CBO estimates that real gross domestic product will contract by 11 percent in the second quarter of this year, which is equivalent to a decline of 38 percent at an annual rate, and that the number of people employed will be almost 26 million lower than the number in the fourth quarter of 2019.
CBO has updated its economic projections through the end of 2021 to account for the 2020 coronavirus pandemic. This report details those projections.
The Sudden Drop in Economic Activity
The pandemic has disrupted the lives of millions of people. To mitigate the contagion, many households, businesses, and governments have taken measures collectively referred to as social distancing, which peaked in April 2020. The pandemic and social distancing have widely disrupted economic activity, causing a wave of job losses and ending the longest expansion since World War II.
Between February and April of this year, the number of people employed fell by more than 25 million and the size of the labor force by more than 8 million. In CBO's projections, the unemployment rate is 15.8 percent in the third quarter of this year. After that, labor market conditions gradually stabilize and begin to improve more materially.
A Resumption of Economic Activity
The economy is expected to begin recovering during the second half of 2020 as concerns about the pandemic diminish and as state and local governments ease restrictions. The labor market is projected to materially improve after the third quarter—hiring will rebound and furloughs will drop significantly as the degree of social distancing diminishes. To account for the chances of the pandemic persisting or reemerging, CBO projects that social distancing will continue, but to a declining degree. The persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.
Although economic conditions are projected to improve following their sudden drop, real output is expected to be 1.6 percent lower in the fourth quarter of 2021 than it was in the fourth quarter of last year.
Interest rates are expected to remain low because of subdued economic activity, weak labor market conditions, actions taken by the Federal Reserve, and an increase in investors' demand for low-risk assets.