The economy is surging back better than expected from its pandemic-induced malaise, the Congressional Budget Office said Monday, though it said the overall growth won’t mask lingering pain in a job market that could take years to return to normal.
Businesses adapted better to social distancing, reopening sooner and stronger than anticipated, CBO analysts said.
Congress’ generosity with taxpayers’ money also helped, with December’s $900 billion relief package ensuring the economy remained in positive growth territory, the nonpartisan budget agency said, even as the country’s longer-term fiscal picture deteriorated.
Democrats say the success of that last spending bill is reason to try another one, in the form of President Biden’s nearly $2 trillion pandemic relief proposal.
Budget watchdog groups, though, said the economy is already showing strong growth without dipping deeper into Americans’ pockets, and they said the new CBO numbers are reason for restraint in the next round of spending.
“More funding is warranted,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “But it shouldn’t take $1.9 trillion to fill a $400 billion or $800 billion hole.“
CBO’s report is in many ways a testament to the resilience of the economy.
The agency’s analysts said that while the travel and hotel sectors remain troubled, other parts of the service economy have adapted and rebounded better than they had predicted in the last update six months ago.
As of now, CBO projects that while people still may be wearing masks at grocery stores or taking other pandemic-related steps, social distancing will no longer be a net drag on the economy as of this summer.
How well reality will match the new projections comes down in large part to the race to vaccinate, and whether that can outpace the growth of new more virulent strains of COVID-19.
In short, faster vaccinations means a faster recovery, the agency said.
CBO has stood up a virus unit to track things, and it produced an optimistic scenario and a pessimistic scenario for the rate of vaccinations. As of January, the actual rate was sitting right on the center line between the best- and worst-case numbers, the agency said.
All told, the federal government has now earmarked about $4 trillion to pandemic relief, and whatever Mr. Biden wins from Congress will add to that total — all of it tacked on to the deficit.
Even without a bill, CBO says real gross domestic product will rise 4.6% on a year-to-year basis in 2021, after a 3.5% drop last year.
Growth will remain above 2% through the middle of the decade, which is higher than pre-pandemic projections.
The grim spot is jobs, which analysts said always lag behind other economic measures in a recovery.
In this case, the unemployment rate for 2020 was 6.8% in the fourth quarter of 2020, already lower than early projections had envisioned, and it will drop to 5.3% at the end of 2021.
Still, the size of the employed workforce won’t rebound to pre-pandemic levels until 2024, CBO says.
Top Democrats on Monday said they’re committed to going big on a relief package as soon as possible.
“The cost of inaction is high and growing, and the time for decisive action is now,” House Speaker Nancy Pelosi and Senate Majority Leader Charles E. Schumer said in a joint statement as they took the first steps on a budget bill that could usher Mr. Biden’s $1.9 trillion plan through without any GOP support.
Included in their plans are a new round of unemployment benefits and $1,400 relief checks, as well as $350 billion in aid to states and localities complaining of their own budget squeeze.
Brian Riedl, a senior fellow at the Manhattan Institute for Policy Research, said that bill “widely overshoots” what the CBO says is needed.
He pointed to the CBO’s output gap — a measure of the difference between the economy’s potential and what it’s actually doing. The gap is projected to be $420 billion this year and $224 billion next year, diminishing further to zero in 2025.
Ms. MacGuineas said unemployment assistance and some aid to prevent layoffs of state or local employees is needed, and Mr. Biden is right to call for more spending to constrain the virus. But other parts of his plan “have little to do with the current crisis.”
She also said the relief could be spread out over time, giving lawmakers a chance to see how the next round of efforts plays out.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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