A front-page article in editions of The Washington Post last June 10 contained significant errors. The article correctly reported that the Congressional Budget Office privately has shown Congress a preliminary forecast showing the economy is likely to fall into a full-fledged recession later this year and in 1980, with sharply rising unemployment and continued high inflation. Details obtained by The Post showed CBO predicting that the economy's growth rate would slow to 1.3 percent in 1980, with the jobless rate rising to an average of 6.9 percent for the year. The forecast also showed inflation at 10.1 percent this year and 8.3 percent in 1980. The forecast is more pessimistic than the one CBO issued last January, and generally is in line with those of many private economists, who also have scaled back their projections. The worsened outlook stems from several factors, including the sharp rise in oil prices. However, three major elements of The Post's story were inaccurate: The CBO forecast did not predict the jobless rate would rise to 7.5 percent in 1980, as The Post reported. (As a general rule of thumb, econe 7.5 percent peak was cited by some private economists whom CBO called in to review its forecast. The CBO forecast predicted that the nation's economic output was likely to decline for two quarters, not three, as The Post rreported. (As a general rule of thumb, economists say such "negative growth" for two quarters qualifies as a recession.) Congressional leaders were not shown the specific CBO forecast before the House and Senate voted final approval of their initial budget targets May 23, as The Post reported. They were aware of the deteriorating economic outlook but had not seen the revised forecast. The forecast was completed May 30. The errors resulted from a misunderstanding involving sources who previously have proved reliable. The Post regrets the error.
The nonpartisan Congressional Budget Office has Privately warned Congress to expect a full-fledged recession this year and through most of 1980, with inflation continuing at a double-digit pace and the jobless rate rising to 7.5 percent.
The updated forecast, decidedly gloomier than those of the administration and the CBO thinkers in January, reflects the recent weakening in the economy and the impact of the sharp oil price increases this year by the Organization of Petroleum Exporting Countries.
The predictions were prepared too late for Congress to use in setting its initial fiscal 1980 budget targets last month, but the House Budget Committee reportedly is revising its forecast in line with that of the CBO.
If the CBO forecast proves accurate, it could add at least $6 billion, and potentially a good deal more, to the budget deficit next year and dash plans by Congress and the administration to balance the federal budget in fiscal 1981.
The forecast contains these elements:
The nation's economy will fall into a recession later this year, with the growth rate slowing to an average 2.4 percent for 1979 and 1.3 percent for 1980, implying at least three quarters of actual decline, possibly through this time next year.
Inflation will continue at a double-digit pace, with consumer prices rising an average 10.1 percent this year and slowing to an average 8.3 percent in 1980. Consumer prices rose 9 percent in 1978.
The nation's uremployment rate, now 5.8 percent of the work force, will begin rising this summer to an average 6.9 percent for 1980, with joblessness climbing to a peak of about 7.5 percent in the second half of next year.
The combination of figures would appear to show the economy in a recession, with double-digit inflation, beyond the start of the primary elections next spring and well into the campaigns for the presidency and for congressional races.
Although the downturn that the CBO predicts would not be anywhere near as serious as the 1974-75 recession, it still would be visibly more serious than economists were forecasting earlier this year.
The White House has predicted that the economy will slow only moderately this year and then begin improving early in 1980, with only a slight rise in the jobless rate and inflation slowing from 1978 levels. Officials have indicated that they plan to revise their forecast.
The economic assumptions on which last month's congressional budget resolution was based showed the economy growing by 2.1 percent both this year and next, with inflation averaging 8.4 percent in 1979 and slowing to 7.8 percent in 1980.
The new CBO forecast makes it almost certain that Congress will have to revise its budget targets drastically when it enacts its final budget resolution later this year.
The changes also could heighten the split between liberals and conservatives. Although conservatives are adamant about balancing the budget, liberals may try to stimulate the economy if a recession comes.
Under the 5-year-old congressional budget process, the lawmakers set initial spending and tax-receipt targets early in the spring, and then turn them into binding spending celings by mid-September.
The CBO forecast was in line with recent economic indicators that have showed the economy weakening and job growth slowing visibly. Some economists say the nation already has begun sliding into a recession. The major question has been how deep the downturn will be.
Although the CBO prediction was described as preliminary, the agency is expected to publish a slightly more pessimistic forecast sometime in July. CBO economists have one of the better track records among economic forecasters.
The CBO calculations were made known privately to congressional leaders before final passage of the initial budget resolution last month, but sources said the two Budget committees decided to shelve them for the moment in what was described as a gamble that the economy might improve.
Until only recently the statistics that economists use to forecast economic behavior have been clouded by the impact of bad weather last winter, the Teamsters union strike in April and other factors.