(CNSNews.com) – The Congressional Budget Office (CBO) reported that it now expects economic growth to be “weak” through 2012 and for unemployment to remain at 9 percent, which equals 14 million people out of work.
The new projections, presented in testimony before the special congressional Joint Committee tasked with finding $1.5 trillion in deficit savings, revealed the agency’s updated projections in light of a summer-long downturn in the economy.
“With weak economic growth anticipated for the next few years, CBO expects employment to expand very slowly, leaving the unemployment rate close to 9 percent through the end of 2012,” testified CBO Director Douglas Elmendorf.
The CBO attributed the more pessimistic forecasts to the ongoing downturn in the economy, both at home and abroad.
“Real GDP grew at an average annual rate of 0.7 percent in the first half of this year—well below the previous estimate of 1.9 percent that CBO used in constructing its economic forecast in early July,” said Elmendorf. “In addition, the revisions indicated that the recession was considerably deeper than previously thought: The total decline in real GDP from its peak in the fourth quarter of 2007 to its trough in the second quarter of 2009 was revised downward from -4.1 percent to -5.1 percent.”
“The figure for subsequent growth of real GDP from the trough of the recession in the second quarter of 2009 through the first quarter of 2011 was also revised downward slightly,” he said. “With the revisions, real GDP for the first quarter of this year was 1.6 percent lower than previously estimated.”
According to the National Bureau of Economic Research (NBER), “A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.” http://www.nber.org/cycles/sept2010.html
The CBO further reported that the weaker-than-expected economic growth led to a slowdown in jobs growth, which has contributed to the downgraded forecasts.
“The total number of jobs increased at an average monthly rate of about 180,000 in the first four months of this year, more than double its average pace in 2010,” Elmendorf testified. “However, employment growth has ebbed again, averaging only 40,000 jobs per month from May through August.”
As a result, the CBO expects the economy and unemployment to improve only slightly in the coming years, taking even longer to fully recover from the recession than previously projected. The NBER reports that the last recession was from December 2007 to June 2009 – 18 months – with that June 2009 trough in business activity marking the end of that recession.
“The growth in GDP that CBO now anticipates -- about 1½ percent this year (as measured by the change between the fourth quarter of 2010 and the fourth quarter of 2011) and around 2½ percent next year -- would be weaker than what CBO forecast in August, when it projected real GDP growth of 2.3 percent in 2011 and 2.7 percent in 2012,” said Elmendorf.
“With modest growth in output, CBO expects employment to expand very slowly during the rest of this year and next year,” the CBO director testified. “As a result, the unemployment rate is likely to be around 9.0 percent through the fourth quarter of next year. (In CBO’s August forecast, the unemployment rate fell to 8.5 percent by the fourth quarter of 2012.).”