The Administration's Economic Forecast

The Administration has released its updated economic forecast. The top line number--the annual rate of growth in real GDP--has been revised downward from 2.9 percent to 2.3 percent for the four quarters of 2007 (the prior forecast is here). The forecast is dated June 4, 2007, so it incorporates the latest news on GDP growth for the first quarter. This suggests that forecast is based on the view that we will return to 2.9 percent growth in the second through fourth quarters (since (1.006*1.029*1.029*1.029)^(1/4) is roughly 1.023). Here's the relevant excerpt:

The forecast revises the projection of real gross domestic product (GDP) down from 2.9 percent growth to 2.3 percent during the four quarters of 2007. This revision incorporates the slower growth that occurred in the first quarter of the year with the expectation that solid growth will resume for the rest of 2007. The economy has now experienced over five years of uninterrupted growth, averaging 2.9 percent per year since the expansion began in 2001. Real GDP is projected to grow at about the historic average in 2008 and for the remaining years of the forecast.

I doubt many people will see this forecast as "too pessimistic," but I'm almost three years removed from spending a lot of time following the macroeconomy. The next stop for this forecast is to be used as an input into the Mid-Session Review of the budget by Treasury and OMB. The projected budget deficit will widen, but we have to wait until July (usually) to find out how much.