It’s not like you don’t already know that things are really bad, but here are some numbers for you.
The Congressional Budget Office (CBO) reported yesterday that the U.S. recession – officially recognized to have started about a year ago – is likely to last well into 2009.
If it doesn’t end until the second half of 2009, it’ll be the longest recession since World War II. The two next longest recessions since that period, 1973-1974 and 1981-1982, both last sixteen months.
If there are no changes to current law and policies regarding spending and taxation, CBO also predicts that the real (adjusted for inflation) gross domestic product (GDP) is likely to shrink by 2.2% in 2009, and then recover slightly at 1.5% in 2010.
CBO expects the unemployment rate to exceed 9% in early 2010. For comparison, the unemployment rate was 10.8% towards the end of the 1981-1982 recession.
Mild inflation projected at .1% for 2009 is mostly due to falling energy prices and the tendency of the prices of the core rate (goods excluding food and energy) to fall when the U.S. is experiencing a recession or just coming out of a recession.
There is still a glut of vacant, unsold homes and housing market is expected to continue taking a beating – the CBO predicts that the national average price of a home will fall another 14% from the third quarter 2008 through the second quarter 2010. This is just the national average and some areas of the nation have been hit much harder than others.
Consumer spending is expected to decrease by 1% in 2009 and then pick up moderately in 2010. The reduced spending reflects the rise in unemployment, the widespread loss of wealth from declining stock markets and the real estate bust, and the tightening of consumer credit.
The federal deficit for 2009 is a mind-boggling $1.2 trillion, at 8.3% of the GDP. Included in that figure is $180 billion of the Troubled Asset Relief Fund (TARP) used for the financial industry bailout so far, and $240 billion used in the takeover of Fannie Mae and Freddie Mac.
But that number doesn’t include the cost of Obama’s proposed $800 billion American Recovery and Reinvestment Plan. Though CBO predicts the deficit for 2010 will decline to 4.3% of the GDP, it is still high by historical standards.
CBO expects federal revenue to decline by 6.6%, or $166 billion. This decline in revenue is mostly due to the loss of wealth among both individual and corporate taxpayers – investors who have taken substantial damage to their stock portfolios, and the corporations whose stocks have been battered in the recession.
Economic factors also caused increased government spending as they paid out more in unemployment benefits, nutritional assistance, and cost-of-living adjustments – many of those adjustments were large because they were based on the growth of the CPI for the four quarters ending in the third quarter 2008.
These estimated figures could change through Obama’s proposed economic rescue plan. Obama spoke earlier today urging Congress to move swiftly on passing the package aimed at reducing taxes for the middle-class and creating or saving three million American jobs over the next few years. Obama had hoped to have a package ready by inauguration day on January 20, 2009, but some members of Congress are having problems with a few details in the plan.
Some lawmakers are apprehensive about the massive cost of the plan, as well as the effectiveness of some aspects of the rescue package – such as giving a tax credit of about $20 on each paycheck to workers who earn less than $200,000 a year, and the proposed $3000 credit for businesses that hire new employees.
It’s more likely that Mr. Obama won’t have legislation to sign until mid-February.
Source:
The Congressional Budget Office
Change.gov
Congress.org
