Moreover, the variation may reflect differences in the underlying epidemiological and social distancing projections used by CBO and other forecasters. The Sudden Drop in Economic Activity. 204-E Cannon House Office Building  0000023762 00000 n It is projected to rebound further to 61.5 percent in 2021. Sources: Congressional Budget Office; Wolters Kluwer, Blue Chip Economic Indicators, vol. That analysis underlies some of BEA’s advance estimates for the entire month of March. 5. After that, labor market conditions gradually stabilize and begin to improve more materially. CBO's projections of real GDP growth, the unemployment rate, interest rates, and inflation are near or within the middle two-thirds of the range of Blue Chip forecasters for 2020 and 2021. Furthermore, the number of people employed in the second quarter of 2020 will be almost 26 million …
The number of people employed in Q2–2020 will be about 26 million lower than the number in Q4–2019 and the employment-to-population ratio among people age 16 or older is expected to average 51.1 percent – a loss of almost 10 percentage points from the pre-pandemic ratio. 0000016009 00000 n Those factors are expected to more than offset the upward pressure on interest rates from greater federal borrowing. The shaded vertical bars indicate periods of recession, which extend from the peak of a business cycle to its trough. For example, the effects of business loans on economic activity depend on the number of distressed businesses and their financial viability.
In the week ending May 8, the number of active rigs drilling for oil and gas in the United States was 54 percent below its average in the fourth quarter of 2019. In the May projections, nominal GDP grows an average of zero percent from the fourth quarter of 2019 to the fourth quarter of 2021-the result of a decline in real (inflation-adjusted) GDP offset by some increase in overall prices. To estimate the effects of the pandemic, social distancing measures, and recent legislation on the labor market, CBO separately assessed the impact of recent shocks and government responses on different industries and on firms of different sizes. Interim Economic Projections for 2020 and 2021, The pandemic has disrupted the lives of millions of people. Second, health risks from the coronavirus, combined with larger unemployment benefits (which, under current law, extend into the third quarter), are expected to dampen workers’ incentives to search for a job. This report updates the two-year (2020 and 2021) preliminary economic projections that were made in April (see www.cbo.gov/publication/56335 and www.cbo.gov/publication/56314).

Additionally, about 3 million fewer people are projected to be in the labor force by the fourth quarter of next year. For the unemployment rate and interest rates, annual rates are annual averages. An additional area of uncertainty is how specific legislative actions will affect the economy—in particular, provisions that provide loans to businesses and reduce certain business taxes, expand eligibility for unemployment compensation and increase weekly benefits, and provide credit assistance to certain businesses and funding for state and local governments. Moreover, both the reduction in the number of people employed in 2020 and the persistence of high unemployment through 2021 may have a negative effect on the job prospects and earnings of younger generations that will be felt long into the future. Changes in the international exchange value of the dollar contribute to CBO’s projections of U.S. exports and imports.15 A stronger dollar reduces the competitiveness of U.S. exports in foreign markets and makes imported goods and services less costly for U.S. consumers and businesses.

0000026412 00000 n

0000004053 00000 n This report details those projections.

By the fourth quarter of 2021, CBO projects, real exports will be 1.2 percent lower than their value in the fourth quarter of 2019. The report updates and expands upon preliminary projections the agency released last month and underscores the staggering economic challenges facing our nation as we battle this pandemic. CBO expects interest rates on ten-year Treasury notes to rise modestly from 0.7 percent currently to 1.0 percent in 2021, due to the deceleration of the Federal Reserve's long-term asset purchases and in expectation of future increases in short-term interest rates. Labor Force Participation. 7.

Like CBO's estimates for 2020 and 2021, these projections are very rough and uncertain.

Sources: Congressional Budget Office; Bureau of Labor Statistics. 2020 COVID-19 REGULATORY RESPONSE TRACKER. “CBO’s report makes it clear that we are facing a severe and prolonged economic downturn and Congress must keep pushing forward to fight the pandemic, soften the blow to our economy, and stand with the American people to build a strong recovery,” said Chairman Yarmuth. The contractions resulted in part from business closures and slowdowns caused by health concerns and from a decline in demand for goods in the United States and in the countries that are its largest trading partners, including Canada, Mexico, China, Japan, and the countries of the euro zone. Between the second quarter of 2020 and the fourth quarter of 2021, CBO projects, the export-weighted value of the dollar will decrease by 11.4 percent. (That upward wage pressure is amplified by the UI expansion, which dampens incentives for some laid-off people to accept new jobs.) After falling by 1.2 percent in the first quarter of 2020, real GDP is projected to contract even more sharply—by 11.2 percent—in the second quarter (see Table 2). For example, in April the consumer price index for hotel and motel lodgings fell by more than 8 percent and the consumer price index for airline fares fell by more than 15 percent; those were the largest monthly declines in the history of their respective indexes. In response to sharply lower demand for their products, businesses will reduce their inventories, CBO projects, subtracting nearly 1 percentage point from GDP growth in 2020. Value of the Dollar. The extent of social distancing in the second quarter, however, is expected to lessen both of those effects during that period. The BLS reported that such misclassification probably led to the unemployment rate being understated by almost 5 percentage points in the April data. The Federal Reserve established a number of new facilities that are partially funded by the Treasury under the CARES Act to increase the flow of credit to businesses and to state and local governments. Although CBO’s outside advisers provided considerable assistance, they are not responsible for the contents of this report. The National Bureau of Economic Research is responsible for dating the peaks and troughs of the business cycle. Those laws resulted in a rapid and substantial increase in outlays; federal spending in April 2020 doubled relative to spending in April 2019. Wage growth is expected to remain weak in 2021, averaging 1.4 percent over the year, as slack in the labor market persists.

GDP in the fourth quarter of next year also will remain lower than it was in 2019, reducing the need for additional equipment, structures, and intellectual property. 15. In developing those projections, CBO reviewed many private-sector forecasts. Among black workers, employment declined by 18 percent.


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