CBO Estimates it will Take 10 Years Just to Get Back to Even

Mish

Covid-19 will have a decade-long impact on the economy according to the Congressional Budget Office.

Please consider a Comparison of CBO’s May 2020 Interim Projections of GDP and Its January 2020 Baseline Projections.

CBO Key Points

  • CBO projects that over the 2020–2030 period, cumulative nominal output will be $15.7 trillion less than what the agency projected in January. 
  • CBO projects that over the 11-year horizon, cumulative real output (in 2019 dollars) will be $7.9 trillion, or 3.0 percent of cumulative real GDP, less than what the agency projected in January
  • CBO also marked down its projection of nominal output because the agency expects that inflation will be weaker as a result of the pandemic. 
  • Lower projected inflation rates, particularly in 2020 and 2021, reduce the level of prices and nominal GDP relative to what CBO projected in January.

That PDF was a summary sent to Senate Democrat Leader Charles Schumer. 

Let's investigate additional charts from the CBO report Interim Economic Projections for 2020 and 2021.

Unemployment Rate

CBO Unemployment Rate Projection

Between February and April of this year, the number of people employed fell by more than 25 million and the size of the labor force by more than 8 million. In CBO’s projections, the unemployment rate is 15.8 percent in the third quarter of this year. After that, labor market conditions gradually stabilize and begin to improve more materially

Real Output

Real Output Measured CBO

Although economic  conditions are projected to improve following their sudden drop, real output is expected to be 1.6 percent lower in the fourth quarter of 2021 than it was in the fourth quarter of last year.

Job Losses

Job Losses by Industry During March and April CBO

The more than 20 million nonfarm payroll jobs lost during March and April were concentrated in industries that rely on a high degree of in-person interactions, including leisure and hospitality, retail trade, and educational services. The leisure and hospitality industry was hit particularly hard, losing more than 8 million of its 17 million jobs. 

CBO Economic Projections

CBO's Economic Projections for 2020 and 2021

Employment Projection

CBO Employment Projection

Blue Chip Projections

Comparison of CBO's Economic projections with the Blue Chip Survey

GDPNow Model Projection for Q2 2020

GDPNow and Nowcast 2020-05-29

GDPNow Forecast is Negative 51.2 Percent

The GDPNow Forecast is Negative 51.2 Percent.

GDPNow may be too pessimistic for Q2. 

However, I believe the CBO and Blue Chip forecasts are too optimistic for the rest of the year.

Fed Can Print Money But It Cannot Print Jobs

I can find at least three instances of that saying dating back to 2010 so don't give me credit.

Belts and Suspenders

However, I can claim a sarcastic Don't Worry, the Fed has Belts and Suspenders

Unfortunately, all the Fed is doing is creating zombie corporations unable to survive expect with permanently low interest rates.

Grim Economic Data

  1. May 8: Over 20 Million Jobs Lost As Unemployment Rises Most In History
  2. May 15: Retail Sales Plunge Way More Than Expected
  3. May 15: Industrial Production Declines Most in 101 Years
  4. May 15: GDPNow Forecasts the Economy Shrank by a Record 42%. It's 40.4% as of May 28.

Ripple Impacts May Last Years

The economic data has been grim and the ripple impacts may last for years.

Global COVID-19 Risk Ranges Up to $82 Trillion

To understand the total global risk, please see Global COVID-19 Risk Ranges Up to $82 Trillion

Ripple Impacts

For a detailed synopsis of the state of the economy and the ripple impacts, please see The Economy Will Not Soon Return to Normal: Here's Why.

Mish

Comments (47)
No. 1-19
Realist
Realist

As I keep saying, zero average growth this decade. A year ago I predicted 1% average growth this decade, but the pandemic changed that forecast.

Any gains in wealth will be further skewed to the already wealthy. Standards of living will decline for the majority. Trickle down never really worked, but will still be promoted by some.

Sadly, social security will run out of funds much sooner than by 2034 now. Contributions will provide for less than 75% benefit payouts, perhaps within 5 years. It will be interesting to see whether the US government starts borrowing to make up the difference.

Imagine the riots when social security gets cut!

Tengen
Tengen

Even if we manage to break even in ten years, by that time the national debt should be north of $50T and the Fed's balance sheet could be over $20T.

That means the soundtrack of our lives for the next decade will be the constant brrrr of the money printer in the background. It'll be this generation's Beatles or Nirvana.

tokidoki
tokidoki

So .... you are basically saying Dow 400K?

Ok. Off we go.

njbr
njbr

"But look at the rate of growth" is what we will hear over and over....

Maximus_Minimus
Maximus_Minimus
  1. Vicious cycle can be really vicious.
  2. When sorrows come they come not a single spy.
  3. The economy is fragile because of a decade of printing, and decades of low interest rate.
  4. Plugging in new data into old formulas makes no sense.
  5. Predictions are impossible if you don't know what the hell is going on.
njbr
njbr

What's all ofthis recovery talk when we really haven't recovered from the previous GOP administration yet...

Zardoz
Zardoz

Grapes of Wrath, here we come!

Anda
Anda

For anyone wanting to take time out from the 24hr tension msm is supplying, here is an hours easy/fun lecture on events three thousand years ago. Sort of similar topic because it is on the bronze age civilisation collapse, but far enough away to not spill anyone's cup of tea. It just gives a bit of perspective, some ideas on how society and economy interact, or where they get stressed.

Ted R
Ted R

Has anything they have predicted ever come true?

palmer808
palmer808

Sleep well kids, my friends old man building fireplaces from Norwegian stock, back in the 70's "boom" stagflation years in so cal said of ripping assets inflation, "they got it all figured out " , the FED that is....(I was his hoddy, making the mud, building the scaffolding, stocking the flue liner and brick),
50 freaking years his quote ringing in my ears, and can't say he's wrong.
So yeah, sleep well and easy, they got it all figured out. Please, don't fight the fed.

Casual_Observer
Casual_Observer

I'm a pessimist but even the CBO looks like a worst case scenario. I still see the covid economy ending by fall. By Christmas we will wonder what the hell happen and how did it all end so quickly.

Sechel
Sechel

I don't think we'll have any sense of how long it takes until in hindsight we know we've hit bottom and begin to see a recovery. Too soon to guess what the consumer habits might be etc

Pater_Tenebrarum
Pater_Tenebrarum

With all due respect, CBO projections aren't worth much. In fact, almost all economic forecasts have more in common with entrails reading than with a scientific endeavor. The only forecasts that are even worse because they haven't even got a single thing right yet by sheer coincidence are those based on "climate models". That said, it is blindingly obvious that a lot of wealth has been lost due to the lockdowns - which in hindsight seem to have had very little effect on the spread of the epidemic. A failure on all counts you might say.

channelstuffing
channelstuffing

In a permanently collapsed (rotting)economy your options are limited at best!Sure big govt has borrowed /printed quadrillions over the last dozen years to buy time,and there in lies the problem! borrowing (printing) trillions and pretending everything is "booming"or in a never ending "recovery"might make you look good or feel better,it doesn't come close to paying your bills!

Danno1
Danno1

10 years.....everything I've read in the past says the baby boomers will no longer be as influential as a majority will die off in 10 years time. As long as they hold influence, pensions will not fail as they will vote until they die to hold on to the last grasp of their money. And what is the alternative if pension plans fail, etc??? The FED CANNOT let the voter's cash fail but Emerging markets are dead with $$$ returning to the USA and growth as what % of 65 plus spend like they used to???

Jdog1
Jdog1

From looking at the CBO charts, they are being too optimistic. They are predicting a V shaped recovery, and as of now, there is no evidence that is happening.

RonJ
RonJ

"CBO Estimates it will Take 10 Years Just to Get Back to Even"

The Nasdaq is already almost back to even. Some evens count more than others.

awc13
awc13

what is ridiculous is the CBO predicting out to 10 years.

i wonder how accurate CBO reports from 10 years ago are today? i suspect not very accurate.