we don't ask you for numbers, although actually, I just started asking for numbers for your employment change from month to month. But we definitely don't ask you for numbers on 17 indicators. We ask you for a Likert scale question on what you think is going to happen to the economy over the next 12 months.

So let me show you what the results are since 2017 for this question. We ask you, how do you expect US economic activity to change over the next year? And it's a Likert scale. It's from large decrease-- it's a 7-point scale large decrease to large increase.

And what I'm showing you here is the share of people who think that economic activity in the US is going to decrease over the next year. And many of you, about half of you, think it's going to decrease. The other half think it's either no change or increased to some extent. But half of you think it's going to decrease. And I don't know whether small decrease means recession, by the way, that maybe the NBER would judge a recession.

But it's still a decrease as opposed to an increase. And it's definitely more pessimistic than what we just saw from our forecast participants. Maybe medium decrease is a recession. And about 18% of you think that there's going to be either a medium decrease or a large decrease in economic activity over the next year.

So this is definitely a more pessimistic take, and we're actually seeing this in a lot of other indicators as well. And other indicators of business and consumer sentiment are on the pessimistic side these days. And I think we're going to touch on that more again from some of our experts coming up.

The other thing I wanted to show you, though, is that we don't just ask you about the US economic activity. We also ask you about your expected demand for your own organization's goods or services. So we ask how do you expect demand for your organization's goods or services to change over the next year? And here, you guys are a little bit less pessimistic.

So only about a third of you expect demand for the goods or services that you're selling to decrease over the coming year. And only about 8% or 9% of you think there's going to be a medium or large decrease in your own sales. And so the other thing I did on this chart is I actually put in the light blue line at the top of this chart. I pasted it onto this chart so we can compare your expectations for your own demand to expectations for the US economy.

And you can see that up until about 2022, you all were forecasting for the US economy very similarly to what you were forecasting for your own sales. But that disconnect-- we got a big disconnect starting in 2022 that's not gone away. Well, while the line has come down for the US economic activity so people are less pessimistic, you're still way more pessimistic about the US economy as a whole than demand for your own business.

And that's a question I think maybe we can talk about during the break is what's going on here? And where is this pessimism coming from? And I think we're going to get takes from some experts, but it'd also be interesting to hear from you. And the other question I have in mind is, are you making business decisions based on the black line or the blue line? And my guess is it's the blue line, but I don't know. So I'd love to hear about that, too.

All right. And with that, I'm going to do my annual advertisement to participate in our survey. So many of you do, but not all of you do. And so this is your opportunity to join the conversation on a monthly basis. You can follow this QR code here. Google puts a T. rex in the middle of it. And it'll take you to a form you can fill out where you can give me your information, and you can fill out our monthly survey and tell me what you think is going to happen to the US economy and what you think is going to happen to your demand for your firm's goods or services.

And I think you're going to hear today as well that this information isn't just for me, but it's actually for the FOMC-- the decision making process that goes on in here. The information you share in our surveys and in other types of participation does filter up to our president and filter up to the FOMC, and so we're of course very grateful for that. And the more you share, the better information we have and the better decisions we can make.

So please do fill out our survey. Well, I should say there is a little bit of criteria. You have to have employment in the 7th Federal Reserve district. So you have to have an organization with employment in the 7th Federal Reserve district to fill out the survey. I don't think I put that up here. So if that's you, then great. Please fill out the survey.

OK. And so I think we're right on time to turn it over to Austan and Leslie. As Rick mentioned, this is our 37th time doing this, but this is the first time we're doing it with Austan as our president. So I'm very delighted to have him join us today for a conversation where he gives us his take on what's going on in the economy. And with that, I'll turn it over to Leslie and Austan. Thanks, everyone.