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THE ECONOMIC AND BUDGET OUTLOOK:
AN UPDATE
 
 
August 1988
 
 
NOTES

Unless otherwise indicated, all years referred to in Chapter I are calendar years and all years in Chapter II are fiscal years.

"Growth during 1988" or "growth in 1988" means growth from the end of 1987 to the end of 1988 except where otherwise specified. "Growth between 1987 and 1988" means the percentage difference between the annual average levels in 1987 and 1988.

Unemployment rates throughout the report are calculated on the basis of the civilian labor force.

Details in the text and tables of this report may not add to totals because of rounding.

In figures showing periods of recession, shaded areas indicate the months between cyclical peaks (P) and recession troughs (T).

The Balanced Budget and Emergency Deficit Control Act of 1985 (popularly known as Gramm-Rudman-Hollings) is also referred to in this volume more briefly as the Balanced Budget Act. The Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 refers to amendments passed in late 1987 and is referred to in this volume more briefly as the Balanced Budget Reaffirmation Act.

In Chapter I of this report, the 10-year constant-maturity bond rate is referred to briefly as the 10-year bond rate.
 
 
PREFACE

This volume is one of a series of reports on the state of the economy and the budget issued periodically by the Congressional Budget Office (CBO). In accordance with CBO's mandate to provide objective and impartial analysis, the report contains no recommendations.

The analysis of the economic outlook presented in Chapter I was prepared by CBO's Fiscal Analysis Division under the direction of Frederick C. Ribe and Robert A. Dennis, with the assistance of Victoria S. Farrell, and George R. Iden. The analysis was carried out by Trevor Alleyne, Douglas R. Hamilton, James Kiefer, Angelo Mascaro, Stephen Miller, John F. Peterson, Frank S. Russek, Jr., John Sabelhaus, Matthew A. Salomon, John R. Sturrock, and Stephan S. Thurman. Research assistance was provided by Jeanne Dennis, Nicholas Dugan, Patricia Phill, and Bragi Valgeirsson.

The baseline outlay projections were prepared by the staff of the Budget Analysis Division under the supervision of James L. Blum, C.G. Nuckols, Michael Miller, Charles Seagrave, Robert Sunshine, and Paul N. Van de Water. The revenue estimates were prepared by the staff of the Tax Analysis Division under the direction of Rosemary D. Marcuss and Kathleen M. O'Connell. Principal staff contributors are listed in Appendix C.

Chapter II was written by Kathy A. Ruffing with contributions by David Elkes, Rosemary D. Marcuss, and Rodney Rasmussen. Appendix A was written by John F. Peterson, and Appendix B was written by Roger E. Hitchner. Paul N. Van de Water wrote the summary of the report.

Paul L. Houts supervised the editing and production of the report, assisted by Nancy H. Brooks. Major portions were edited by Amanda Balestrieri, Francis S. Pierce, and Sherry Snyder. The authors owe special thanks to Debra Blagburn, Linda Brockman, Marion Curry, Janice Johnson, Dorothy J. Kornegay, and L. Rae Roy, who produced the preliminary drafts. Kathryn Quattrone prepared the report for publication.
 

James L. Blum
Acting Director
August 1988
 
 

CONTENTS
 

SUMMARY

I. THE ECONOMIC OUTLOOK

II. THE BUDGET OUTLOOK

APPENDIXES

A. THE EFFECT OF COMPUTER AND PETROLEUM PRICES ON NIPA MEASURES OF REAL GROWTH
B. FARM COMMODITY PROGRAM SPENDING
C. MAJOR CONTRIBUTORS TO THE REVENUE AND SPENDING PROJECTIONS
 
TABLES
 
I-1.  Net Savings Flows as a Percentage of GNP
I-2.  Changes in the Standardized-Employment Deficit
I-3.  Nominal Wage and Compensation Rates in the Nonfarm Private Sector
I-4.  Current Indicators of Business Fixed Investment and Surveys of Capital Spending Plans for 1988
I-5.  The CBO Forecast for 1988 and 1989
I-6.  The CBO Forecast for 1988 and 1989, in Comparison with the Forecast Made Last Winter
I-7.  Medium-Term Economic Projections for Calendar Years 1990 Through 1994
I-8.  Medium-Term Economic Projections for Fiscal Years 1990 Through 1994
I-9.  Comparison of Administration, CBO, and Blue Chip Short-Run Economic Forecasts
II-1.  The Short-Run Budget Outlook
II-2.  Differences Between CBO Baseline and Estimated Deficit for Purposes of the Balanced Budget Act, Fiscal Year 1989
II-3.  CBO Baseline Projections of Revenues, Outlays, and Deficits
II-4.  CBO Baseline Budget Projections
II-5.  Trust Fund Surpluses in the CBO Baseline
II-6.  Changes in CBO Baseline Estimates Since March
II-7.  Relationship of the Budget to the Federal Sector of the National Income and Product Accounts
II-8.  Projections of Baseline Revenues and Expenditures on a National Income and Product Accounts Basis
B-1.  CBO Projections for Commodity Credit Corporation Outlays
B-2.  CBO Projections for the Supply, Use, and Price of Major Farm Commodities Supported by the Commodity Credit Corporation
 
FIGURES
 
S-1.  Budget Deficits and Targets
I-1.  The Economic Forecast and Projections
I-2.  The Standardized-Employment Deficit
I-3.  Publicly Held Federal Debt
I-4.  Short-Term Interest Rates
I-5.  Bond and Equity Yields
I-6.  Interest Rates and the Exchange Rate
I-7.  Money Growth and Targets in 1987 and 1988
I-8.  Inflation and Resource Utilization
I-9.  Employment Cost Index
I-10.  Foreign Prices and U.S. Import Prices
I-11.  The Share of Investment and Net Exports in Output
I-12.  Housing Starts
I-13.  The Turnaround in Trade
I-14.  Household Saving and Wealth
I-15.  Goods Production and New Orders
I-16.  Shortfall of Gross Domestic Product Below Potential
II-1.  CBO Deficit Projections Compared With Targets
II-2.  Social Security and the Budget
II-3.  Selected Fast- and Slow-Growing Programs, Fiscal Years 1988-1994
A-1.  Comparison of the Implicit Price Deflators for GNP and Office Equipment
A-2.  The Effect of Rebasing on Measures of Real Growth
 
BOXES
 
I-1.  Effect of Droughts on Output and Prices
II-1.  The Drought of 1988
II-2.  What are Trust Funds?
II-3.  Social Security and the Budget
II-4.  The Catastrophic Health Care Bill

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