"The recession appears to have bottomed out, but as yet it is not clear that the recovery has begun," the Congressional Budget Office declared yesterday in an update of its economic and budget forecasts.
However, CBO predicted that "consumer spending should turn up significantly in the months ahead" and added that recent declines in both short-term and long-term interest rates will contribute to a recovery if they are sustained. As a result, real output should increase at about a 3.7 percent rate during 1983, CBO predicted.
Even with such a recovery, CBO estimated the budget deficit would be about $155 billion in fiscal 1983 and about $152 billion in 1984 and 1985. The 1983 figure compares with a $104 billion estimate made by Congress in the budget resolution and a $115 billion estimate in the Reagan administration's mid-session budget review released late in July.
Asked at a press conference why the CBO deficit estimate was so much higher than the administration's, Treasury Secretary Donald T. Regan said the CBO forecast and analysis are "more pessimistic than ours. They are not looking for any kind of recovery in '83."
In addition, Regan said, "I believe that their figures . . . have the Treasury 91-day bill rate averaging somewhere around 10 1/2 to 11 percent in 1983. It is between 8 1/4 and 8 1/2 percent right now. For it to average 10 1/2 to 11 next year would call for a tremendous increase in interest rates between now and then, something I don't see."
Actually, the CBO interest rate forecast is about 10.3 percent for Treasury bills next year. The CBO's estimate of a 3.7 percent growth in the economy in 1983 is only 0.7 percentage points lower than that of the administration and more optimistic than that of a number of private forecasters.
CBO warned that the major danger to the recovery remains high interest rates.
The large amount of federal borrowing needed to cover the budget deficits, combined with a restrictive monetary policy, "could push up real interest rates and thereby crowd out some private borrowing normally associated with a cyclical recovery," the update said.
The differences in the CBO economic forecast account for a large portion of the gap between the administration's and its own deficit calculations.
At the same time, CBO puts the cost of a number of programs, including defense and farm price supports, about $18 billion higher than does the administration, and only one, unemployment compensation, about $4 billion lower.