The Federal Reserve Bank of Philadelphia's Second Quarter 2026 Survey of Professional Forecasters reveals a more pessimistic outlook for the U.S. economy than previously anticipated. Forecasters predict a 2.1% growth rate for the current quarter, unchanged from the last survey, but with a downward trend in the following quarters. The unemployment rate is expected to remain stable at 4.4% this quarter, but forecasters anticipate a slight increase to 4.5% in the first quarter of 2027. This outlook is based on an annual-average growth rate of 2.2% in 2026, a 0.3 percentage point decrease from the previous estimate.
On the employment front, job gains are expected to be slightly higher in the current quarter, but the outlook for the next three quarters is less optimistic. The annual-average level of nonfarm payroll employment is projected to be 34,600 in 2026 and 64,400 in 2027, both lower than the previous estimates.
Inflation is a key concern, with forecasters predicting higher inflation rates in 2026. The current-quarter headline CPI inflation is expected to average 6.0%, up from 2.7% in the previous survey. Core CPI inflation is also projected to be higher at 3.2%, compared to 2.8% previously. These higher inflation rates are expected to persist in 2026, with an annual-average rate of 3.5% for headline CPI and 2.9% for core CPI.
The forecasters' density projections for unemployment and real GDP growth indicate a higher risk of a contraction in the second half of 2026. The probability of a negative quarter is estimated at 17.9%, a decrease from the previous estimate of 20.9%. However, the risk of a contraction is expected to increase in the following quarters.
In summary, the survey highlights a more uncertain economic outlook, with higher inflation and a potential risk of a contraction in the second half of 2026. Forecasters' predictions suggest a need for careful economic management to navigate these challenges.
