The Denouement

What's Driving Projected Deficits?

Via Mark Thoma: 

The CBPP has updated its chart (full report) showing the source of the budget deficit, "and they continue to find that these deficits stem overwhelmingly from the economic downturn, the tax cuts first enacted under President Bush, and the wars in Iraq and Afghanistan." But going forward, it's the Bush-era tax cuts that make the largest contribution:

September Employment Situation 2012

The Bureau of Labor Statistics released its "Employment Situation Summary" for the month of September. The unemployment rate declined to 7.8 percent, while nonfarm payroll employment increased by 114,000.

BLS Release: 

The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries.

 

 

 

 

FOMC Minutes September 12-13, 2012

Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, September 2012:

Mark Thoma provides a good interpretation of today's news: "Fed members disagree over when to reverse policy"

"The Outlook for Economic Activity" from the September 12-13, 2012 FOMC Minutes:

FOMC Minutes September 12-13, 2012...Conditional on their individual assumptions about appropriate monetary policy, participants judged that the economy would grow at a moderate pace over coming quarters and then pick up somewhat in 2013 before expanding in 2014 and 2015 at a rate modestly above what participants saw as the longer-run rate of output growth. The central tendency of their projections for the change in real GDP in 2012 was 1.7 to 2.0 percent, somewhat lower than in June. Many participants cha- racterized the incoming data as having been to the weak side of their expectations at the time of the June meeting; several participants also cited the severe drought as a factor causing them to mark down their projections for economic growth in 2012. However, participants’ projections for 2013 and 2014 were gener- ally slightly higher than in June; this reflected, in part, a greater assumed amount of monetary policy accommo- dation than in their June submissions as well as some improvement since then in the outlook for economic activity in Europe. The central tendency of partici- pants’ projections for real GDP growth in 2013 was 2.5 to 3.0 percent, followed by central tendencies for both 2014 and 2015 of 3.0 to 3.8 percent. The central ten- dency for the longer-run rate of increase of real GDP remained at 2.3 to 2.5 percent, unchanged from June. While most participants noted that the increased degree of monetary policy accommodation assumed in their projections would help promote a faster recovery, par- ticipants cited several headwinds that would be likely to hold back the pace of economic expansion over the forecast period, including slower growth abroad, a still- weak housing market, the difficult fiscal and financial situation in Europe, and fiscal restraint in the United States.

Participants projected the unemployment rate at the end of 2012 to remain close to recent levels, with a cen- tral tendency of 8.0 to 8.2 percent, the same as in their June submissions. Participants anticipated gradual im- provement from 2013 through 2015; even so, they gen- erally thought that the unemployment rate at the end of 2015 would still lie well above their individual estimates of its longer-run normal level. The central tendencies of participants’ forecasts for the unemployment rate were 7.6 to 7.9 percent at the end of 2013, 6.7 to 7.3 percent at the end of 2014, and 6.0 to 6.8 percent at the end of 2015. The central tendency of participants’ estimates of the longer-run normal rate of unemploy-

ment that would prevail under the assumption of ap- propriate monetary policy and in the absence of further shocks to the economy was 5.2 to 6.0 percent, un- changed from June. Most participants projected that the gap between the current unemployment rate and their estimates of its longer-run normal rate would be closed in five or six years, while a few judged that less time would be needed.

Figures 3.A and 3.B provide details on the diversity of participants’ views regarding the likely outcomes for real GDP growth and the unemployment rate over the next three years and over the longer run. The disper- sion in these projections reflects differences in partici- pants’ assessments of many factors, including appropri- ate monetary policy and its effects on the economy, the rate of improvement in the housing sector, the spillover effects of the fiscal and financial situation in Europe, the prospective path for U.S. fiscal policy, the extent of structural dislocations in the labor market, the likely evolution of credit and financial market conditions, and longer-term trends in productivity and the labor force. With much of the data for the first eight months of 2012 now in hand, the dispersion of participants’ pro- jections of real GDP growth and the unemployment rate this year narrowed in September compared with June. The range of participants’ forecasts for the change in real GDP in 2013 and 2014, however, was little changed from June, on balance. The distribution of projections for the unemployment rate was not much altered for 2013, while for 2014 it narrowed a bit and shifted down slightly. The range for the unem- ployment rate for 2015 was 5.7 to 6.9 percent. As in June, the dispersion of estimates for the longer-run rate of output growth was fairly narrow, with the values being mostly from 2.2 to 2.7 percent. The range of participants’ estimates of the longer-run rate of unem- ployment was 5.0 to 6.3 percent, a similar range to that in June; this range reflected different judgments among participants about several factors, including the outlook for labor force participation and the structure of the labor market...