The National Association of Business Economics has been doing it’s survey of members who are professional forecasters for 60 years. Dozens of questions are asked and answered 42 by the economists who participate.
It’s safe to bet that the repondents never had to do it in the midst of a government shutdown. Or at time when deportations and recent tight border closures were widely believed to have brought payrolls growth to a crawl. And probably not when tariffs were hanging over consumers’ and businesses’ heads and threatening to boost inflation that has already been nearly five years above its 2% target and therefore may push prices even higher at least temporarily in coming months.
Yelena Malayev is NABE Outlook Survey Chair Yelena Maleyev, CBE, senior economist, KPMG. She confirms it was slim pickins’ when it came to government data but they got the last survey of 2025 done.
”So, the last economic data points that we actually received between this survey and the prior survey that we conducted was really just second quarter GDP, PCE inflation, and personal consumption data, and then a few smaller, indicators as well,“ she explains.
“And so, we didn’t really have a lot to work with, but we did have the private sector data that did come during this time. And then, of course, the government officially reopened November 12th, the day after we finished collection.”
What did they find and what does it mean for the Federal Reserve as 2025 ends and 2026 is just around the corner? Inflation that is expected to be slighter weaker than it was in the October survey, though a bit higher next year. And more concern about
weakness in the labor market even as GDP and consumer spending remain healthy.
”Panelists marked up their third and fourth quarter GDP figures to end the year at a 2% growth rate, which is higher than we had last time the survey was conducted. But, this was driven by growth in the consumer as well as some investment, but at the same time, third and fourth quarter inflation was marked slightly lower,” Yelena says. “So this kind of expectation for stronger consumption and stronger investment did not translate to stronger inflation.”
Cutting to the Federal Reserve monetary policy path, she sums it up. “Essentially panelists moved up an extra rate cut, so instead of having 75 basis points next year and 50 this year, they have flipped that to 75 this year and 50 next year, with that inflation coming down a little bit this year, and not as fast for next year. So it’s a little bit of a flattening, if you will, in the curve.”
So dive in and hear what this NABE Survey Committee Chair has to say as she plows deftly through many facts, numbers and details from the report. And if you want to know even more I have included the link to the survey below.
https://www.nabe.com/NABE/NABE/Surveys/Surveys.aspx
https://www.nabe.com/NABE/NABE/Surveys/Surveys.aspx
NABE Survey: History and perspective 00:01:31.100
The survey consists of 42 professional forecasters responding on a quarterly basis, and as you mentioned, for 60 years now. This particular survey that we’re going to be discussing was conducted from November 3rd to 11th, so as our viewers can recall, there was a government shutdown during that time. We weren’t receiving any economic data. So, the last economic data points that we actually received between this survey and the prior survey that we conducted was really just second quarter GDP, PCE inflation, and personal consumption, data, and then a few smaller, indicators as well. And so, we didn’t really have a lot to work with, but we did have the private sector data that did come during this time. And then, of course, the government officially reopened November sa12th, the day after we finished collection.
Experienced forecasters help 00:02:35.220
Exactly, because forecasting, any sort of analysis during a time of high uncertainty is a lot more of an art than a science. So, of course, the fact that we have these professional forecasters that have been doing this for a very long time, really elevates, the forecasts and our ability to kind of see through times of, missing data or delayed data.
Inflation: lower then higher 00:03:27.210
Yeah, so, the forecast for inflation for next year was marked up slightly, to that 2.6%, but however, inflation for the end of this year, which is when we do expect that extra rate cut in the… from the panel, that was actually a little bit flatter, a little bit lower than expected in the October results. So, with that expectation that inflation wasn’t going to be as hot as the last survey showed,
Rate cut timing switches between 2025 & 2026 00:03:52.050
Essentially, panelists moved up an extra rate cut, so instead of having 75 basis points next year and 50 this year, they have flipped that to 75 this year and 50 next year, with that inflation coming down a little bit this year, and not as fast for next year. So it’s a little bit of a flattening, if you will, in the curve.
End 2025 stronger growth but not stronger inflation 00:04:44.780
Right, so what was really interesting about this survey, as I mentioned, we did not receive Q3 GDP when we were supposed to, when this was conducted. Panelists marked up their third and fourth quarter GDP figures to end the year at 2% growth rate, which is higher than we had last time the survey was conducted. But, this was driven by growth in the consumer as well as some investment, but at the same time, third and fourth quarter inflation was marked slightly lower. So this kind of expectation for stronger consumption and stronger investment did not translate to stronger inflation. Which was very fascinating in the results.
Growth outlook still solid 00:05:18.570
And then, of course, for next year, that inflation then comes a bit later into the end of next year. So, GDP 2% year-on-year. still a fairly strong economy, of course, driven by the consumer, driven by investment. Is that sustainable? Of course, the next year’s GDP number shows to be 1.8, according to the panelists, so not quite 2, but…clearly not a recession in the expectations of the median forecast. However, I think the concerns are more around the labor market and the break-even jobs numbers, and therefore panelists decide to kind of switch the Fed cut to December rather than sometime next year.
Breakeven job growth (steady U-rate) is 25K to 50K 00:06:40.430
Right, and we’re going to see this ongoing dissent from the Federal Reserve future meetings, simply because there are the kind of the two camps, right, the ones that are more worried about inflation versus the ones that are more worried about the labor market. In this survey, we specifically asked the special question we’ve been asking for a little while now, what is the break-even rate of monthly payrolls that will keep the unemployment rate steady? So, this survey, we actually have The majority of panelists, about 45%, believe that it’s between 25,000 and 50,000.
Q4 job expectations 00:07:10.990
And so, of course, we have a delay. We just finally got the September numbers. We do have a delay for October, maybe even November, coming from the BLS, so the Fed’s not going to have those numbers in time for their meeting in December. But it’s really interesting that the panelists revised also their expectations higher for 50,000 to 75,000. So there seems to be, as long as, majority of panelists are kind of below that 100,000 payroll, threshold, which is very, very interesting. And then, of course, the actual forecast for payrolls for fourth quarter is 23,000 monthly average, so significantly below, what many believe.
Upside ‘risk’ from productivity; skewed overall to the downside 00:08:39.700
It does seem to be that the baseline forecast that we heard from the panelists does perhaps downplay that, but we did ask another question, we’ve been asking for a long time, which is, what is the greatest upside risk to the U.S. economy, considering occurrence and, potential impact? And continuously, panelists seem to be responding with stronger productivity growth. So, if, forecasts are marked higher, a lot of that could come from the stronger productivity growth that does usually stem from this investment, especially in AI technology, labor-enhancing kind of productivity. However, a majority of the panelists still believe that the risks are balanced to the downside. So the downside risks do still seem to have a lot larger weight in panelists’ forecasts than this upside productivity surprise.
Stimulative Fed policy NEXT YEAR 00:10:35.390
Well, I think on the monetary side of things, they do not see Federal Reserve policy to be stimulative next year, so even with an expectation of one more cut this year and two more next year, panelists do believe that the neutral Fed funds rate, majority of panelists believe it is at 3%, so that does leave us slightly above what neutral is, which could be considered still in the restrictive territory. So it’s not that monetary policy will become stimulative all of a sudden. On the fiscal impulse side, we didn’t have any special questions on that, unfortunately, but when it comes to just general inflation expectations from things like tariffs, panelists did seem to mark down their expectations of the impact of tariffs on inflation. They still, on net, believe tariffs will be slightly inflationary.
Tariffs are a two-edged sword for policy 00:11:25.030
Yelena Maleyev, CBE: One of the special questions was, what is the cumulative impact of tariffs on personal consumption expenditures by next year… by the end of next year, and majority of panelists believe it’s about a quarter to a half of a percentage point cumulative impact. But they also expect that these tariffs and price pressures will also have a downward impact on growth, which is the same kind of conversation Federal Reserve officials are having, right? Which is going to be the more important signal? Still high inflation or slowing growth?
Tariffs will raise prices 00:11:49.940
Panelists do believe that, cumulative impact of tariffs by year-end 2026 will have a downward impact of about also a quarter to a half of a percentage point. So, it’s just a matter of, you know, these expectations coming true or not, but the Federal Reserve policy is not expected to be stimulative.
Tariffs seen as damaging exports 00:12:44.830
Yelena Maleyev, CBE: Yeah, the most detailed we have is really just the expectation of growth of exports compared to the growth of imports, and it’s just that the growth in exports is slower than the growth in imports, hence… increasing the trade deficit slightly. But of course, as we get more announcements about tariffs, we could add newer questions to make sure we understand, kind of, the implications of some of these new trade and tariff policies, but for the time being, it really does seem to hit more on the export side than the slowing the imports.
Long term rate projections little-changed 00:13:57.010
Correct, yeah, and we do have a question about fiscal deficits, so they will remain growing fiscal year over fiscal year, and that does push up longer-term yields, of course. That’s the most detail that we’ll get on, you know, kind of expectations for the government budget, but of course, I think with all of the concerns about demographics. CBE: And, Federal Reserve policy, and again, as I mentioned, the risks do remain to the downside for the overall economy rather than the upside. I believe that the panelists were kind of keeping that in mind when responding to this, but as you mentioned, the expectations for the 10-year were very little changed from the last survey, so obviously there’s a lot of uncertainty, around, especially the long end of the yield curve.
Comparing the media expectation to the five highest and lowest 00:15:15.130
You can see, not just the sample median, but also the five lowest and the 5 highest, to kind of compare ranges. So, for example, the federal funds rate by the end of this year, the sample median and the lowest were about the same, expected one more rate cut, and then the five highest actually expected no more rate cuts, which was interesting. But then when you look at the end of next year. The 5 lowest expected, 2% Fed funds rate, so that is stimulative, rather than the 5 highest, which expected maybe one more rate cut. So, why dispersion and expectations for what the Fed is going to do? Same goes for the labor market. We have a huge dispersion in what people think, employment, average monthly payroll change will be. So, some folks, by the end of this year, expect payrolls <monthly payroll growth> to turn negative; at negative 77,000, others expect it to be near 100,000 at the 5 highest. And then for next year, the dispersion is just as wide. We have nearly zero, about 18,000 payroll growth per month by the end of next year, compared to 145,000. And unfortunately, we cannot map which payroll matches which Fed Funds expectation, but that does give you a good idea of just how widely dispersed some of these views and forecasts are.
Forecasts are model-driven and judgmental mixed together 00:17:23.359
Yeah, we do try to suss out some of that by asking those special questions, like, what do you think the neutral Fed funds rate is? Majority of panelists do think it’s 3%, similar to some folks at the Fed. We do ask when they think the Federal Reserve will hit this neutral rate, which the majority believe is in the second half of next year. So we do try to get some of the art part of forecasting in these special questions. But unfortunately, you know, when folks mark down their baseline forecasts, they’re not telling us how much of it is based on a model versus their own lived experience or anecdotal insights. But that’s what makes it so great to ask these professional forecasters, because they do have so much experience and so much knowledge that, you know, is in the wisdom of crowds, especially with this group, definitely.
Yelena: my-team’s outlook is… 00:18:41.460
Our team does expect another rate cut this year, a 25 basis point cut in December. Now, a lot of that is, still a concern… whether that will happen is still a concern, simply because we don’t have enough data, yet for the third quarter, simply because of the government shutdown and legs, and how long some of these data get released. But of course, we do have a lot of more dovish signals from Federal Reserve officials in recent weeks. We do think that policy is still in restrictive territory, and concerns about the labor market are, of course, becoming louder and louder. Therefore, we do still have one more rate cut for this year in our forecast.
For details from the NABE forecast 00:19:35.390
Go to NABE.com, it’s right on the front page. We have a webinar, accommodating that, Outlook release as well, and so there’s many ways to kind of get informed about the latest survey.
