The U.S. economy is expected to grow by 4.6 percent this year before returning to more typical growth levels of slightly above 2 percent by 2023. Last year represented the worst year for gross domestic product since World War II, with the pandemic leading to a 3.5 percent contraction in the economy.
“CBO currently projects a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected,” the CBO’s report said.
But the country’s job market is expected to bear the scars of the pandemic recession for years, creating a challenge for policymakers and the new Democratic administration. Under the CBO’s projections, the unemployment rate would average 5.7 percent in 2021; 5 percent in 2022; and 4.7 percent in 2023. The CBO forecasts the unemployment rate will average 4.1 percent from 2026 to 2031, well above the 3.7 percent it averaged in 2019.
That is a better figure than many had feared, yet still higher than the 3.5 percent unemployment rate in February 2020 under President Donald Trump. However, the number of people employed overall, a different calculation from the unemployment rate, is expected to return to its pre-pandemic level in 2024, the CBO said.
The CBO’s analysis is based on current fiscal policy, meaning it does not take into account the $1.9 trillion stimulus plan President Biden is prodding Congress to pass. The CBO analysis factored in the potential impact of coronavirus mutations on the economy.
The report was released amid a widening debate about the economic stimulus, as a group of 10 Senate Republicans argue that Biden’s $1.9 trillion proposal would spend too much taxpayer money without justification.
“With a labor market this shaky and the pandemic raging, now is certainly not the time to take our foot off the gas,” said Lindsay Owens, interim executive director of the Groundwork Collaborative, a left-leaning policy group.
Douglas Holtz-Eakin, president of the right-leaning American Action Forum, said the CBO’s projection of a declining unemployment rate suggests Biden’s large stimulus plan is unnecessary.
“This is a political thing. It’s at odds with any of the numbers,” said Holtz-Eakin, a former CBO director who also served as an adviser to Sen. John McCain (R-Ariz.). “You don’t need $1.9 trillion to solve whatever problems we have left.”