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Authorized for public release by the FOMC Secretariat on 1/8/2021 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM DIVISION OF RESEARCH AND STATISTICS Date: March 13, 2015 To: Federal Open Market Committee From: Eric Engen and David Lebow Subject: Update to March Tealbook GDP Forecast The data that we have received since the March Tealbook forecast was closed point to somewhat faster real GDP growth in the fourth quarter of last year, and slower growth in the first quarter of this year, than we projected in the Tealbook; taken together, the revisions to the near-term projection are close to offsetting for the level of GDP. The Quarterly Services Survey (QSS), which was released on Wednesday, implies an upward revision to the BEA’s estimate of households’ consumption of health-care services in the fourth quarter.1 By contrast, the retail sales data for February, released on Thursday, were again disappointing, and sales in January were revised lower. These data now show three consecutive months of sales (in the categories used by the BEA to construct their estimates of real PCE) that are about flat in real terms. Although this string of weak readings gives us some pause, for now we are leaving our projection for PCE growth unchanged beyond the first quarter. The strong growth in consumer spending in the fourth quarter and the favorable fundamentals for spending (which include strong job gains and low gasoline prices that contribute to solid increases in real disposable incomes, and relatively upbeat consumer sentiment) suggest to us that PCE growth will pick up again in the coming months. Finally, we incorporated small revisions to inventory investment in the near term to reflect the January data on retail inventories. 1 As you will recall, health-care spending in the QSS for the first quarter of 2014 was estimated to have been exceptionally low, contributing to the anomalous-seeming decline in GDP that quarter. However, the subsequent QSS releases have shown a rebound in health-care spending such that the level of spending in 2014:Q4 is close to what we would have originally anticipated. Page 1 of 2 Authorized for public release by the FOMC Secretariat on 1/8/2021 All told, as shown in the table below, we now estimate that real GDP expanded at an annual rate of 2.4 percent in the fourth quarter, ¼ percentage point faster than our estimate in the March Tealbook. We revised down our forecast for real GDP growth in the first quarter by a little more, to an annual rate of 1.2 percent. As these revisions to GDP are small on net, they have little effect on our estimate of the output gap and no implications for our projection of the unemployment rate or the federal funds rate. Tealbook GDP projections for 2016, 2017, and the longer run are unchanged. Finally, the table below shows how these revisions translate into four-quarter changes in GDP through 2015. Page 2 of 2
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