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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
1 CO N G R ES S I ON AL B U D G E T O F F I C E
Under current law, CBO projects that economic activity will expand at a modest pace this year and then grow more slowly in subsequent years.
2 CO N G R ES S I ON AL B U D G E T O F F I C E
Growth of Real GDP
Percent
3 CO N G R ES S I ON AL B U D G E T O F F I C E
Projected Contributions to the Growth of Real GDP
4 CO N G R ES S I ON AL B U D G E T O F F I C E
Factors Underlying the Projected Contributions to the Growth of Real GDP
5 CO N G R ES S I ON AL B U D G E T O F F I C E
Factors Underlying the Projected Contributions to the Growth of Real GDP (Continued)
6 CO N G R ES S I ON AL B U D G E T O F F I C E
As the slack in the economy lessens over the next two years, slack in the labor market will also dissipate, CBO estimates.
7 CO N G R ES S I ON AL B U D G E T O F F I C E
Unemployment Rates
Percent
8 CO N G R ES S I ON AL B U D G E T O F F I C E
The Employment Shortfall
Millions of People
9 CO N G R ES S I ON AL B U D G E T O F F I C E
The Labor Force, Employment, and Unemployment
Percentage of the Population
10 CO N G R ES S I ON AL B U D G E T O F F I C E
Labor Force Participation Rates
Percent
11 CO N G R ES S I ON AL B U D G E T O F F I C E
Hourly Labor Compensation
Percentage Change
12 CO N G R ES S I ON AL B U D G E T O F F I C E
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.
13 CO N G R ES S I ON AL B U D G E T O F F I C E
GDP and Potential GDP
Trillions of 2009 Dollars
14 CO N G R ES S I ON AL B U D G E T O F F I C E
Inflation
Percentage Change in Prices
15 CO N G R ES S I ON AL B U D G E T O F F I C E
Interest Rates Percent
16 CO N G R ES S I ON AL B U D G E T O F F I C E
Economic forecasts over the next 10 years are subject to considerable uncertainty.
17 CO N G R ES S I ON AL B U D G E T O F F I C E
The Uncertainty of CBO’s Projection of Real GDP
Trillions of 2009 Dollars
18 CO N G R ES S I ON AL B U D G E T O F F I C E
Comparison of Economic Projections by CBO and Blue Chip Forecasters Percent
19 CO N G R ES S I ON AL B U D G E T O F F I C E
Comparison of Economic Projections by CBO and Federal Reserve Officials Percent
20 CO N G R ES S I ON AL B U D G E T O F F I C E
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.
21 CO N G R ES S I ON AL B U D G E T O F F I C E
Output per Person and Debt Under CBO’s Extended Baseline
050
60
70
80
90
Real Gross National Product per PersonThousands of 2016 Dollars, by Calendar Year
Federal Debt Held by the PublicPercentage of Gross Domestic Product, by Fiscal Year
2016 2021 2026 2031 2036 2041 20460
50
100
150
200
86
141
22 CO N G R ES S I ON AL B U D G E T O F F I C E
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
1.31.8
0.8
Extended Baseline
Extended Baseline
Actual Projected
23 CO N G R ES S I ON AL B U D G E T O F F I C E
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
24 CO N G R ES S I ON AL B U D G E T O F F I C E
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
25 CO N G R ES S I ON AL B U D G E T O F F I C E
Federal Debt Given Different Productivity Growth Rates
Percentage of Gross Domestic Product
2000 2005 2010 2015 2020 2025 2030 2035 2040 20450
50
100
150
200Actual Projected
Extended Baseline
Given a Higher Rate
Given a Lower Rate
141
173
112
26 CO N G R ES S I ON AL B U D G E T O F F I C E
Federal Debt Given Different Federal Borrowing Rates
Percentage of Gross Domestic Product
2000 2005 2010 2015 2020 2025 2030 2035 2040 20450
50
100
150
200Actual Projected
Extended Baseline
Given a Lower Rate
Given a Higher Rate
141
188
108
27 CO N G R ES S I ON AL B U D G E T O F F I C E
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
28 CO N G R ES S I ON AL B U D G E T O F F I C E
Federal Debt Given Different Labor 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 20450
50
100
150
200Actual Projected
Extended Baseline
Given Rates That LowerProjected Deficits
Given Rates That RaiseProjected Deficits
141
196
93
29 CO N G R ES S I ON AL B U D G E T O F F I C E
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).
