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.

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).