The Congressional Budget Office (CBO) said this week that the U.S. economy is poised for real GDP growth at an annualized rate of 12.4 percent in the second half of 2020, with unemployment to peak in the third quarter before falling rapidly through this year and next.
Released on July 2, the CBO’s ‘Update to the Economic Outlook: 2020 to 2030’ (pdf) represents the baseline figures that the office uses to update its budgetary projections for the period 2020 to 2030, and is its first complete set of projections since January. The update incorporates relevant data available up to June 26.
CBO projects that from 2020 to 2030, annual real GDP will be 3.4 percent lower, on average, than it projected in January. The annual unemployment rate, which was projected to average 4.2 percent, is now projected to average 6.1 percent. Read more: https://t.co/h4nTBj7e4S pic.twitter.com/ZwwrUWSVoJ
— U.S. CBO (@USCBO) July 2, 2020
According to the CBO, the CCP (Chinese Communist Party) virus crisis and, in particular, the associated social distancing measures resulted in the demise of the longest economic expansion since World War II—while also triggering “the deepest downturn in output and employment” since that time.
Economy Poised for GDP Expansion
If current federal taxation policies and spending remain on course, the CBO projects that the U.S. economy will experience rapid growth in the third quarter of this year.
Adjusted for inflation, the CBO expects real GDP—a reliable measure of U.S. economic output—to grow at an annualized rate of 12.4 percent in the third and fourth quarters of 2020, recovering the level it had before the CCP virus pandemic as early as mid-2022. After that time, GDP should continue to grow through 2024, though at a lower pace.
Meanwhile, CBO calculations predict that the unemployment rate will peak in the coming months at over 14 percent before falling quickly as output increases again. However, the CBO report did not include data from the Employment Situation Summary released Thursday by the Bureau of Labor Statistics, which showed record job creation as the economy added 4.8 million jobs, with unemployment falling to 11.1 percent.
The CBO predicts that the jobless rate should recover to around 5.9 percent by 2024, and reach 4.4 percent by 2030. However, unemployment is likely to remain above the historic lows of the pre-pandemic era throughout the next decade, it says.
Uncertainty of Projections
The CBO admits that its projections are subject to “an unusually high degree of uncertainty,” which it says stems from the impossibility of predicting how the CCP virus pandemic will continue to unfold, how effective monetary and fiscal measures taken to alleviate the crisis will prove, and how global markets will cope with increases in the levels of public debt and budget deficits.
According to the CBO report, “it is not clear how individuals, businesses, and state and local governments will respond to recent fiscal and monetary policy actions taken by the federal government.”