Partisans will surely find things to love and hate about CBO’s updated economic outlook. It projects that the 2011 deficit will be lower than the last two years’ deficits, but still near record highs. It forecasts a slow but steady economic recovery over the next six years. And it makes clear that the country’s medium-term fiscal imbalances are manageable unless lawmakers decide to screw things up.
But there’s also a major, major caveat.
“CBO initially completed its economic forecast in early July, but it updated the forecast in early August to reflect the policy changes enacted in the Budget Control Act [the debt limit deal],” the report reads. “However, the forecast described here does not reflect any other developments since early July, including the recent swings in financial markets, weakness in certain economic indicators, and the annual revision to the national income and product accounts. Incorporating that news would have led CBO to temper its near-term forecast for economic growth.”
This is why the CBO’s forecast for slow but steady recovery differs so markedly from private sector forecasts, which are increasingly leery of a double dip recession and project growth at levels much lower than previously expected.