Order Code RL30329
Report for Congress
Received through the CRS Web
Current Economic Conditions
and Selected Forecasts
Updated December 18, 2002
Gail Makinen
Specialist in Economic Policy
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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Current Economic Conditions and Selected Forecasts
Summary
According to the National Bureau of Economic Research, the agency that dates
the American business cycle, the longest economic expansion in American history
ended in March 2001. The U.S. is now in a recession that is in its 19th month. The
average length of the 10 recessions in the post-World War II era is 11 months.
The positive rate of growth of Gross Domestic Product (GDP), our basic
measure of economic activity, during the 3 quarters of 2002, probably signals that the
recession is over. GDP grew only 0.3% during 2001. This included the contraction
of GDP during the first 3 quarters of the year. However, about one-half of the
additional GDP produced during the first 3 quarters of 2002 was not sold but added
to inventories.
The unemployment rate during the 1991-2001 expansion reached a low of 3.9%
in September 2000. It has risen since then, reaching a high in April and November
2002 of 6.0%. During the first 10 months of 2002 it varied between 5.5% and 6.0%.
Over 1998 and 2000, the unemployment rate moved within a narrow band of from
4.7% to 3.9%. The monthly unemployment rates recorded during most of the past
4 years have been below those thought by many economists to characterize full
employment. Since the contraction began in March 2001 employment has fallen by
approximately 1.80 million.
The inflation rate has, on average, been low over most of the 1991-2001
expansion. Except for 1996, 1999, 2000, the rate of inflation measured by the
Consumer Price Index has declined in each year of the expansion. For the 12 months
ending in November 2002 the CPI rose 2.2%. For the 3 months ending in November
2002 it rose at an annual rate of 2.2%. A similar pattern shows up in the two GDP
price indexes. Both indexes rose 1.8% during 1997, 1.1% during 1998, 1.5% during
1999, 2.4% during 2000, and 1.8% during 2001. During the first 3 quarters of 2002
the indexes rose at an annual rate of 1.2% The rate of rise of per-unit labor costs, a
possible indicator of future inflation, which rose 5.0% during 2000, fell -0.5% during
2001, and declined at an annual rate of 0.8% during the first three quarters of 2002.
Fiscal policy was eased during 2001 and 2002. Monetary policy has been eased
over the course of 2001 and late in 2002 and appears to be geared to promoting a real
GDP growth rate of from 3.5% to 3.76% this year, a rate thought compatible with
a stable rate of inflation.
Recent forecasts by private sector individuals and firms for 2002 suggest that
GDP will grow between 2.3% and 2.4%, unemployment will average about 5.8%,
and inflation will average between 1.1% and 1.7% (depending on which price index
is used).

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Contents
Current Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Macroeconomic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Posture of Monetary and Fiscal Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary of Current Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Sources of GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economic Forecasts, 2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Promotion of Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Figures
Figure 1. Real Dollar Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 2. Yield on Selected U.S. Treasury Securities and Federal Funds . . . . . . . 7
List of Tables
Table 1. The Growth Rate of Real GDP v. Final Sales . . . . . . . . . . . . . . . . . . . . 2
Table 2. Civilian Unemployment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 3. Rate of Change in the Consumer Price Index . . . . . . . . . . . . . . . . . . . . . 3
Table 4. Rate of Change in the GDP Deflators . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 5. Rate of Change in Labor Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 6. U.S. Foreign Trade Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 7. Alternative Measures of Fiscal Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 8. The Growth Rates of the Monetary Aggregates . . . . . . . . . . . . . . . . . . . 6
Table 9. Sources of GDP Growth: 1992 through 2002: 3Q . . . . . . . . . . . . . . . . . 8
Table 10. Economic Forecasts 2002-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 11. U.S. Saving By Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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Current Economic Conditions and
Selected Forecasts
Current Economic Conditions
On November 26, 2001, the National Bureau of Economic Research, the
nonprofit, nonpartisan organization that dates the phases of the business cycle for the
United States, declared that the longest expansion in American history had ended in
March of that year and that the U.S. was now in a recession. The average length of
the ten post-World War II recessions has been 11 months. The longest recession
lasted 16 months, the shortest 6 months. The growth rate of Gross Domestic Product
(GDP)1 has been slow since mid-2000 and while it was barely positive for 2001 as
1 Gross Domestic Product rather than Gross National Product is now used as the principal
(continued...)

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CRS-2
a whole, it contracted during the first 3 quarters. Growth in the fourth quarter was
at an annual rate of 2.7%. Growth during the first 3 quarters of 2002 was,
respectively, at annual rates of 5.0%, 1.3%, and 4.0%.
The unemployment rate reached a 30-year low of 3.9% in September 2000.
Since then it has risen, reaching a contraction high of 6.0% in April 2002. During
the first 10 months of 2002 it fluctuated between 5.5% and 6.0%.
With the onset of the contraction the rate of inflation, as measured by the broad-
based price indexes, has declined.
Beginning in January 2001 Federal Reserve policy has shifted to one of ease.
On January 3 and 31, March 20, April 18, May 15, June 27, and August 21, 2001,
in the face of a falling rate of GDP growth, the target rate for federal funds was
reduced to 3.50%. On September 17, in the wake of the terrorist attacks on the U.S.,
the target rate was reduced to 3.0%. On both October 2 and November 6 it was
reduced 1/2% and on December 11, 1/4%. Additional easing took place on
November 6, 2002, when the target rate was reduced to 1-1/4% from 1-3/4%.
Recent Macroeconomic Developments
The growth rate of GDP since 1991 is shown in Table 1. Its most notable
feature is that the growth rate of GDP averaged more than 4% per year during the
final 4 years of the recent expansion. GDP growth began to slacken during the
second half of 2000 and into 2001. GDP actually contracted during the first 3
quarters of 2001 at an annual rate of 0.8%. This was reversed during the fourth
quarter, when GDP grew at an annual rate of 2.7% and during the first 3 quarters of
2002, when it grew at annual rates of 5.0%, 1.3%, and 4.0%, respectively. The
growth of Final Sales has not shown quite such a dramatic decline because it reflects
the liquidation of inventories that has been on-going over the course of 2001.
Inventory liquidation is a good sign. When inventories are liquidated, additional
sales will come from additional production and this will assist the recovery. During
the first 3 quarters of 2002 inventories increased again as the annualized growth of
final sales rose only 1.9%
Table 1. The Growth Rate of Real GDP v. Final Sales
(in percentages)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*
GDP
Year Over Year
-0.5
3.0
2.7
4.0
2.7
3.6
4.4
4.3
4.1
3.7
0.3
3.4
4thQ Over 4thQ
0.9
4.0
2.5
4.1
2.3
4.1
4.3
4.8
4.3
2.3
0.1
3.2
1 (...continued)
measure of economic activity for the United States. The two measures differ in their
treatment of foreign-owned productive resources in the United States and similar U.S.-
owned resources abroad.

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CRS-3
Final Sales
Year Over Year
-0.2
2.8
2.6
3.4
3.1
3.6
4.0
4.2
4.3
3.7
1.5
1.9
4thQ Over 4thQ
0.2
4.2
2.6
3.2
2.9
3.9
4.0
4.7
4.2
2.6
1.6
2.5
Source: U.S. Department of Commerce. Year over year measures the annualized rate for the first 3
quarters. The other measures 3rd Q 2002 over 3rd Q 2001.
The unemployment rate shown in Table 2 fell from June 1992 through
September 2000. At 3.9%, the unemployment rate in September was at a 30-year
low. Since then, as the pace of economic growth contracted and then began to rise,
the unemployment rate has risen and now stands at 6.0%, the same rate it reached in
April 2002. Since the contraction began in March 2001, approximately 1.80 million
jobs have been lost.
Table 2. Civilian Unemployment Rate
(in percentages)
J
F
M
A
M
J
J
A
S
O
N
D
1992
7.1
7.3
7.3
7.3
7.4
7.7
7.6
7.6
7.5
7.4
7.3
7.3
1993
7.1
7.0
7.0
7.0
6.9
6.9
6.8
6.7
6.7
6.7
6.5
6.4
1994
6.7
6.6
6.5
6.4
6.1
6.1
6.1
6.0
5.8
5.7
5.6
5.4
1995
5.7
5.4
5.5
5.8
5.7
5.6
5.7
5.6
5.6
5.5
5.6
5.6
1996
5.7
5.5
5.5
5.5
5.6
5.3
5.4
5.2
5.2
5.2
5.3
5.3
1997
5.3
5.3
5.2
5.0
4.8
5.0
4.9
4.9
4.9
4.8
4.6
4.7
1998
4.6
4.6
4.7
4.3
4.4
4.5
4.5
4.5
4.5
4.5
4.4
4.3
1999
4.3
4.4
4.2
4.3
4.2
4.3
4.3
4.2
4.2
4.1
4.1
4.1
2000
4.0
4.1
4.0
4.0
4.1
4.0
4.0
4.1
3.9
3.9
4.0
4.0
2001
4.2
4.2
4.3
4.5
4.4
4.6
4.6
4.9
5.0
5.4
5.6
5.8
2002
5.6
5.5
5.7
6.0
5.8
5.9
5.9
5.7
5.6
5.7
6.0
Source: U.S. Department of Labor.
It is hard to find much evidence that the inflation rate accelerated as the previous
expansion lengthened. The good inflation performance during 1997-1999, shown in
Tables 3 and 4, was largely due to the collapse of petroleum prices. This was
reversed in 2000 and the inflation rate accelerated once again, but not noticeably
different from the earlier years of the expansion. The CPI rose 2.2% for the 12
months ended in November 2002 and at an annual rate of 2.2% for the three months
ended in November 2002.
The behavior of labor costs, regarded by some as an indication of future
inflation, is shown in Table 5. The growth rate of per unit labor costs, which is
heavily influenced by productivity, has been falling. This reflects both the easing in
labor markets and the rise in productivity growth.2 The rate at which the
Employment Cost Index for private industry has risen has accelerated since its 1995
2 On a year over year basis, the rise in per unit labor costs for 1990 through 2001 was
respectively, 4.3%, 3.3%, 1.5%, 1.7%, 0.8%, 1.2%, 0.5%, 1.0%, 2.7%, 1.9%, 3.9%, and
1.7%.

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CRS-4
low. Since the growth in per unit labor costs has fallen over the past 2 years, this
indicates that wage increases were being driven by productivity increases. The
September 2002 survey indicates that labor market easing has slowed the increase in
compensation.
Table 3. Rate of Change in the Consumer Price Index
(in percentages)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*
Dec. Over Dec.
3.1
2.9
2.7
2.7
2.5
3.3
1.7
1.6
2.7
3.4
1.6
2.2
Year Over Year
4.2
3.0
3.0
2.6
2.8
2.9
2.3
1.6
2.2
3.4
2.8
2.2
Source: U.S. Department of Labor.
*Upper figure is for the 12 months ended in November. Lower figure is the annual rate for the 3
months ended in November.
Table 4. Rate of Change in the GDP Deflators
(in percentages)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*
Implicit Price Deflator
4.2
3.1
2.3
2.4
2.1
2.1
1.9
1.8
1.1
1.6
2.3
2.0
1.2
Chain Type Deflator
4.2
3.1
2.3
2.4
2.1
2.1
1.9
1.8
1.1
1.6
2.3
2.0
1.2
Source: U.S. Department of Commerce.
*The annualized rate for the first 3 quarters.

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CRS-5
Table 5. Rate of Change in Labor Costs
(in percentages)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002*
Unit Labor Costs
5.3
1.7
0.4
1.5
1.1
1.5
0.7
1.1
2.4
1.4
5.0 -0.5
-0.8
Employment Cost Index
4.6
4.4
3.5
3.6
3.1
2.6
3.1
3.4
3.5
3.4
4.4
4.2
3.7
Source: U.S. Department of Labor. *The ECI is for private industry for the 12 months ended in
September. For all other years it is for the 12 months ending in December.
*For ULC annualized rate for the first three quarters.
Table 6. U.S. Foreign Trade Deficit
(as a percent of GDP)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Trade
Deficit
1.8
1.2
0.8
0.2
0.3
0.8
1.2
1.0
1.1
1.4
2.6
3.6
4.3
4.4
5.0
Note: Percentages measure the real trade deficit divided by real GDP. For 2002, datum is for the first
3 quarters.
The U.S. foreign trade deficit (net imports), as shown in Table 6, recorded a
continued and dramatic fall from 1988 through 1991. In each of these years the trade
deficit declined as export growth exceeded import growth. During 1992 the trade
deficit began to grow as a fraction of GDP and is now running at a rate in excess of
its previous high in 1987. The increase in the U.S. foreign trade deficit during
1992!2002 reminds us that the United States still receives a substantial net inflow of
capital from abroad.
Figure 1 records the movement in the foreign exchange value of the dollar over
the past 15 years. After a low in early 1995, the dollar has risen in real or inflation-
adjusted terms (or appreciated) by nearly 35%.

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CRS-6
Figure 1. Real Dollar Exchange Rate
115
110
105
100
95
90
85
801987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Years
Source: Board of Governors of the Federal Reserve System
Posture of Monetary and Fiscal Policy
The course of GNP growth can respond significantly to changes in fiscal and
monetary policy. The posture of fiscal policy depends on how it is measured. A
generally accepted method is to examine the ratio of the structural or full employment
budget deficit to full employment GDP. When that is done, as shown in Table 7,
fiscal policy during 2001 was expansionary as the full employment surplus fell from
1.3% to 0.6% of potential GNP. An alternative, although inferior measure, is the ratio
of the actual budget deficit to actual GDP. When examined, fiscal policy in 2001 was
also expansionary as the actual surplus fell from 2.4% to 1.3% of actual GDP.
Table 7. Alternative Measures of Fiscal Policy
($ in billions per fiscal year)
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Standardized Budget
Deficit
$154
$127
$116
$120
$151
$185
$183
$141
$139
$92
$63
$25
$+11
$+120
$+61
Full Employment
GDP
4,692
4,998
5,347
5,710
6,093
6,411
6,724 7,046
7,396
7,764
8,166
8,563
8,986
9,508
10064
Ratio
0.033
0.025
0.022
0.021
0.025
0.029
0.027 0.020
0.019
0.012
0.008
0.003
+0.001 +0.013 +0.006
Actual Budget Deficit
$150
$155
$152
$221
$269
$290
$255
$203
$164
$108
$22
$+69
$+124
$+236
$+127
Actual GDP
4,654
5,017
5,407
5,738
5,928
6,222
6,561 6,949
7,323
7,700
8,194
8,666
9,153
9,828
10150
Ratio
0.032
0.031
0.028
0.039
0.045
0.047
0.039 0.029
0.022
0.014
0.003 +0.008 +0.014 +0.024 +0.013
Source: Congressional Budget Office (January 2002).

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CRS-7
Traditionally, the posture of monetary policy has been judged either by the
growth of the monetary aggregates or by movements in interest rates.3 In fact, neither
is an unambiguous indicator. The monetary aggregates, for example, give a confused
picture. Although M1 could explain how the most recent economic expansion got
underway, it could not explain the expansion’s continuation. It can, however, explain
how it ended. The opposite appears to be the case for both M2 and M3.
Although the contraction of reserves could indicate monetary tightening, it is,
in fact, compatible with monetary expansion. This occurs because over much of the
most recent expansion, demand deposits declined and it is against these deposits that
banks are legally obligated to hold reserves. Each dollar of decline frees up about 10
cents in reserves that banks can lend. Thus, even though reserves declined, they
declined by less than the reserves set free by the contraction of demand deposits.
This increased the net lending powers of banks.
Some of the dollars that were in checking accounts have found their way into
passbook savings and CDs. These shifts can explain why M1 falls without a
commensurate fall in M2 and M3. For the latter to grow, however, funds must be
added to passbook savings and CDs that were not originally in checking accounts.
Table 8. The Growth Rates of the Monetary Aggregates
(annualized rates of change)
Time
Aggregate
Monetary
M1
M2
M3
Period
Reserves
Base
88:12!89:12
0.8%
4.2%
0.8%
5.4%
4.0%
89:12!90:12
3.1
9.5
4.0
3.8
1.6
90:12!91:12
9.0
8.3
8.7
3.0
1.3
91:12!92:12
19.6
10.5
14.3
1.6
0.3
92:12!93:12
11.3
10.5
10.3
1.6
1.4
93:12!94:12
-1.8
8.2
1.8
0.4
1.7
94:12!95:12
-5.0
3.9
-2.0
4.1
6.0
95:12!96:12
-11.2
4.0
-4.1
4.7
7.3
96:12!97:12
-6.6
6.1
-0.7
5.7
9.1
97:12–98:12
-3.5
7.0
2.2
8.8
11.0
98:12–99:12
-7.6
15.3
2.3
6.0
8.3
99:12–00:12
-7.3
-1.5
-3.0
6.2
8.6
00:12–01:12
6.7
8.7
8.3
10.5
12.9
01:12-02:11
-4.5
7.2
2.0
6.9
6.3
Source: Board of Governors of the Federal Reserve System.
The growth in the reserves of depository institutions results to a large degree
from decisions to move the key federal funds’ interest rate (shown in Figure 2).
These moves have been motivated primarily by a desire to bring the economy to full
employment (1990-94) and then keep it growing at a rate sufficient to maintain full
3 For a more comprehensive discussion of monetary policy, see CRS Report RL30354,
Monetary Policy: Current Policy and Conditions, by Gail Makinen.

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CRS-8
employment. From time to time other factors may influence the movement of this
rate. For example, the turmoil in both domestic and international financial markets
cause the rate to be reduced 1/4% on September 29, October 15, and November 17,
1998 at which point it stood at 4.75%. In three equal moves of 1/4% during June,
August, and November 1999, the rate was returned to its pre-crisis level of 5.5%. On
both February 2 and March 21, 2000, in the face of mounting evidence that the
economy was growing at an unsustainable rate, the federal funds rate was raised an
additional 1/4%, and on May 16 it was raised ½%, bringing the rate to 6.5%. In six
equal cuts of 1/2% (January 3 and 31, March 20, April 18, May 15 and June 27), and
a seventh cut of 1/4% (August 21), the rate was reduced to 3.50%. In response to the
terrorist attacks, the rate was reduced to 3.0% on September 17 and in a further move
toward easing, it was reduced to 2.5% on October 2, to 2.0% on November 6, and to
1-3/4% on December 11. On November 6, 2002, the target was reduced to 1-1/4%
in the face of a softening of demand growth.
As Figure 2 shows, movements in short-term interest rates mimic closely
movements in the federal funds rate. This is not as true for longer-term rates. Their
rise and fall as well as the magnitude of their shifts is often different from the timing
and magnitude of shifts in the federal funds rate. This is due in part to the fact that
they respond to the longer run outlook for inflation, the financing requirements
necessitated by the budget deficit, both current and prospective, and the international
flow of capital.
Figure 2. Yield on Selected U.S. Treasury Securities and Federal Funds
10
9
8
7
6
5
4
3
2
1
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Three Month
Federal Funds
Five Year
Thirty-Year
Source: Board of Governors of the Federal Reserve System.

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CRS-9
Summary of Current Developments
The NBER decided on November 26 2001 that the longest economic expansion
in U.S. history was over and that the United States had been in a recession since
March 2001. This decision was unprecedented in the sense that in March the U.S.
economy–according to the data then available–was still expanding. We now know
that GDP was contracting, a contraction that would run 3 quarters. The
unemployment rate reached a low of 3.9% in September 2000. It began to rise and
in April 2002 reached a contraction high of 6.0%. In August it stood at 5.7%. Since
the contraction began, approximately 1.80 million jobs have been lost. On the
positive side, the rate of inflation has fallen considerably although some of the
decline can be attributed to the sharp fall in oil prices. To combat the economic
slump, both fiscal and monetary policies have become expansionary. In eleven
separate moves during 2001, the target for the federal funds rate was reduced to 1-
3/4% on December 11, from a high of 6-1/2% on January 3. Signs of revival are
beginning to show. GDP grew during each of the past 3 quarters. On November 6,
2002, it was reduced to 1-1/4% in the face of evidence suggesting that demand
growth had softened.
Sources of GDP Growth
Table 9 records the sources of growth in GDP over the 1991-2001 expansion.
These data record two interesting developments. First, investment spending played
an important role in that expansion. And among the categories of investment, outlays
for personal computers were important. This bodes well for the longer run growth
in productivity. Second, purchases by all levels of government played only a small
role in that expansion.
Table 9. Sources of GDP Growth: 1992 through 2002: 3Q
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001 2002:3Q
Real GDP
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
**
100.0%
Growth*
Consumption
71.2
87.7
59.3
86.2
51.5
63.3
71.1
80.0
105.1
63.0
Investment
28.8
41.5
46.7
1.2
42.4
45.5
44.4
30.3
21.6
45.8
Govt. Purchases
6.2
-6.4
0.8
-6.8
12.0
10.2
10.1
16.3
7.3
18.1
Net Exports
-6.3
-25.9
-6.97
19.4
-5.9
-19.0
-25.6
-26.4
-34.0
-27.0
Source: Department of Commerce.
* Computed using real GDP at 1996 chained dollars on a 4th quarter over 4th quarter basis.
** When the small change in GDP is compared with the large change in components, the resulting percentages
are so large as to be meaningless.

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CRS-10
Economic Forecasts, 2002-2003
The forecasts in Table 10 come from three sources. OMB and CBO are well
known. BC stands for Blue Chip, a firm that collects the forecasts from about 50
forecasters in finance, business, and universities. BC Con represents the consensus
or average forecasts of this group. BC T-10 is the average of the high ten among
these forecasts, while BC B-10 is the average of the low ten forecasts.
The consensus of the forecasts summarized in Table 10 is optimistic that
vigorous GDP growth will resume in the second half of the year. The rate of GDP
growth, according to the consensus forecast, will be sufficient to push the
unemployment rate down. The inflation rate is expected to remain below 2.0%.
Both short-term and long-term interest rates are expected to be at or near their 2000
and 2001 levels.
The Wall Street Journal published the results of its survey of 55 economic
forecasters in its July 1, 2002 edition. These forecasters, on average, expect real
GDP to grow at an annual rate of 3.3%, and 3.7% during the 3rd and 4th quarters of
2002 and at an annual rate of 3.6% during the first 2 quarters of 2003. The CPI is
expected to rise 2.2% for the year ended in November. The 3-month Treasury bill
rate and 10-year note rate are expected to be 2.2% and 5.2% in December 2002 and
the unemployment rate in November is expected to be 5.8%.
Table 10. Economic Forecasts 2002-2003
2002
2003
2001* 2002
2003
1*
2*
3*
4
1
2
3
4
Nominal GDPa
OMB
6.4
2.5
5.0
NA
NA
NA
NA
NA
2.6
4.0
5.5
CBO
6.4
2.5
5.0
NA NA
NA
NA
NA
2.6
3.4
4.6
BC T-10
6.4
2.5
5.0
5.4
6.9
6.6
6.6
7.0
2.6
3.6
5.3
BC Con.
6.4
2.5
5.0
3.2
4.5
4.9
5.3
5.5
2.6
3.6
4.4
BC B-10
6.4
2.5
5.0
1.5
2.7
3.4
3.8
3.9
2.6
3.5
3.8
Real GDPa
OMB
5.0
1.3
4.0
NA
NA
NA
NA
NA
0.3
2.6
3.6
CBO
5.0
1.3
4.0
NA
NA
NA
NA
NA
0.3
2.3
3.0
BC T-10
5.0
1.3
4.0
2.4
3.7
4.4
4.4
4.7
0.3
2.5
3.4
BC Con.
5.0
1.3
4.0
1.4
2.7
3.2
3.5
3.7
0.3
2.4
2.8
BC B-10
5.0
1.3
4.0
0.5
1.8
2.3
2.7
2.7
0.3
2.3
2.2
Unemploymentb
OMB
5.6
5.9
5.7
5.8
NA
NA
NA
5.5
4.8
5.9
5.6
CBO
5.6
5.9
5.7
NA
NA
NA
NA
NA
4.8
5.9
5.9
BC T-10
5.6
5.9
5.7
6.0
6.2
6.2
6.1
6.0
4.8
5.8
6.1
BC Con.
5.6
5.9
5.7
5.8
5.9
5.9
5.7
5.6
4.8
5.8
5.8
BC B-10
5.6
5.9
5.7
5.7
5.7
5.5
5.4
5.3
4.8
5.7
5.4

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CRS-11
2002
2003
2001* 2002
2003
1*
2*
3*
4
1
2
3
4
GDP Deflatora (chain weights)
OMB
1.3
1.2
1.0
NA
NA
NA
NA
NA
2.4
1.3
1.9
CBO
1.3
1.2
1.0
NA
NA
NA
NA
NA
2.4
1.1
1.6
BC T-10
1.3
1.2
1.0
2.4
2.5
2.4
2.2
2.3
2.4
1.2
2.1
BC Con.
1.3
1.2
1.0
1.6
1.7
1.6
1.6
1.7
2.4
1.1
1.6
BC B-10
1.3
1.2
1.0
1.0
1.1
0.9
1.0
1.0
2.4
1.1
1.1
CPI-Ua
OMB
1.4
3.4
1.9
NA
NA
NA
NA
NA
2.8
1.7
2.5
CBO
1.4
3.4
1.9
NA
NA
NA
NA
NA
2.8
1.7
2.4
BC T-10
1.4
3.4
1.9
2.9
2.8
2.6
2.7
2.8
2.8
1.6
2.6
BC Con.
1.4
3.4
1.9
2.3
2.1
1.9
2.1
2.2
2.8
1.6
2.2
BC B-10
1.4
3.4
1.9
1.6
1.3
0.9
1.2
1.5
2.8
1.5
1.7
T-BILL Rateb
OMB
1.7
1.7
1.6
NA
NA
NA
NA
NA
3.4
2.0
3.5
CBO
1.7
1.7
1.6
NA
NA
NA
NA
NA
3.4
1.7
2.9
BC T-10
1.7
1.7
1.6
1.6
1.6
1.8
2.3
3.0
3.4
1.7
2.2
BC Con.
1.7
1.7
1.6
1.4
1.3
1.4
1.7
2.2
3.4
1.6
1.7
BC B-10
1.7
1.7
1.6
1.2
1.1
1.2
1.3
1.5
3.4
1.6
1.3
10-Year Rateb
OMB
5.1
5.1
4.1
NA
NA
NA
NA
NA
5.0
5.2
5.2
CBO
5.1
5.1
4.1
NA
NA
NA
NA
NA
5.0
4.9
5.4
BC T-10
5.1
5.1
4.1
4.2
4.5
4.8
5.2
5.5
5.0
4.7
5.1
BC Con.
5.1
5.1
4.1
4.0
4.2
4.3
4.6
4.9
5.0
4.6
4.5
BC B-10
5.1
5.1
4.1
3.8
3.8
3.8
4.0
4.2
5.0
4.5
4.0
Sources: Blue Chip Economic Indicators, December 10, 2002. Congressional Budget Office,
August, 2002; and, the Office of Management and Budget, August, 2002.
* Actual data, subject to revisions. The annual data for nominal GDP, real GDP, the GDP deflator
and the CPI are on a year over year basis; and the unemployment and interest rate data are either
quarterly or annual averages.
a. Annualized quarterly rates of change.
b. Quarterly averages.
The Chairman of the Board of Governors of the Federal Reserve presented the
economic projections of the Federal Reserve for 2002 in testimony before the Senate
Banking Committee on July 16, 2002. The Federal Reserve projections for 2002 are
that over the 4 quarters of the year real GDP will grow between 3.5% and 3.75% and
that prices will increase about 1.5 to 1.75%. The civilian unemployment rate is
projected to be between 5.75% and 6.0% during the fourth quarter of the year. For
2003, GDP growth is projected to range between 3.5% and 4.0%, prices to rise 1.5%
to 1.75%, and for unemployment to average between 5.25% and 5.5% during the
fourth quarter.

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CRS-12
Promotion of Economic Growth
Over the longer run, the economic well-being of a nation depends on the growth
of potential output or GDP per capita. Crucial to this growth is the fraction of a
nation’s resources devoted to capital formation. The ability to add to the capital
stock through investment depends on a nation’s saving rate.
Saving comes from several sources. In the private sector individuals
(households) and businesses are responsible for saving. The former save when all
of their after tax income is not used for consumption. Businesses save through
retained earnings and capital consumption allowances.
The public sector can also be a source of national saving and this occurs when
government revenues are larger than expenditures. Budget surpluses, then, can be
viewed as a source of national saving.
Table 11 shows the sources of saving for the United States during the past 40
years. There are several things to note about these data. First, except for the decade
of the 1990s, the gross private sector savings rate has averaged a remarkably stable
17%-19% of GDP, with most of the saving being done by businesses. More
significantly, however, the private sector saving rate net of depreciation, representing
saving available for additions to capital, declined considerably in the 1990s. Thus,
even without a federal budget deficit, the United States would have had a “saving
problem.”
Second, over this 40-year period, the saving done by the public sector, as a
whole, has declined. There is, however, diversity as to the contribution made by the
level of government. The large negative contribution made by the federal
government during the 1980s reflects the widely publicized budget deficit. Even
though state and local governments have been running budget surpluses, they have
not been large enough to offset the federal deficits. This has been reversed beginning
in 1993. The improved budget position of the federal government has been adding
to national saving.
Third, the data show that for 20 of these 40 years, the United States exported a
small fraction of its savings to the rest of the world (i.e., was a net exporter of
capital). This changed during the 1980s when the United States started to import the
savings of the rest of the world.

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CRS-13
Table 11. U.S. Saving By Sector
(as percent of GDP)
Private Sector
Public Sector
Net Private
Netb
Year
Net of
State &
Net of
& Pub.a
Foreign
Pers. Bus.
Total Deprec. Fed.
Local
Total Deprec.
1960-9 5.7
11.4
17.1
9.6
2.2
1.7
4.0
1.3
10.9
-0.6
1970-9 6.8
11.6
18.4
9.8
-0.5
1.8
1.3
-1.2
8.6
-0.2
1980-9 6.7
12.6
19.2
9.0
-2.2
1.4
-0.8
-3.0
6.0
1.5
1990-9 4.3
12.5
16.9
6.8
-1.0
1.3
-0.3
-2.0
4.8
1.4
1984
7.8
13.2
21.0
11.0
-3.1
1.7
-1.4
-3.7
7.3
2.2
1985
6.7
13.1
19.8
9.8
-3.0
1.6
-1.4
-3.7
6.1
2.6
1986
6.0
12.1
18.1
8.0
-3.1
1.5
-1.6
-3.8
4.2
3.2
1987
5.3
12.3
17.7
7.6
-1.9
1.3
-0.6
-2.9
4.7
3.2
1988
5.7
12.7
18.5
8.4
-1.5
1.4
-0.1
-2.4
6.0
2.2
1989
5.5
11.9
17.4
7.3
-1.2
1.4
0.2
-2.0
5.3
1.6
1990
5.8
11.8
17.5
7.5
-1.8
1.1
-0.7
-2.9
4.6
1.2
1991
6.2
12.1
18.4
8.2
-2.4
1.0
-1.4
-3.7
4.5
-0.2
1992
6.5
12.1
18.4
8.3
-3.5
1.0
-2.5
-4.8
3.5
0.6
1993
5.3
12.1
17.5
7.5
-2.9
1.1
-1.8
-4.1
3.4
1.1
1994
4.5
12.3
17.0
6.9
-1.9
1.2
-0.6
-2.9
4.0
1.5
1995
4.1
12.8
17.1
7.1
-1.5
1.3
-0.1
-2.4
4.7
1.3
1996 3.5
13.0
16.5
6.5
-0.7
1.4
0.8
-1.5
5.0
1.4
1997
3.0
13.1
16.2
6.1
0.4
1.5
1.9
-0.3
5.8
1.5
1998
3.0
12.6
15.7
5.5
1.6
1.6
3.2
1.0
6.5
2.3
1999
1.6
12.8
14.4
4.1
2.3
1.7
4.0
1.9
6.0
3.4
2000
0.7
12.7
13.4
3.0
3.2
1.5
4.7
2.5
5.5
4.4
2001
1.2
12.4
13.5
2.5
2.1
1.4
3.5
1.3
3.8
3.8
Source: U.S. Department of Commerce.
a. Equal to the sum of private sector saving net of depreciation and total public sector saving net of
depreciation.
b. Negative sign indicates the export of saving from the United States. Positive sign indicates the
import of saving from abroad.

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CRS-14
Should efforts to correct the international trade deficit prove fruitful, the net
inflow of foreign saving will cease. Should this occur without a significant
improvement in either the private sector saving rate or the negative saving rate of the
public sector, the rate of new investment will fall to a very low level in the United
States and with it the means for improving the well-being of future generations of
Americans.
A sudden increase in the national saving rate is, however, not without some
possible adverse consequences. In the short run, a sudden increase in the saving rate
means decreased consumption and/or lower public sector net spending, both of which
depress aggregate demand. Moreover, in either case, the demand for some types of
output would fall to be replaced by an increased demand for other types of output.
As a result, some industries and firms would have to contract while others expand.
Resources would have to transit from declining to growing industries. These short-
run dislocations should be borne in mind if a higher national saving rate becomes the
object of public policy.

---