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Unless otherwise indicated, all years referred to in Chapter 1 and Appendix A are calendar years, and all years in other chapters and Appendix B are fiscal years. Some figures in this report indicate periods of recession by using shaded vertical bars. The bars extend from the peak to the trough of the recession. Unemployment rates throughout the report are calculated on the basis of the civilian labor force. The economic projections presented in this report differ slightly from those published in CBO's July 15, 1998, Economic and Budget Outlook for Fiscal Years 1998-2008: A Preliminary Update because they incorporate data released by the Bureau of Economic Analysis on July 31. The budget projections are unchanged from those presented in the preliminary report. Numbers in the text and tables may not add up to totals
because of rounding.
In the print version of this report, the economic forecast for calendar year 1998 shown in Table 1-2 was incorrect. (That forecast was correct, however, in Summary Table 2 and Tables 1-5 and 1-7.) This electronic version contains a corrected Table 1-2. |
This volume is one of a series of reports on the state of the economy and the budget that the Congressional Budget Office (CBO) issues each year. It satisfies the requirement of section 202(e) of the Congressional Budget Act of 1974 for CBO to submit periodic reports to the Committees on the Budget with respect to fiscal policy and to provide baseline projections of the federal budget. 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 1 was prepared by the Macroeconomic Analysis Division under the direction of Robert Dennis and John F. Peterson. Matthew Salomon wrote the chapter, with substantial contributions from Robert Arnold, Juann Hung, and Kim Kowalewski. Michael Simpson carried out the economic forecast and projections. David Brauer, Ed Gamber, Douglas Hamilton, Mark Lasky, Angelo Mascaro, Benjamin Page, Frank Russek, Kent Smetters, John Sturrock, Jan Walliser, and Christopher Williams provided comments and background analysis. David Arnold and Ezra Finkin provided research assistance.
The baseline outlay projections were prepared by the staff of the Budget Analysis Division under the supervision of Paul N. Van de Water, Robert Sunshine, Priscilla Aycock, Tom Bradley, Paul Cullinan, Peter Fontaine, James Horney, and Michael Miller. The revenue estimates were prepared by the staff of the Tax Analysis Division under the supervision of Frank Sammartino and Richard Kasten. Jeffrey Holland wrote Chapter 2. Frank Sammartino and Richard Kasten wrote Chapter 3. Matthew Salomon and David Brauer wrote Appendix A, and Jennifer Winkler wrote Appendix B. James Horney wrote the summary of the report.
An early version of the economic forecast underlying this report was discussed at a meeting of CBO's Panel of Economic Advisers. Members of the panel are Alan Auerbach, Martin Bailey, Jagdish Bhagwati, Michael Boskin, Barry P. Bosworth, Robert Dederick, Martin Feldstein, Robert J. Gordon, Robert E. Hall, Marvin Kosters, Anne Krueger, N. Gregory Mankiw, Allan Meltzer, William Nordhaus, Rudolph Penner, James Poterba, Robert Reischauer, Sherwin Rosen, Joel Slemrod, John Taylor, and James Tobin. Andrew Abel, Martin Barnes, James Glassman, and Lawrence Kudlow attended as guests. Although these outside advisers provided considerable assistance, they are not responsible for the contents of this document.
Sherry Snyder supervised the editing of the report, and Kathryn Quattrone supervised production. Major portions were edited by Sherry Snyder, Melissa Burman, Leah Mazade, and Christian Spoor. The authors owe thanks to Marion Curry, Linda Lewis Harris, Denise Jordan, Dorothy Kornegay, and Simone Thomas, who assisted in the preparation of the report. Kathryn Quattrone prepared the report for final publication, with assistance from Martina Wojak-Piotrow. Laurie Brown prepared the electronic versions for CBO's Web site.
June E. O'Neill
Director
August 1998
APPENDIXES
A - Evaluating CBO's Record
of Economic Forecasts
B - Sequestration Update
Report for Fiscal Year 1999
C - Major Contributors to
the Revenue and Spending Projections
| TABLES | |
| S-1. | The Budget Outlook Under Current Policies |
| S-2. | Comparison of CBO's Summer and January 1998 Economic Projections for Calendar Years 1998-2008 |
| S-3. | Changes in CBO Budget Projections Since March 1998 |
| S-4. | CBO Baseline Budget Projections, Assuming Compliance with Discretionary Spending Caps |
| 1-1. | The CBO Forecast for 1998 and 1999 |
| 1-2. | The CBO Economic Projection for Calendar Years 1998-2008 |
| 1-3. | The CBO Economic Projection for Fiscal Years 1998-2008 |
| 1-4. | Key Assumptions for the Projection of Potential Output |
| 1-5. | Comparison of CBO's Summer and January 1998 Economic Projections for Calendar Years 1998-2008 |
| 1-6. | Comparison of CBO's and Other Economists' Forecasts for 1998 and 1999 |
| 1-7. | Comparison of CBO's and Other Economists' Projections for Calendar Years 1998-2008 |
| 2-1. | The Budget Outlook Under Current Policies |
| 2-2. | Changes in CBO Budget Projections Since March 1998 |
| 2-3. | CBO Budget Projections, Assuming Compliance with Discretionary Spending Caps |
| 2-4. | CBO Projections of Discretionary Outlays, Assuming Compliance with Discretionary Spending Caps |
| 2-5. | CBO Projections of Mandatory Spending, Including Deposit Insurance |
| 2-6. | CBO Projections of Federal Interest Costs and Debt |
| 2-7. | Relationship of the Budget to the Federal Sector of the National Income and Product Accounts |
| 2-8. | Projections of Receipts and Expenditures Measured by the National Income and Product Accounts |
| 3-1. | CBO Revenue Projections |
| 3-2. | Comparison of CBO's July and January 1998 Projections of Federal Revenues for Fiscal Year 1998 |
| 3-3. | Revenues, by Source, Since Fiscal Year 1985 |
| 3-4. | Average Annual Growth Rates of Income and Revenues for 1959-1997 and Projected Through 2008 |
| 3-5. | CBO Projections for Individual, Corporate, and Social Insurance Receipts and Their Tax Bases |
| A-1. | Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average Growth Rates for Real Output |
| A-2. | Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average Inflation Rates in the Consumer Price Index |
| A-3. | Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average Interest Rates on Three-Month Treasury Bills |
| A-4. | Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average Long-Term Interest Rates |
| A-5. | Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average Real Interest Rates on Three-Month Treasury Bills |
| A-6. | Comparison of CBO and Administration Projections of the Two-Year Change in Wage and Salary Distributions Plus Book Profits as a Share of Output |
| A-7. | Comparison of CBO, Administration, and Blue Chip Projections of Five-Year Average Growth Rates for Real Output |
| B-1. | CBO Estimates of Discretionary Spending Limits for Fiscal Years 1998-2002 |
| B-2. | Budgetary Effects of Direct Spending or Receipt Legislation Enacted Since the Budget Enforcement Act of 1997 |
| FIGURES | |
| 1-1. | The Economic Forecast and Projection |
| 1-2. | Household Net Worth |
| 1-3. | Labor Productivity |
| 1-4. | Medical Care Inflation |
| 1-5. | Benefits per Hour |
| 1-6. | Corporate Profits, Interest Costs, and Health Benefit Costs |
| 1-7. | Volatility in the Core Rate of CPI Inflation |
| 1-8. | The Personal Saving Rate |
| 1-9. | The U.S. Dollar Exchange Rate and Import Price Inflation |
| 1-10. | Commodity and Crude Oil Prices |
| 1-11. | Changes in the Prices of Key Computer Components |
| 1-12. | Tightness in the Labor Market and Wage Growth |
| 1-13. | Real Inventory Stocks |
| 1-14. | Trade Deficit |
| 1-15. | Business Fixed Investment |
| 2-1. | Debt Held by the Public as a Share of GDP |
| 2-2. | Total and On-Budget Deficit or Surplus |
| 3-1. | Federal Revenues as a Share of GDP |
| 3-2. | Annual Growth of Federal Revenues and GDP |
| 3-3. | Annual Growth of Taxable Capital Gains Realizations |
| 3-4. | Annual Growth of Income and GDP |
| 3-5. | Revenues, by Source, as a Share of GDP |
| BOXES | |
| 1-1. | The Cloud of the Asian Crisis Lingers On |
| 1-2. | The Impact of the Stock Market on the Economy |
| 1-3. | Revision of the National Income and Product Accounts |
| 2-1. | CBO's Long-Term Budget Outlook |
