CBO sees U.S. economy avoiding recession
(Adds details, Republican reaction, quotes)
By Richard Cowan and Donna Smith
WASHINGTON, Jan 23 (Reuters) - The slowing U.S. economy is unlikely to sink into an election-year recession and an economic rebound could begin as early as next year as housing and financial market turmoil fades, the Congressional Budget Office forecast on Wednesday.
In the meantime, the U.S. budget deficit will grow to at least $219 billion this year, up from $163 billion in 2007, according to CBO estimates. When upcoming Iraq war costs are included, the fiscal 2008 deficit will be closer to $250 billion, CBO Director Peter Orszag told Congress.
But that deficit forecast by Congress' nonpartisan budget analyst does not include the cost of an economic stimulus measure that is quickly moving through Congress and could cost around $150 billion or more.
Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, estimated the stimulus legislation could add another $120 billion or so to the deficit for fiscal 2008, which ends Sept. 30, with the rest being spent in 2009.
The forecast marked a significant reversal after three years in which budget deficits fell from record levels.
While CBO noted an elevated risk of recession, its outlook was weighted more toward the United States working through its current economic problems and escaping a full-blown recession.
Orszag told the House Budget Committee that "the ongoing problems in the housing and financial markets and the high price of oil will curb spending by households and businesses this year and trim" economic growth.
But he added, "Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession."
The CBO's semi-annual budget and economic report also anticipated that the economy could "rebound after 2008, as the negative effects of the turmoil in the housing and financial markets fade."
Surveys of U.S. employers, CBO said, do not suggest they plan large future reductions in hiring. However, CBO noted that "such labor-market indicators could deteriorate suddenly."
'SOBERING NEWS'
House Budget Committee Chairman John Spratt, a South Carolina Democrat, said the CBO report offered "some sobering news" for the U.S. economy.
"CBO shows the deficit for fiscal year 2008 is larger than the deficit for fiscal year 2007," Spratt noted, adding, "Under (Bush) administration policies, the $5.6 trillion (budget) surplus projected in 2001 has collapsed and been replaced by record deficits, which complicate our response to the current slowdown."
That slowdown will bring rising unemployment this year, a presidential and congressional election year, CBO forecast.
Rep. Paul Ryan of Wisconsin, the senior Republican on the House Budget Committee, renewed his call for maintaining low tax rates, keeping government spending under control and addressing long-term budget problems, such as reforming costly retirement and health care programs for the poor and elderly.
As for the economic stimulus legislation moving rapidly through Congress, Ryan said, "I am concerned that, in our rush to 'help,' we talk ourselves into a quick, feel-good hit today that will leave us with a bigger budgetary hangover tomorrow."
The jobless rate, currently at 5 percent, is expected to average 5.1 percent this year, but rise to about 5.3 percent by the end of 2008, around the time voters in November will pick a new U.S. president and decide whether Democrats continue their majority in the U.S. House of Representatives and Senate.
CBO said it sees an average 5.4 percent unemployment rate next year and an average 4.9 percent a year in 2010-13.
CBO envisions a $198 billion budget deficit in fiscal 2009 and sees the deficit rising to $241 billion in 2010.
CBO, which bases its estimates on existing law, forecast a fiscal 2011 deficit of $117 billion and a budget surplus of $87 billion in 2012. But that assumes President George W. Bush's 2001 and 2003 tax cuts expire at the end of 2010, as scheduled, and that a temporary measure to fix the alternative minimum tax also expires.
In August, CBO predicted the fiscal 2008 budget deficit would be $155 billion. That was before the pinch of an unfolding economic slowdown became apparent. (Additional reporting by Nancy Waitz; Editing by Doina Chiacu)
By Richard Cowan and Donna Smith
WASHINGTON, Jan 23 (Reuters) - The slowing U.S. economy is unlikely to sink into an election-year recession and an economic rebound could begin as early as next year as housing and financial market turmoil fades, the Congressional Budget Office forecast on Wednesday.
In the meantime, the U.S. budget deficit will grow to at least $219 billion this year, up from $163 billion in 2007, according to CBO estimates. When upcoming Iraq war costs are included, the fiscal 2008 deficit will be closer to $250 billion, CBO Director Peter Orszag told Congress.
But that deficit forecast by Congress' nonpartisan budget analyst does not include the cost of an economic stimulus measure that is quickly moving through Congress and could cost around $150 billion or more.
Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, estimated the stimulus legislation could add another $120 billion or so to the deficit for fiscal 2008, which ends Sept. 30, with the rest being spent in 2009.
The forecast marked a significant reversal after three years in which budget deficits fell from record levels.
While CBO noted an elevated risk of recession, its outlook was weighted more toward the United States working through its current economic problems and escaping a full-blown recession.
Orszag told the House Budget Committee that "the ongoing problems in the housing and financial markets and the high price of oil will curb spending by households and businesses this year and trim" economic growth.
But he added, "Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession."
The CBO's semi-annual budget and economic report also anticipated that the economy could "rebound after 2008, as the negative effects of the turmoil in the housing and financial markets fade."
Surveys of U.S. employers, CBO said, do not suggest they plan large future reductions in hiring. However, CBO noted that "such labor-market indicators could deteriorate suddenly."
'SOBERING NEWS'
House Budget Committee Chairman John Spratt, a South Carolina Democrat, said the CBO report offered "some sobering news" for the U.S. economy.
"CBO shows the deficit for fiscal year 2008 is larger than the deficit for fiscal year 2007," Spratt noted, adding, "Under (Bush) administration policies, the $5.6 trillion (budget) surplus projected in 2001 has collapsed and been replaced by record deficits, which complicate our response to the current slowdown."
That slowdown will bring rising unemployment this year, a presidential and congressional election year, CBO forecast.
Rep. Paul Ryan of Wisconsin, the senior Republican on the House Budget Committee, renewed his call for maintaining low tax rates, keeping government spending under control and addressing long-term budget problems, such as reforming costly retirement and health care programs for the poor and elderly.
As for the economic stimulus legislation moving rapidly through Congress, Ryan said, "I am concerned that, in our rush to 'help,' we talk ourselves into a quick, feel-good hit today that will leave us with a bigger budgetary hangover tomorrow."
The jobless rate, currently at 5 percent, is expected to average 5.1 percent this year, but rise to about 5.3 percent by the end of 2008, around the time voters in November will pick a new U.S. president and decide whether Democrats continue their majority in the U.S. House of Representatives and Senate.
CBO said it sees an average 5.4 percent unemployment rate next year and an average 4.9 percent a year in 2010-13.
CBO envisions a $198 billion budget deficit in fiscal 2009 and sees the deficit rising to $241 billion in 2010.
CBO, which bases its estimates on existing law, forecast a fiscal 2011 deficit of $117 billion and a budget surplus of $87 billion in 2012. But that assumes President George W. Bush's 2001 and 2003 tax cuts expire at the end of 2010, as scheduled, and that a temporary measure to fix the alternative minimum tax also expires.
In August, CBO predicted the fiscal 2008 budget deficit would be $155 billion. That was before the pinch of an unfolding economic slowdown became apparent. (Additional reporting by Nancy Waitz; Editing by Doina Chiacu)
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