The Budget and Economic Outlook: An Update
September 2008
Unless otherwise indicated, all years referred to in describing the economic outlook are calendar years; other years are federal fiscal years (which run from October 1 to September 30).
Numbers in the text and tables may not add up to totals because of rounding.
Some of the figures use shaded vertical bars to indicate periods of recession. (A recession extends from the peak of a business cycle to its trough.)
The Congressional Budget Office’s (CBO’s) economic forecast incorporates the annual revisions to the national income and product accounts (maintained by the Commerce Department’s Bureau of Economic Analysis) that were released on July 31, 2008.
Supplemental data for this analysis are available on CBO’s Web site.
Preface
This volume is one of a series of reports on the state of the budget and the economy that the Congressional Budget Office (CBO) issues each year. It satisfies the requirement of section 202(e) of the Congressional Budget Act of 1974 for CBO to submit to the Committees on the Budget periodic reports about fiscal policy and to provide baseline projections of the federal budget. In accordance with CBO’s mandate to provide impartial analysis, the report makes no recommendations.
The baseline spending projections were prepared by the staff of the agency’s Budget Analysis Division under the supervision of Peter Fontaine, Keith Fontenot, Theresa Gullo, Janet Airis, Tom Bradley, Kim Cawley, Jeffrey Holland, Sarah Jennings, Kate Massey, and Sam Papenfuss. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Thomas Woodward, Frank Sammartino, Mark Booth, and David Weiner, with assistance from the Joint Committee on Taxation. (A detailed list of contributors to the revenue and spending projections appears in Appendix D.)
The economic outlook presented in Chapter 2 was prepared by the Macroeconomic Analysis Division under the direction of Robert Dennis, Kim Kowalewski, and John F. Peterson. Robert Arnold and Christopher Williams carried out the economic forecast and projections. David Brauer, Juan Contreras, Naomi Griffin, Juann Hung, Wendy Kiska, Mark Lasky, Angelo Mascaro, Damien Moore, Ben Page, John F. Peterson, Frank Russek, David Torregrosa, and Steven Weinberg contributed to the analysis. Eric Miller and Adam Weber provided research assistance.
CBO’s Panel of Economic Advisers commented on an early version of the economic forecast underlying this report. Members of the panel are Martin Baily, Richard Berner, Jared Bernstein, Michael Boskin, Douglas W. Elmendorf, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Lawrence Katz, Allan H. Meltzer, Laurence H. Meyer, William D. Nordhaus, Rudolph G. Penner, Adam S. Posen, James Poterba, Alice Rivlin, Nouriel Roubini, Diane C. Swonk, and Stephen P. Zeldes. Jonathan Parker, Wesley Phoa, Gary Stern, and Peter Wallison attended the panel’s meeting as guests. Although CBO’s outside advisers provided considerable assistance, they are not responsible for the contents of this report.
Jeffrey Holland wrote the summary. Christi Hawley Anthony, with assistance from Barbara Edwards and Pamela Greene, wrote Chapter 1 (David Newman compiled Box 1-1). Naomi Griffin, with assistance from Kim Kowalewski, authored Chapter 2. Amber Marcellino, along with Mark Booth, wrote Appendix A. Eric Schatten, with assistance from Pamela Greene, wrote Appendix B. Eric Miller and Adam Weber compiled Appendix C.
Christine Bogusz, Leah Mazade, and John Skeen edited the report. Marion Curry, Denise Jordan-Williams, and Linda Lewis Harris assisted in its preparation. Maureen Costantino designed the cover and prepared the report for publication. Lenny Skutnik printed the initial copies, and Linda Schimmel handled the distribution. Simone Thomas prepared the electronic version for CBO’s Web site.
Contents
Baseline Budget Projections for 2009 Through 2018
Budget Projections Under Alternative Scenarios
Net Exports and the Federal Government’s Support of Growth
Spending by Households, Businesses, and State and Local Governments
CBO’s Economic Projections Through 2018
Changes in the Outlook Since February 2008
How CBO’s Forecast Compares with Those of Other Forecasters
Changes in CBO’s Baseline Since March 2008
A Comparison of CBO’s and OMB’s Baselines
CBO’s Economic Projections for 2008 to 2018
Contributors to the Revenue and Spending Projections
S-1. CBO’s Baseline Budget Outlook
S-2. CBO’s Economic Projections for Calendar Years 2008 to 2018
1-1. Projected Deficits and Surpluses in CBO’s Baseline
1-3. CBO’s Baseline Budget Projections
1-4. CBO’s Baseline Projections of Mandatory Spending
1-5. CBO’s Baseline Projections of Discretionary Spending
1-7. CBO’s Baseline Projections of Federal Interest Outlays and Debt
1-8. The Budgetary Effects of Selected Policy Alternatives Not Included in CBO’s Baseline
2-1. CBO’s Economic Projections for Calendar Years 2008 to 2018
2-2. Key Assumptions in CBO’s Projection of Potential Output
2-3. CBO’s Current and Previous Economic Projections for Calendar Years 2008 to 2018
A-1. Changes in CBO’s Baseline Projections of the Deficit or Surplus Since March 2008
B-1. Comparison of CBO’s September 2008 Baseline and OMB’s July 2008 Current-Services Baseline
C-1. CBO’s Year-by-Year Forecast and Projections for Calendar Years 2008 to 2018
C-2. CBO’s Year-by-Year Forecast and Projections for Fiscal Years 2008 to 2018
S-1. Total Revenues and Outlays as a Percentage of Gross Domestic Product, 1968 to 2018
1-1. The Total Deficit or Surplus
1-2. Discretionary Budget Authority
2-3. Interest Rates on Mortgage Loans
2-4. Spread on Three-Month Libor and Expected Federal Funds Rates
2-5. Tightening of Standards for Business Loans from Commercial Banks
2-6. Spreads on Corporate Bonds
2-7. Inflation-Adjusted Price of Crude Oil
2-8. Prices of Three Major Agricultural Commodities
2-9. Total Nonfarm Payroll Employment
2-10. Index of Consumer Expectations
2-14. Nonfarm Business Employment as a Percentage of the Labor Force
2-15. Total Labor Income and Wages and Salaries
2-1. Initiatives to Support Struggling Homeowners
2-2. Forecasting Crude Oil Prices
B-1. Conceptual Differences Between CBO’s and OMB’s Baselines
