IHS Markit U.S. Forecast Update September 2022

Sept. 11, 2022

By George W. Hammond, EBRC director and Eller research professor

Baseline forecast revised down, which pulls down risk of pessimistic scenario

IHS Markit has released their September 2022 forecast update for the U.S. The current forecast is based on the following assumptions:

A transition from pandemic to endemic continues.
The forecast includes all of the pandemic relief enacted, the Infrastructure Investment and Jobs Act, the recent Consolidated Appropriation Act of 2022, the Inflation Reduction Act, and current tax policy. It does not include the current administration’s plan to forgive a portion of student loan debt. Initial analysis suggests that the Inflation Reduction Act and student loan forgiveness will have modest impacts on headline growth and inflation.
The Fed is assumed to raise its policy rate to a range of 3.5% - 3.75% by December 2022, unchanged from the August forecast. That temporarily overshoots the terminal range of 2.5%-2.75%. The Fed’s balance sheet declines by about one third through 2024.
Tariffs and trade agreements between the U.S. and China since 2017 are assumed to continue.
Real foreign GDP contracted by 4.7% in 2020. Growth rebounded to 5.6% in 2021 and then slows to 3.1% in 2022, amidst the fallout from the Russian invasion of Ukraine.
The price of Brent crude oil rose to $113 per barrel in the second quarter of 2022, up from $80 per barrel in the fourth quarter of 2021. The price is forecast to descend gradually back to $90 per barrel in 2025 due to demand destruction (caused by higher prices), a partial resolution of the conflict in Ukraine, and increased non-Russian production.

The baseline forecast (summarized here) is assigned a 50% probability. The pessimistic scenario is assigned 35%, down from 45% last month, and the optimistic scenario is assigned the remaining 15%, up from 5% last month. This reflects in part the downward revision in the baseline forecast.

IHS Markit has revised real GDP growth in 2022 up from 1.5% in the August forecast to 1.7% currently. Growth for the second half of 2022 was revised slightly up, and growth in the first half of 2023 was revised slightly down. Growth slows to 0.9% in 2023 before rebounding modestly to 1.3% in 2024.

The forecast calls for inflation to spike in 2022 to 8.1%, down slightly from 8.2% in the August forecast. Inflation decelerates rapidly to 3.9% in 2023, as commodity and oil prices fall, supply-chain issues ease, and the unemployment rate rises.

Nonfarm payroll jobs nationally dropped by 5.8% in 2020 but rebounded in 2021 with growth of 2.8%. The forecast calls for jobs to rise by 4.0% in 2022 and 0.9% in 2023, before declining by 0.5% in 2024.

The unemployment rate peaked at 8.1% for the year in 2020 but fell to 5.4% in 2021. It is forecast to decline to 3.7% in 2022 before rebounding to 3.9% in 2023 and 4.5% in 2024 as output growth slows and immigration and labor force participation rise.

Housing starts surged in 2021 to 1.61 million units. Activity remains strong in 2022 at 1.57 million starts, before softening to 1.36 million in 2023 as interest rates take a toll on housing activity.

Exhibit 1 summarizes the September 2022 forecast from IHS Markit. Exhibit 2 shows the August projections and Exhibit 3 shows the difference.