Each year, the Council of Economic Advisers (CEA), Office of Management and Budget (OMB), and Department of the Treasury develop a set of economic assumptions for the President’s Budget. Those assumptions are used to project a range of fiscal metrics in the Budget.
Because agencies base their budget forecasts and estimates of the impact of the President’s policies in part on these projections, assumptions must be finalized well in advance of the Budget release. CEA, OMB, and Treasury work to develop the most accurate possible forecast based on the information available to them at the time.
This year, as is typical, the Administration finalized its economic assumptions for the FY 2024 Budget in late November 2022. At the time, and as has been true across this Administration’s forecasts, the forecast was broadly consistent with other official and private sector forecasts.
Of course, late November 2022 was more than three months ago. Over that period, and as often happens over any quarter, economic circumstances have shifted.
In this case, since the forecast was finalized in November, the outlooks for the labor market and economic growth have improved. Specifically, since November, the unemployment rate has declined. Economic activity has remained solid, with upward revisions to third quarter GDP and the most recent estimate of fourth quarter GDP at 2.7%. In addition, quarterly annualized CPI inflation in the fourth quarter came in at 4.2% – nearly a full percentage point below the Administration’s forecast. The table below compares the Administration’s forecast for the fourth quarter of 2022 that was finalized in November to actual economic activity, inflation, and labor market data received since then.
|2022 Q4/Q4 Real GDP Growth||0.2%||0.9%|
|Annualized Q4 2022 CPI Inflation||5.1%||4.2%|
|Q4 2022 Unemployment Rate||3.8%||3.6%|
In light of the new data available since we formulated our assumptions, we anticipate that a forecast assembled today would differ in various ways from the Budget forecast – just as some private forecasts for both unemployment and growth have improved since November. In particular, updated projections for the near-term unemployment rate would likely be lower than the forecast we finalized in November.
There is more work to do to transition our economy to steady, sustainable growth, with lower inflation and without giving up the substantial gains American workers have achieved. But the resilience of the American economy – and the stronger performance of the labor market than we and most private sector forecasters expected in late November – is welcome news for workers, families, and the entire U.S. economy. Moreover, the continued resilience of the labor market during a period when headline inflation moderated has enabled several months of real wage gains for workers, with the strongest gains for workers in the bottom half of the income distribution.
CEA, OMB, and Treasury will develop a new comprehensive economic forecast later this year, in preparation for the Mid-Session Review of the Budget.