Economists are overwhelmingly optimistic about job prospects for this year’s class of college graduates, though the experts have grown less hopeful about hiring in general, according to the Bankrate Economic Indicator survey.
Our second-quarter poll of more than two dozen leading private economists also finds that while forecasters believe it’s very likely the Federal Reserve will raise interest rates this fall, the notion that the Fed could wait until 2016 is becoming more popular. A delay would not be welcomed by savers eager for better yields, but it could be good for borrowers concerned about rising costs.
The survey is generally positive. Unemployment is expected to keep falling, and panel members say rising interest rates will have the silver lining of encouraging more people to buy homes, at least initially.
On the downside, tight credit is identified as the key reason why the housing market isn’t doing better.
What we found
The job market: The experts expect the unemployment rate to fall to 5 percent one year from now, compared with April’s rate of 5.4 percent. Predictions ranged from 4.7 to 5.7 percent. As for the pace of hiring, the economists look for slightly less than what they thought previously. The average of the forecasts is for monthly job gains of 219,000 one year from now, compared with an average forecast of 236,000 in our first-quarter survey.
Outlook for new college grads: Here, the news is quite upbeat. Eighty-eight percent of the economists surveyed see a better employment outlook for the graduating class of 2015, compared with past years. Another 8 percent say it is unchanged, while just 4 percent say the job market is worse for grads this year. Still, graduates “should scale back their expectations for their first paychecks,” notes Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego.
Economic growth: After a weak start to the year, the economists have become slightly more pessimistic about growth. On average, they expect the gross domestic product to grow over the next 12 months at an annual rate of 2.77 percent, compared with nearly 2.9 percent in our first-quarter survey. The range among the respondents was 1.8-3.3 percent. “I expect GDP growth to accelerate from the current slow pace, but it likely won’t reach the 3 percent-plus levels that prevailed before the Great Recession,” says Alan MacEachin, corporate economist for Navy Federal Credit Union.
Federal Reserve: Look for a rate hike coming in the third quarter of this year, according to a majority of the economists. Many think it will happen in September. At the same time, a growing number of respondents think the Fed could wait until 2016 to pull the trigger: 24 percent believe that now, compared with just 16 percent in our first-quarter survey.
Where rates top out: When we asked where the Fed’s federal funds rate will eventually peak in the upcoming rate-raising cycle, some 64 percent of the experts said it will top out between 3 and 4 percent. But responses ranged from a low of 1 percent to a high of 5 percent. Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida’s College of Business Administration, sees the top in the mid-3 percent area. “The magnitude and timing of federal funds rate hikes will be measured and drawn out, thus longer rates will rise gradually,” he says.
Bond market: On average, the economists see the 10-year Treasury yielding 2.78 percent a year from now. That’s up from 2.67 percent in our first-quarter survey. Responses in the current survey had the 10-year ranging anywhere from 2 to 3.7 percent 12 months from now.
The housing market: When the economists were asked why the housing market is relatively weak, the most common reason — cited by 32 percent — was tight credit. Brown University’s David Wyss sees other issues. “The demographics aren’t supporting the sale of the large suburban houses that are on the market, and older households are afraid of buying second homes or retirement properties,” he says.
We also wondered what impact Federal Reserve rate hikes would have on the housing market. Slightly more than half of the economists believe the effect will be to get buyers off the fence. But 24 percent fear higher rates will lead to a housing slowdown. Four percent say both scenarios will happen: Buyers will react positively at first before the market slows.
What it all means for you
How should you use the results of Bankrate’s survey? Here’s advice from Greg McBride, CFA, chief financial analyst at Bankrate.com:
- Yes, the timetable for the initial Fed hike has been pushed back, but it is coming. Longer-term interest rates also are expected to move higher over the next year. Refinance your mortgage sooner rather than later, and grab the zero percent credit card offers while you still can.
- After that first increase, the Fed is expected to continue raising interest rates above 3 percent, so unload adjustable-rate mortgages now, or consider paying down the balance to minimize the payment shock. Otherwise, significant payment increases can sneak up on you.
- Savers will ultimately benefit from Fed rate hikes, but it won’t happen right away. The Fed wants inflation at 2 percent, and it’ll take a while before returns on savings accounts and short-term CDs get there.
The second-quarter 2015 Bankrate Economic Indicator survey of economists was conducted online May 4-14. Survey requests were emailed to more than 50 economists nationwide, and responses were submitted voluntarily via a website. Responding were: Dean Baker, co-director, Center for Economic and Policy Research; Scott Brown, chief economist, Raymond James; Robert Brusca, chief economist, FAO Economics; Joseph Brusuelas, chief economist, McGladrey; John Canally Jr., CFA, chief economic strategist, LPL Financial; David Crowe, chief economist, National Association of Home Builders; Michael Fratantoni, chief economist, Mortgage Bankers Association; Seth Harris, former deputy and acting U.S. secretary of labor; distinguished scholar, Cornell University School of Industrial & Labor Relations, and counsel at Dentons; Stuart Hoffman, chief economist, PNC Financial Services Group; Robert Johnson, director of economic analysis, Morningstar; Alan MacEachin, corporate economist, Navy Federal Credit Union; Daniil Manaenkov, assistant research scientist, University of Michigan Research Seminar in Quantitative Economics; Bernard Markstein, president and chief economist, Markstein Advisors; Joel Naroff, president, Naroff Economic Advisors; David Nice, economist, Mesirow Financial; Jim O’Sullivan, chief U.S. economist, High Frequency Economics; Lindsey Piegza, chief economist, Sterne Agee; Lynn Reaser, chief economist, Point Loma Nazarene University; Jeffrey Rosen, chief economist, Briefing.com; John Silvia, chief economist, Wells Fargo; Sean Snaith, director, University of Central Florida Institute for Economic Competitiveness; Phillip Swagel, professor of international economic policy, University of Maryland School of Public Policy; David Wyss, adjunct professor of economics, Brown University; Lawrence Yun, chief economist, National Association of Realtors; Mark Zandi, chief economist, Moody’s Analytics.