Office of Management and Budget

Economic forecasts and the Budget: Consistency with CBO

Peter Orszag, Director

During last Thursday’s briefing on the President’s FY 2010 Budget, CEA Chair Christina Romer was asked many questions about the economic forecast underlying the Budget – and since then some news reports have highlighted differences between the Administration’s forecast and the Congressional Budget Office (CBO) forecast.

The problem with this comparison is that our forecast includes the effects of the American Recovery and Reinvestment Act, which has now been signed into law.  The CBO forecast, by contrast, was published in January and did not take into account the effects of the Recovery Act.

To put the forecasts on an "apples-to-apples" basis, one can take the CBO forecast and add in the effects from CBO’s macroeconomic analysis of the Recovery Act—which included both a "high" and "low" estimate for the projected effect of the act.  (See http://www.cbo.gov/ftpdocs/99xx/doc9987/Gregg_Year-by-Year_Stimulus.pdf.)  
The results show that the Administration’s GDP forecast is entirely consistent with CBO’s forecast (and indeed right in the middle of CBO’s "high" and "low" estimates) once the effects of the Recovery Act are included.  The table below presents the GDP projections on this "apples-to-apples" basis.   

	2009	2010
CBO with "High" Effect of Recovery Act*	11,624	11,983
CBO with "Low" Effect of Recovery Act*	11,487	11,720
Administration Forecast	11,527	11,893

Since the time when both the Administration and the CBO forecasts were completed, incoming data suggest that the economy was even weaker at the end of last year than previously understood – underscoring the magnitude of the economic crisis inherited by the Administration and the need for the Recovery Act enacted earlier this month.