The Budget and Economic Outlook:
Fiscal Years 2009 to 2019
January 2009
Unless otherwise indicated, years referred to in describing the economic outlook are calendar years, and years referred to in describing the budget outlook 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.
The figures on the cover and many of those in the text use dashed vertical lines to separate actual from projected data and use shaded vertical bars to indicate periods of recession. (A recession extends from the peak of a business cycle to its trough.) The shading for the current recession assumes that the trough will occur in the third quarter of 2009.
Supplemental data for this analysis, including some tables that customarily appear in the Congressional Budget Office’s January Outlook but are not in this shorter version, are available on the agency’s Web site.
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 baseline projections of the federal budget. Because economic and budgetary circumstances have changed significantly in recent months, this report is being released several weeks earlier than usual to aid the new Congress in its deliberations. 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 Peter Fontaine, Keith Fontenot, Theresa Gullo, Janet Airis, Tom Bradley, Kim Cawley, Jeffrey Holland, Sarah Jennings, Kate Massey, and Sam Papenfuss. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Thomas Woodward, Frank Sammartino, Mark Booth, and David Weiner, with assistance from the Joint Committee on Taxation. (A detailed list of contributors to the revenue and spending projections appears in Appendix C.)
The economic outlook was prepared by the Macroeconomic Analysis Division under the direction of Robert Dennis, Kim Kowalewski, and John F. Peterson. Robert Arnold and Christopher Williams developed the economic forecast and projections. David Brauer, Juan Contreras, Naomi Griffin, Juann Hung, Wendy Kiska, Mark Lasky, Angelo Mascaro, Damien Moore, Benjamin Page, Frank Russek, David Torregrosa, and Steven Weinberg contributed to the analysis. Holly Battelle and Eric Miller provided research assistance.
CBO’s Panel of Economic Advisers commented on an early version of the economic forecast underlying this report. At that time, members of the panel were Martin Baily, Richard Berner, Jared Bernstein, Michael Boskin, Douglas W. Elmendorf, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Lawrence Katz, Allan H. Meltzer, Laurence H. Meyer, William D. Nordhaus, Rudolph G. Penner, Adam S. Posen, James Poterba, Alice Rivlin, Nouriel Roubini, Diane C. Swonk, and Stephen P. Zeldes. John Geanakoplos, Christopher Mayer, Chad Stone, Phillip Swagel, and Luigi Zingales 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.
Barry Blom, Mark Booth, Juan Contreras, and Jeffrey Holland authored the report, which was prepared under an exceedingly tight schedule over a holiday period. Jeffrey Holland and Eric Schatten compiled Appendix A; and Eric Miller, Appendix B.
John Skeen and Sherry Snyder edited the report. Denise Jordan-Williams and Linda Lewis Harris assisted in its preparation. Maureen Costantino designed the cover and prepared the report for publication. Lenny Skutnik printed the initial copies, and Linda Schimmel handled the distribution. Simone Thomas prepared the electronic version for CBO’s Web site.
Robert A. Sunshine
Acting Director
Contents
Changes in the Forecast Since the Summer of 2008
Comparison with Other Forecasts
The Budget Outlook for 2010 to 2019
Budget Projections Under Alternative Scenarios
The Treatment of the Troubled Asset Relief Program in the Federal Budget
The Treatment of Fannie Mae and Freddie Mac in the Federal Budget
Changes in the Budget Outlook Since September 2008
Appendix A: The Government’s Actions in Support of the Housing and Financial Markets
Appendix B: CBO’s Economic Projections for 2009 to 2019
Appendix C: Contributors to the Revenue and Spending Projections
1. CBO’s Economic Projections for Calendar Years 2009 to 2019
2. CBO’s Current and Previous Economic Projections for Calendar Years 2008 to 2018
3. Comparison of Economic Forecasts by CBO and the Blue Chip Consensus for Calendar Year 2009
4. Projected Deficits and Surpluses in CBO’s Baseline
5. CBO’s Baseline Budget Projections
6. CBO’s Baseline Projections of Federal Debt
7. The Budgetary Effects of Selected Policy Alternatives Not Included in CBO’s Baseline
8. Changes in CBO’s Baseline Projections of the Deficit Since September 2008
B-1. CBO’s Year-by-Year Forecast and Projections for Calendar Years 2009 to 2019
B-2. CBO’s Year-by-Year Forecast and Projections for Fiscal Years 2009 to 2019
2. Inflation-Adjusted House Prices, 1975 to 2010
3. Housing Starts, 1970 to 2015
4. Interest Rates on Mortgage Loans, January 2007 to January 2009
5. Foreclosure Rates, 2000 to 2008
6. The Risk Spread on Lending Between Banks, January 2007 to January 2009
7. A Risk Spread in the Commercial Paper Market, 2006 to 2008
8. Real Personal Consumption Expenditures, 1970 to 2019
9. Petroleum Imports as a Percentage of Nominal GDP, 1970 to 2010
10. Banks’ Willingness to Lend, 1970 to 2008
11. The Total Deficit or Surplus as a Share of GDP, 1970 to 2019
