The nation’s unemployment rate will remain stubbornly higher for the next decade than it was before the pandemic, while economic output will be depressed for years under current tax and spending policy, the Congressional Budget Office said on Thursday.
The economic outlook for the next 10 years has “deteriorated significantly” since the independent budget agency issued its last complete set of projections in January, CBO noted. That illustrates the devastating effects of the pandemic and underscores the reality of a slower economic recovery than the “rocket ship” rebound predicted by President Donald Trump.
CBO assumes that if federal taxes and spending remain in place, the economy will grow rapidly in the third quarter of this year. But compared to earlier estimates, real GDP will be 3.4 percent lower, on average, for the next decade. The annual unemployment rate, which was projected to average 4.2 percent, is now projected to average 6.1 percent during the same period.
The calculations do not take into account any changes that could occur with the passage of an additional emergency relief bill that Congress is expected to take up prior to the August recess.
The four laws enacted by Congress in response to the outbreak and economic downturn will “partially mitigate the deterioration in economic conditions and help spur the recovery,” CBO said.
“Low-income families have borne the brunt of the economic crisis, partly because the hardest-hit industries employ low-wage workers,” the agency said. “African American, Hispanic, and female workers have been hit particularly hard, in part because they make up a disproportionate share of the workforce in certain industries with jobs that involve elevated risks of exposure to the coronavirus.“
While the estimates follow a positive jobs report for June, several states that rushed to restart their economies in recent weeks are experiencing huge spikes in infection rates, prompting some governors to roll back their reopening plans.
CBO cautioned that the numbers “are subject to an unusually high degree of uncertainty, which stems from many sources, including incomplete knowledge about how the pandemic will unfold, how effective monetary and fiscal policy will be, and how global financial markets will respond to the substantial increases in public deficits and debt.“
The agency’s 10-year outlook provides estimates that the Trump administration decided to scrap this summer. On Wednesday, the White House quietly published its mid-session review of federal spending, forgoing the updated economic projections that have usually been included by administrations for the last several decades.
“Any such estimates would be entirely speculative, given the range of uncertainty underlying potential future paths of economic growth,” the review said.
But the lack of data has earned backlash from fiscal hawks.
“In the midst of a national public health and economic crisis, full and transparent budget projections are more important than ever,” said Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for awareness of the nation’s long-term fiscal health.
“The Mid-Session Review traditionally offers critically important insights for lawmakers and the public, taking into account the state of America’s economy and our fiscal condition,” he said. “Unfortunately, this report excludes a lot of this valuable information, which represents a lost opportunity to help guide vital decisions about our nation’s future.”
CBO Director Phillip Swagel has already warned that the economic downturn sparked by the global coronavirus outbreak will be much tougher to fix than the 2008 financial crisis.
“It’s more challenging for policymakers to support the economy given the depth and breadth of this pandemic,” he said last month at a virtual forum hosted by the Peterson Foundation.
And in a recent letter to House Speaker Nancy Pelosi, Swagel cautioned that any boost in economic activity will be “tempered” as long as some social distancing continues.
In April, CBO predicted that the federal response to the coronavirus pandemic will explode to nearly $4 trillion this year. Federal debt held by the public will be 101 percent of gross domestic product by the end of the fiscal year.