Uncertainty in Economic Projections

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While projections by the Congressional Budget Office (CBO) for rising federal deficits are troubling enough, a recent CBO blog post offers an important reminder of the uncertainties involved in such projections — including how well the economy will perform in the next few years.

Some future developments could improve the fiscal picture, but others could considerably darken it.

This second possibility, The Concord Coalition believes, bolsters the case for Washington to pursue comprehensive fiscal reforms sooner rather than later. This would leave the government with a margin for error in which further adjustments, if necessary, could be more readily made.

A strong economy improves the government’s budget situation by increasing tax revenue and reducing some spending on social safety net programs. A weak economy has the opposite effect, resulting in upward pressure on federal deficits.

“Over the next five years,” the blog post says, “many developments — such as unforeseen changes in the labor market, the housing market, business confidence, or international conditions — could make economic growth and other variables differ considerably from what CBO has projected.”

The blog post also says a variety of uncertainties could affect the economy from 2021 through 2026.

Another critical unknown: whether the country will suffer another recession within the next few years.

External links:
Uncertainties in the Economic Outlook (CBO)
Updated Budget Projections Show Why Political Candidates Should Offer Credible Fiscal Reforms (Concord)
An Update to the Budget and Economic Outlook: 2016-2026 (CBO)

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