CBO: 'Surprised and Disappointed by Pace of Economic Recovery'

March 19, 2014 - 9:18 AM
unmployment

Job hunters line up to fill out applications. (AP File Photo)

(CNSNews.com) - "Yes, we have been surprised and disappointed by the pace of economic recovery," Congressional Budget Office Director Douglas Elmendorf told a gathering in Washington on Tuesday.

Elmendorf said the CBO's own forecasts "put too much weight on the rapid monetary policy response (i.e., quantitative easing) and fiscal policy response (i.e., the stimulus and tax hikes) -- thinking those things would be enough to achieve a "fairly quick U-shaped recovery to bring the economy back more strongly than it has. And we've, in the past several years, marked down our projections for economic growth."

Elmendorf said there is "still considerable slack" in the economy and the labor market:

"For example, labor force participation is down considerably over the past several years, and a big chunk of that, we think, is due to the demographic changes, particularly the aging of the population and the moving of the baby boomers into retirement.

"But also we think a significant chunk of the decline in labor force participation rate stems from the weak economy. And some of the people who've left the labor force, we think will stay out permanently. But many others, we think, will come back as the economy strengthens.

"So our view now is the economy will, over the next four years, return back essentially to full employment; and we think that will come both from a healing of the underlying economic problems that stemmed from the housing boom and bust in the financial crisis. But also we think the economic growth will pick up this year because the fiscal drag that we've seen in the past few years (sequester) won't be in place this year.

"So we do think that there are even stronger reasons today to expect the economy to rebound. But we have been wrong about that," Elmendorf admitted. "And I think we have learned, as many other economic forecasters have learned, just what a prolonged process it is to work off the excesses of a housing boom...to rebuild a financial system, to restore consumer and business confidence."

The CBO predicts that the nation's unemployment rate will remain above 6 percent through late 2016 -- a presidential election year.

Elmendorf said the CBO estimates that the economy is currently "short" 6 million jobs: "And that has big economic costs, of course. Those people are not producing output. And it has very large personal costs for those people and their families."

He also noted the "extraordinarily  high" rate of long-term unemployment -- the share of people who have been out of work for half a year or more:

"Some who left the labor force have taken up disability insurance, part of the Social Security program, and are likely to stay on that program or move into the Social Security retirement program. Others are just looking for work or have stopped and are reported as unemployed. Others have stopped looking for work and are out of the labor force.

"So the consequences of having unemployment so high for so long are really profound and not just for now, but will have a long, long shadow."