CBO: Economy Remains In 'Severe Slump'

Originally published on August 24, 2011 8:54 am

The Congressional Budget Office has just released the summer update of its Budget and Economic Outlook. The non-partisan government agency took in to account the recently enacted Budget Control Act, but not the recent market volatility.

If you were looking for good economic news, this report is not it. Here's the bottom line as Director Douglas W. Elmendorf puts it in his blog:

Although economic output began to expand again two years ago, the pace of the recovery has been slow, and the economy remains in a severe slump. Recent turmoil in financial markets in the United States and overseas threatens to prolong the slump. CBO expects that the recovery will continue but that real (inflation-adjusted) GDP will stay well below the economy's potential—a level that corresponds to a high rate of use of labor and capital—for several years.

The AP reports that the agency reports the budget deficit will hit $1.28 trillion this year, which is down from the previous two years. Taking into account the deficit reduction package passed by Congress, however, that deficit will be reduced by $3.3 trillion over the next ten years.

In his blog post, Elmendorf includes two graphs that are of particular interest and relay a whole lot of information about the future without bulky economics.

First an unemployment graph. Note that the unemployment rate doesn't start normalizing until about 2015:

Next is a graph that looks at how different policies affect the country's deficit. Note that the policy that has the biggest effect on the size of the deficit is tax policy and the share used to pay for debt service starts increasing in 2019:

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