CBO’s Assessment of the Economic Outlook
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Presentation by Wendy Edelberg, an Associate Director for Economic Analysis at CBO, at the Seminar on Forecasting at George Washington University. Under current law, CBO projects that economic activity will expand at a modest pace this year and then grow more slowly in subsequent years.
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CBO’s Assessment of the Economic Outlook
- 1. Congressional Budget Office CBO’s Assessment of the Economic Outlook Seminar on Forecasting George Washington University September 22, 2016 Wendy Edelberg Associate Director for Economic Analysis
- 2. 1CONGRESSIONAL BUDGET OFFICE Under current law, CBO projects that economic activity will expand at a modest pace this year and then grow more slowly in subsequent years.
- 3. 2CONGRESSIONAL BUDGET OFFICE Growth of Real GDP Percent
- 4. 3CONGRESSIONAL BUDGET OFFICE Projected Contributions to the Growth of Real GDP
- 5. 4CONGRESSIONAL BUDGET OFFICE Factors Underlying the Projected Contributions to the Growth of Real GDP
- 6. 5CONGRESSIONAL BUDGET OFFICE Factors Underlying the Projected Contributions to the Growth of Real GDP (Continued)
- 7. 6CONGRESSIONAL BUDGET OFFICE As the slack in the economy lessens over the next two years, slack in the labor market will also dissipate, CBO estimates.
- 8. 7CONGRESSIONAL BUDGET OFFICE Unemployment Rates Percent
- 9. 8CONGRESSIONAL BUDGET OFFICE The Employment Shortfall Millions of People
- 10. 9CONGRESSIONAL BUDGET OFFICE The Labor Force, Employment, and Unemployment Percentage of the Population
- 11. 10CONGRESSIONAL BUDGET OFFICE Labor Force Participation Rates Percent
- 12. 11CONGRESSIONAL BUDGET OFFICE Hourly Labor Compensation Percentage Change
- 13. 12CONGRESSIONAL BUDGET OFFICE Over the next two years, reduced slack in the economy—as evidenced by the narrowing gap between GDP and potential GDP— will put upward pressure on inflation and interest rates.
- 14. 13CONGRESSIONAL BUDGET OFFICE GDP and Potential GDP Trillions of 2009 Dollars
- 15. 14CONGRESSIONAL BUDGET OFFICE Inflation Percentage Change in Prices
- 16. 15CONGRESSIONAL BUDGET OFFICE Interest Rates Percent
- 17. 16CONGRESSIONAL BUDGET OFFICE Economic forecasts over the next 10 years are subject to considerable uncertainty.
- 18. 17CONGRESSIONAL BUDGET OFFICE The Uncertainty of CBO’s Projection of Real GDP Trillions of 2009 Dollars
- 19. 18CONGRESSIONAL BUDGET OFFICE Comparison of Economic Projections by CBO and Blue Chip Forecasters Percent
- 20. 19CONGRESSIONAL BUDGET OFFICE Comparison of Economic Projections by CBO and Federal Reserve Officials Percent
- 21. 20CONGRESSIONAL BUDGET OFFICE In July 2016, CBO released its annual Long-Term Budget Outlook, describing the agency’s projections of the federal budget and the economy over the next 30 years. Those projections are subject to significant uncertainty.
- 22. 21CONGRESSIONAL BUDGET OFFICE Output per Person and Debt Under CBO’s Extended Baseline 0 50 60 70 80 90 Real Gross National Product per Person Thousands of 2016 Dollars, by Calendar Year Federal Debt Held by the Public Percentage of Gross Domestic Product, by Fiscal Year 2016 2021 2026 2031 2036 2041 2046 0 50 100 150 200 86 141
- 23. 22CONGRESSIONAL BUDGET OFFICE The 30-Year Averages CBO Used to Illustrate Uncertainty in Long-Term Budget Projections Percent 0 55 60 65 70 59 61 57 Labor Force Participation Rate 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033 2038 2043 -1 0 1 2 3 4 5 Final Year of the 30-Year Average Productivity Growth Rate 1.3 1.8 0.8 Extended Baseline Extended Baseline Actual Projected
- 24. 23CONGRESSIONAL BUDGET OFFICE The 30-Year Averages CBO Used to Illustrate Uncertainty in Long-Term Budget Projections (Continued) -1 0 1 2 3 4 5 1.9 3.1 0.8 Real 10-Year Interest Rate 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033 2038 2043 -1 0 1 2 3 4 5 Final Year of the 30-Year Average Excess Cost Growth Rate for Federal Spending on Medicare and Medicaid 0.9 1.9 -0.1 Extended Baseline Extended Baseline Actual Projected Percent
- 25. 24CONGRESSIONAL BUDGET OFFICE Federal Debt Given Different Labor Force Participation Rates Percentage of Gross Domestic Product 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 0 50 100 150 200 Actual Projected Extended Baseline Given a Higher Rate Given a Lower Rate 141 144 137
- 26. 25CONGRESSIONAL BUDGET OFFICE Federal Debt Given Different Productivity Growth Rates Percentage of Gross Domestic Product 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 0 50 100 150 200 Actual Projected Extended Baseline Given a Higher Rate Given a Lower Rate 141 173 112
- 27. 26CONGRESSIONAL BUDGET OFFICE Federal Debt Given Different Federal Borrowing Rates Percentage of Gross Domestic Product 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 0 50 100 150 200 Actual Projected Extended Baseline Given a Lower Rate Given a Higher Rate 141 188 108
- 28. 27CONGRESSIONAL BUDGET OFFICE Federal Debt Given Different Rates of Excess Cost Growth for Federal Spending on Medicare and Medicaid Percentage of Gross Domestic Product 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 0 50 100 150 200 Actual Projected Extended Baseline Given a Lower Rate Given a Higher Rate 141 192 103
- 29. 28CONGRESSIONAL BUDGET OFFICE Federal Debt Given DifferentLabor Force Participation Rates, Productivity Growth Rates, Federal Borrowing Rates, and Rates of Excess Cost Growth for Federal Spending on Medicare and Medicaid Percentage of Gross Domestic Product 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 0 50 100 150 200 Actual Projected Extended Baseline Given Rates That Lower Projected Deficits Given Rates That Raise Projected Deficits 141 196 93
- 30. 29CONGRESSIONAL BUDGET OFFICE Sources Congressional Budget Office, The 2016 Long-Term Budget Outlook (July 2016), www.cbo.gov/publication/51580. Congressional Budget Office, An Update to the Budget and Economic Outlook: 2016 to 2026 (September 2016), www.cbo.gov/publication/51908). Slide 19: Congressional Budget Office; Wolters Kluwer, Blue Chip Economic Indicators (August 10, 2016). Slide 20: Congressional Budget Office; Board of Governors of the Federal Reserve System, “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2016” (June 15, 2016), http://go.usa.gov/xTWAW (PDF, 165 KB).