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The Budget and Economic Outlook:
An Update
  August 2003  


Cover Graphic


Notes

Unless otherwise indicated, all years referred to in Chapter 2 are calendar years, and all years in the rest of the report 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 in Chapter 2 use shaded vertical bars to indicate periods of recession. The bars extend from the peak to the trough of each recession.

Data for real (inflation-adjusted) gross domestic product are based on chained 1996 dollars.

Backup data are available for Table 2-4, "Key Assumptions in CBO's Projection of Potential GDP" (spreadsheet), and Table C-1, "CBO's Year-by-Year Forecast and Projections for Calendar Years 2003 Through 2013" (spreadsheet).





                
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 five-year 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 CBO's Budget Analysis Division under the supervision of Robert Sunshine, Peter Fontaine, Janet Airis, Thomas Bradley, Kim Cawley, Paul Cullinan, Jeffrey Holland, and Jo Ann Vines. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Thomas Woodward, Mark Booth, and David Weiner. The analysts who contributed to those spending and revenue projections are listed in Appendix D.

The economic outlook presented in Chapter 2 was prepared primarily by the Macroeconomic Analysis Division under the direction of Robert Dennis. John F. Peterson and Robert Arnold carried out the economic forecast and projections. David Brauer, Ufuk Demiroglu, Tracy Foertsch, Theresa Gullo, Douglas Hamilton, Juann Hung, Kim Kowalewski, Mark Lasky, Leo Lex, Angelo Mascaro, Shinichi Nishiyama, Benjamin Page, Frank Russek, Robert Shackleton, John Sturrock, and Christopher Williams contributed to the analysis. Tumi Coker, Tina Highfill, Brian Mathis, and Amrita Palriwala 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 Andrew B. Abel, Alan Blinder, Michael J. Boskin, Barry P. Bosworth, Dan Crippen, Robert G. Dederick, William C. Dudley, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Allan Meltzer, William D. Nordhaus, June E. O'Neill, Rudolph G. Penner, James Poterba, Robert Reischauer, Alice Rivlin, and Joel Slemrod. Richard Berner, Vincent Reinhart, and Mark Zandi 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. The staff of the Projections Unit and Mark Booth wrote Chapter 1. Tracy Foertsch was the lead author for Chapter 2. Gerard Trimarco wrote Appendix A, and Barry Blom and Frank Russek wrote Appendix B.

Christine Bogusz, Leah Mazade, John Skeen, and Christian Spoor edited the report. Marion Curry, Linda Lewis Harris, and Denise Williams assisted in its preparation. Sharon Corbin-Jallow and Christian Spoor prepared the report for publication, and Annette Kalicki produced the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
August 2003




CONTENTS


  Summary
   
1  The Budget Outlook
      A Look at 2003
      Baseline Budget Projections for 2004 Through 2013
      Budget Projections Under Alternative Scenarios
      Changes to the Budget Outlook Since March
      The Long-Term Outlook
   
2  The Economic Outlook
      CBO's Two-Year Outlook
      The Outlook Beyond 2004
   
  Appendix A
A Comparison of CBO's and OMB's Baselines

Appendix B
The Treatment of Federal Transactions in the National Income and Product Accounts

Appendix C
CBO's Economic Projections for 2003 Through 2013

Appendix D
Contributors to the Revenue and Spending Projections



Tables
   
S-1.  Projected Deficits and Surpluses in CBO's Baseline
S-2.  Changes in CBO's Baseline Projections of the Deficit or Surplus Since March 2003
S-3.  CBO's Current and Previous Economic Projections for Calendar Years 2003 Through 2013
1-1.  Projected Deficits and Surpluses in CBO's Baseline
1-2.  CBO's Baseline Budget Projections
1-3.  CBO's Projections of Discretionary Spending and Homeland Security Spending
1-4.  CBO's Baseline Projections of Mandatory Spending, Including Offsetting Receipts
1-5.  CBO's Baseline Projections of Federal Interest and Debt
1-6.  The Budgetary Effects of Policy Alternatives Not Included in CBO's Baseline
1-7.  Changes in CBO's Baseline Projections of the Deficit or Surplus Since March 2003
1-8.  The Budgetary Effects of the Jobs and Growth Tax Relief Reconciliation Act of 2003
2-1.  CBO's Economic Projections for Calendar Years 2003 Through 2013
2-2.  CBO's Economic Forecast for 2003 and 2004
2-3.  Comparison of CBO, Blue Chip, and Administration Forecasts for Calendar Years 2003 and 2004
2-4.  Key Assumptions in CBO's Projection of Potential GDP
A-1.  Comparison of CBO's August 2003 Baseline and OMB's July 2003 Baseline
B-1.  Relationship of the Budget to the Federal Sector of the National Income and Product Accounts
B-2.  Projections of Baseline Receipts and Expenditures as Measured by the National Income and Product Accounts
C-1.  CBO's Year-by-Year Forecast and Projections for Calendar Years 2003 Through 2013
C-2.  CBO's Year-by-Year Forecast and Projections for Fiscal Years 2003 Through 2013
   
Figures
   
1-1.  The Total Deficit or Surplus as a Share of GDP, 1965-2013
1-2.  Uncertainty of CBO's Projections of the Total Deficit or Surplus Under Current Policies
2-1.  The Economic Forecast and Projections
2-2.  An Index of Monetary and Financial Conditions
2-3.  Private Payroll Employment During Recoveries from Recessions
2-4.  Residential Investment
2-5.  Households' Net Wealth
2-6.  Net Wealth and the Personal Saving Rate
2-7.  Delinquency Rate on Consumer Loans at Commercial Banks
2-8.  The Dollar's Exchange Rate Relative to Those of Selected Currencies
2-9.  Business Fixed Investment
2-10.  Change in Businesses' Inventories
2-11.  Interest Rates on Corporate Debt
2-12.  Inflation in the Core Consumer Price Index
   
Boxes
   
1-1.  The Statutory Debt Limit
2-1.  Are State and Local Fiscal Actions Offsetting Federal Fiscal Actions?
2-2.  Uncertainty About Recent Employment Growth
2-3.  How Recent Changes in Fiscal Policy Affect Potential Output
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