Is the administration being too optimistic, cont'd
I mentioned earlier that the budget includes more optimistic economic predictions than what the Congressional Budget Office is using. This in turn makes the projected budget deficit smaller. In a briefing today, Austen Goolsbee explained where his numbers were coming from, and notes that the administration's projections are more pessimistic than the consensus projections of private-sector forecasters:
Four short points: The first is that the forecast that we use has to be locked in for planning purposes as of mid-November of last year, so it predates the tax deal. As you know, many of the private forecasters upped their forecast based on what was in the tax deal, and most of that is not in the forecast.
Number two, real GDP growth on a year-over-year basis, the administration is forecasting 2.7 percent in 2011, 3.6 percent in 2012, 4.4 percent in 2013. So our growth rate for 2011 is a fair bit lower than the consensus of private forecasters surveyed by the blue chip or by the Survey of Professional Forecasters.
The longer run we anticipate catching back up, that the potential GDP of the United States has not been severely damaged by this recession. So our medium-run forecast is a bit faster. It’s within the so-called central tendency that comes out of the Fed FOMC forecast of last November, which is a -- the reasonable range in which they drop off the highest and lowest. It is rather in the center of that central tendency.
So over a five-year period -- the typical recession since World War II has been followed by a growth rate of a little less than 4.2 percent over five years. Our forecast is about 3.8 percent over five years. So it’s slower than the typical recovery and we assume that because it’s harder to get out of a financial recession.
The third point I’d raise is that the unemployment rate in our projection is that at the end of 2011 it would be 9.1 percent; by the fourth quarter of 2012, it would be 8.2 percent. That was obviously made in mid-November. The unemployment rate currently stands at 9.0 percent. Unemployment is likely to fluctuate through the year, but any revisions that we have will come out at the mid-session review.
Finally, for inflation we’re projecting that in 2011 the CPI inflation will be 1.3 percent -- so actually decline from where it is now. It’s very much in line with other professional forecasters, and that in 2012, 2013 and beyond we’d go back to something like the Fed’s and others’ 2 percent inflation level.
As I said in the original post, this one is too technical for me to judge.
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