CBO Outlook Is Partly Cloudy With Chance of Storms: The Ticker

a | A

By Paula Dwyer

The Congressional Budget Office this morning updated its projections for the U.S. budget deficit, unemployment and economic growth. It's a lot like the weather: Partly cloudy, with a chance of storms ahead. For the deficit, the CBO now estimates the red ink will total $1.3 trillion for the fiscal year ending Sept. 30, down slightly from a previous projection of $1.4 trillion.

A little better, but even so, 2011 would be the third consecutive year of deficits above the trillion-dollar mark. At 8.5 percent of GDP, the deficit would be the third-largest since 1946.

For fiscal 2012, the CBO projects a deficit of $973 billion, down from its previous forecast of $1.1 trillion.

It expects joblessness to fall to 8.9 percent in this year's fourth quarter, and to 8.5 percent by the end of 2012. But the CBO sees unemployment remaining above 8% until 2014.

The budget office updated its July forecast to reflect the policy changes enacted in the Budget Control Act, aka the debt-ceiling deal. The new outlook, however, does not reflect other developments since early July, including this month's plunging stock markets and the weakness in some economic indicators.

The CBO said it would have tempered its near-term growth forecast if it took all that into account. With that caveat, CBO projects inflation-adjusted GDP will be a still sluggish 2.3 percent this year and 2.7 percent in 2012. That forecast reflects CBO’s expectation of continued growth in business investment, modest consumer spending increases, gains in net exports (exports minus imports) and the beginning of a recovery in new-home construction.

The budget agency warned of larger deficits and greater debt if Congress extends the Bush tax cuts, indexes the alternative minimum tax for inflation, and prevents cuts to Medicare payments to physicians -- each a policy under  discussion on Capitol Hill. If all that happens, annual deficits from 2012 through 2021 would average 4.3 percent of GDP, compared with 1.8 percent in CBO’s baseline projections.

(Paula Dwyer is a member of the Bloomberg View editorial board.)

-0- Aug/24/2011 16:53 GMT