By Jonathan Nicholson
Congress’ nonpartisan budget scorekeeper said Tuesday it sees the biggest impact from the COVID-19 legislation put in place so far happening in the current and upcoming quarters.
The Congressional Budget Office also maintained its previous forecasts for the economy to shrink at a nearly 40% annual rate in the second quarter, joblessness to peak at an average of 15.8% in the third quarter and the federal deficit to swell by trillions in part because of Washington’s rescue efforts.
“In CBO’s assessment, that legislation will partially mitigate the deterioration in economic conditions. In particular, greater federal spending and lower revenues will cause real GDP and employment to be higher over the next few years than they would be otherwise,” CBO said. “The effects of the legislation on economic activity will be largest in the second and third quarters of 2020 and smaller thereafter, CBO projects.”
The 27-page report came as lawmakers across the U.S. Capitol mulled their next moves. The Democratic House passed a bill last week with a price tag north of $3 trillion as their initial bid for another relief bill. Meanwhile, the Republican Senate has shown little eagerness to tackle another bill, with many members saying they want to wait and see how the already-approved money from earlier bills filters through the economy. Republican senators huddled with President Donald Trump for lunch Tuesday.
Based on data available through May 12, the CBO said it expected gross domestic product to fall at a 37.7% annual rate in the second quarter, a far steeper decline than the 4.8% rate in the first quarter. But the CBO sees GDP making up some of those drops in the third and fourth quarters, with growth rates of 21.5% and 10.4%, respectively.
The unemployment rate is seen hitting 15.1% on average for the second quarter and peaking at a 15.8% average in the third quarter. It was 14.7% in the April jobs report, the first to reflect the full impact of the coronavirus-related lockdowns. In the fourth quarter, joblessness was still expected to be high, though, at 11.5%.
CBO warned its projections carried more uncertainty than usual, given the nature of the pandemic and how well the economy would respond to a loosening of social distance requirements.
“For example, if the disease spreads less widely than CBO expects—because of testing and contact tracing, a vaccine, or for some other reason—the degree of social distancing could be lower and the economic recovery faster than what CBO currently projects. The opposite could also be the case,” the agency said.
“In addition, the extension, reversal, or reimplementation of different types of social distancing policies (such as stay-at-home orders, bans on large public gatherings, closures of specific kinds of businesses, and closures of schools) might have different effects on the economy,” said CBO.