Yesterday the Congressional Budget Office released their “summer update” publication, in which they update their baseline budget and economic projections for changes in the economy and legislation enacted so far this year. The Administration also released their “Mid-Session Review” publication, which makes similar updates for the President’s policy proposals.

Most of the press coverage focused on the updated budget deficit projections. I instead want to draw your attention to one component of the new CBO economic forecast.

We know of two big changes since CBO published their January baseline projection:

  1. The economy in 2009 was worse than most professional forecasters projected at the beginning of this year before President Obama took office and launched his ambitious legislative agenda. A weaker economy has caused everyone to lower their estimates of employment and their estimates of this year’s recession, where “everyone” includes CBO, OMB, and major private forecasters. Forecasters also have lowered their estimates for 2010, in part because they are starting from a lower 2009 level.
  2. There have been significant policy actions, the most notable of which was the $787 billion fiscal stimulus.

The new economic forecasts reflect both changes. The first makes the updated economic projections for 2009 and 2010 much worse than they were in January, and the second makes them somewhat better. (There is a vigorous debate about how much better.)

(photo credit: The White House)

There is no disagreement, however, about the net directional effect of the two. CBO and OMB project a weaker economy in the remainder of 2009 and in 2010 than they projected at the beginning of this year before enactment of the stimulus.

How much weaker?

Based on CBO’s forecast for the average unemployment rate in calendar year 2010, 2.3 million fewer people will be employed on average next year than they projected in January.

For comparison, in July there were about 140 million people employed in the U.S.

Next year’s reality will depend heavily on when the economy turns up and how quickly growth returns. A new projection of fewer people employed next year should not surprise anyone. But 2.3 million is a big bad number.