Forecast Minus Actual Growth in Inflation-Adjusted Output: Two-Year Forecasts

Percentage-Point Difference in Annual Growth Rates

-4

1976 1981 1986 1991 1996 2001 2006 2011

6

4

2

0

-2

Administration

Blue Chip

Consensus

CBO

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

CBO’s Economic

Forecasting Record:

2015 Update

FEBRUARY 2015
CBO

Note

Some of the figures have vertical bars that indicate the duration of recessions. (A recession extends 

from the peak of a business cycle to its trough.)

www.cbo.gov/publication/49891
Contents

CBO

Summary 1

How Does CBO’s Forecasting Record Compare With Those of the 

Administration and the Blue Chip Consensus? 1

Do CBO’s Forecasts Exhibit Notable Bias? 1

How Accurate Are CBO’s Forecasts? 1

Do Assumptions About Fiscal Policy Affect Forecasting Errors? 4

Introduction 4

Measuring the Quality of Forecasts 5

Limitations of the Forecast Evaluations 6

Some Sources of Forecasting Error 6

Business Cycle Turning Points 6

Changes in Productivity Trends 7

Changes in Crude Oil Prices 8

Revisions to Historical Data 11

CBO’s Two-Year Forecasts 11

Growth in Output 11

BOX 1. COMPARISON OF TWO-YEAR FORECASTS BY CBO AND THE FEDERAL RESERVE 14

Inflation 18

Interest Rates 21

Wages and Salaries 26

CBO’s Five-Year Forecasts 31

Growth in Output 31

Inflation 34

Wages and Salaries 38

Appendix: Forecast and Historical Data 41

List of Tables and Figures 44

About This Document 45

CBO

CBO’s Economic Forecasting Record: 2015 Update

Summary

For nearly four decades, the Congressional Budget Office 

has prepared economic forecasts that underlie the 

agency’s projections for the federal budget and cost estimates for proposed federal legislation. In particular, forecasts of output, inflation, interest rates, and income play 

a significant role in the agency’s budgetary analysis; for 

example, projections of wages and salaries are used to 

forecast individual income tax receipts.

CBO regularly evaluates the quality of its economic forecasts by comparing them with the economy’s actual performance and with forecasts by the Administration (as 

published in the annual budget documents prepared by 

the Office of Management and Budget) and the Blue 

Chip consensus—an average of about 50 private-sector 

forecasts. Such comparisons may indicate the extent to 

which imperfect information and analysis might have 

caused CBO to “miss” patterns or turning points in the 

economy. They also may identify areas where CBO has 

tended to make larger errors than other analysts. 

This report evaluates CBO’s macroeconomic forecasts 

over two-year and five-year horizons. The periods used 

for the evaluations differ by variable and by forecast horizon, depending on the availability of the needed data. 

How Does CBO’s Forecasting Record Compare 

With Those of the Administration and the 

Blue Chip Consensus?

CBO’s forecasts generally have been comparable in quality with those of the Administration and the Blue Chip

consensus. When CBO’s projections have proved inaccurate by large margins, the errors have tended to reflect 

difficulties shared by other forecasters. 

Do CBO’s Forecasts Exhibit Notable Bias? 

A simple and widely used indicator of statistical bias is 

the mean error—the average tendency of a forecast to 

be low or high over an entire period. In general, CBO’s 

forecasts and those by the Administration and the Blue 

Chip consensus have had similar mean errors. Specifically, 

an evaluation of CBO’s mean errors reaches two 

conclusions:

 For CBO’s forecasts that look two years ahead, the 

mean errors since the early 1980s have generally been 

very small. The agency’s forecasts have shown slight 

tendencies to overestimate future interest rates and 

wages and salaries (see Summary Figure 1).

 For CBO’s forecasts that look five years ahead, the 

mean errors since the early 1980s imply a slightly 

stronger tendency to overestimate inflation compared 

with that of the agency’s two-year forecasts. That 

tendency accounts for about half of the higher mean 

errors for growth in nominal output and in wages and 

salaries.

How Accurate Are CBO’s Forecasts?

Accuracy is the degree to which forecast values are dispersed around actual outcomes. One widely used measure 

of accuracy is the root mean square error. By that measure, the forecasts by CBO, the Administration, and the 

Blue Chip consensus have been about equally accurate 

over two-year periods (see Summary Figure 2) as well as 

over five-year periods. Specifically, an evaluation of 

CBO’s root mean square errors reaches two conclusions:

 Among two-year forecasts by CBO since the early 

1980s, forecast values deviated from actual outcomes 

by 1.4 percentage points per year for real (inflationadjusted) output growth and by 0.8 percentage points 

per year for inflation in the consumer price index. 

 Among five-year forecasts by CBO since the early 

1980s, forecast values deviated from actual outcomes 

by 1.2 percentage points per year for real output 

growth and by 0.6 percentage points per year for 

inflation in the consumer price index. 
2 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Summary Figure 1.

Mean Error for Two-Year Forecasts

Percentage Points

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis; Bureau of Labor Statistics (BLS); Federal Reserve.

Notes: The mean error is the arithmetic average of the forecasting errors.

Errors are forecast values minus actual values; therefore, a positive error is an overestimate. 

To compare forecast and actual data, annual averages were computed for growth rates, inflation rates, interest rates, and wages and 

salaries as a share of output.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage 

earners and clerical workers; GDP = gross domestic product; GNP = gross national product; n.a. = not applicable (the Blue Chip

consensus does not report forecasts of wages and salaries).

a. Output is either GDP or GNP. GNP differs from GDP primarily by including the capital income that residents earn from investments abroad 

and excluding the capital income that nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast 

from 1992 onward. Real output is nominal output adjusted to remove the effects of inflation.

b. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

c. Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

d. The GNP price index was forecast before 1992; the GDP price index was forecast from 1992 onward.

e. In most years, the secondary-market interest rate was forecast. However, the rate on newly issued bills was forecast by the Administration 

through 2000 and by the Blue Chip consensus from 1982 to 1985 and from 1992 to 1997.

f. The real interest rate is the nominal interest rate deflated by the predicted growth in the consumer price index.

g. Forecasts of the Moody’s Aaa corporate bond rate were used for the years in which the interest rate on 10-year Treasury notes was not 

forecast: 1984 and 1985 for CBO’s forecasts and 1984 through 1995 for the Blue Chip consensus forecasts.

Change in Wages and Salaries as a

Share of Output (1980–2012)

Growth in Wages and

Salaries (1980–2012)

Interest Rate on 10-Year

Treasury Notes (1984–2012)

Real Interest Rate on

Three-Month Treasury Bills

(1982–2012)

Interest Rate on Three-Month

Treasury Bills (1982–2012)

Difference Between

Inflation in the CPI and in the

GDP Price Index (1982–2012)

Inflation in the CPI (1982–2012)

Growth in Nominal Output

(1982–2012)

Growth in Real Output

(1982–2012)

-0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

a

a

c

c, d

e

c, e, f

g

n.a.

n.a.

CBO

Administration

Blue Chip Consensusb
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 3

CBO

Summary Figure 2.

Root Mean Square Error for Two-Year Forecasts 

Percentage Points

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis; Bureau of Labor Statistics (BLS); Federal Reserve.

Notes: The root mean square error is calculated by first squaring the errors and then taking the square root of the arithmetic average of the 

squared errors.

To compare forecast and actual data, annual averages were computed for growth rates, inflation rates, interest rates, and wages and 

salaries as a share of output.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage 

earners and clerical workers; GDP = gross domestic product; GNP = gross national product; n.a. = not applicable (the 

Blue Chip consensus does not report forecasts of wages and salaries).

a. Output is either GDP or GNP. GNP differs from GDP primarily by including the capital income that residents earn from investments abroad 

and excluding the capital income that nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast 

from 1992 onward. Real output is nominal output adjusted to remove the effects of inflation.

b. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

c. Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

d. The GNP price index was forecast before 1992; the GDP price index was forecast from 1992 onward.

e. In most years, the secondary-market interest rate was forecast. However, the rate on newly issued bills was forecast by the Administration 

through 2000 and by the Blue Chip consensus from 1982 to 1985 and from 1992 to 1997.

f. The real interest rate is the nominal interest rate deflated by the predicted growth in the consumer price index.

g. Forecasts of the Moody’s Aaa corporate bond rate were used for the years in which the interest rate on 10-year Treasury notes was not 

forecast: 1984 and 1985 for CBO’s forecasts and 1984 through 1995 for the Blue Chip consensus forecasts.

Change in Wages and Salaries as a

Share of Output (1980–2012)

Growth in Wages and

Salaries (1980–2012)

Interest Rate on 10-Year

Treasury Notes (1984–2012)

Real Interest Rate on

Three-Month Treasury Bills

(1982–2012)

Interest Rate on Three-Month

Treasury Bills (1982–2012)

Difference Between

Inflation in the CPI and in the

GDP Price Index (1982–2012)

Inflation in the CPI (1982–2012)

Growth in Nominal Output

(1982–2012)

Growth in Real Output

(1982–2012)

0 0.511.522.5

n.a.

n.a.

CBO

Administration

a

a

c

c, d

e

c, e, f

g

Blue Chip Consensusb
4 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

What Are Some Sources of Forecasting Errors?

Sources of large forecasting errors have included the 

difficulty of predicting the following:

 Turning points in the business cycle—the beginning 

and end of recessions,

 Changes in trends in productivity, and 

 Changes in crude oil prices. 

In addition, revisions to the historical data (on output 

and income, for example) that forecasters use for economic projections can complicate the task of interpreting 

forecasting errors. CBO uses current versions of historical 

data to compute the forecasting errors and statistics. 

Had the revised data been available to forecasters, rather 

than the original information that was available when the 

forecasts were produced, the forecasts themselves would 

have been different. Despite that complication, recently 

published data present a simple and consistent point of 

comparison for evaluating forecasts by CBO and others.

Do Assumptions About Fiscal Policy Affect 

Forecasting Errors?

Different assumptions about fiscal policy can account for 

some of the differences between forecasts, and thus differences in forecasting errors. CBO constructs its economic 

projections under the assumption that federal fiscal policy will generally follow current law, thereby providing 

a benchmark for lawmakers as they consider potential 

changes in the law. In contrast, the Administration’s 

forecasts reflect the assumption that policies included in 

the President’s proposed budget will be adopted. Forecasters in the private sector (represented in the Blue Chip

consensus) form their own assumptions about the future 

stance of federal fiscal policy, which may anticipate 

changes in law. 

Different assumptions about fiscal policy can matter 

particularly when policymakers are considering major 

changes to current law. For example, in 2009 and 2010, 

different fiscal policy assumptions caused CBO’s two-year 

forecasts of real output growth to diverge noticeably from 

those of the Administration and the Blue Chip consensus.

Introduction

Released on a regular basis since 1976, the Congressional 

Budget Office’s macroeconomic forecast is an input for 

the agency’s projections for the federal budget and cost 

estimates for proposed federal legislation. For example, 

projections of wages and salaries feed into the forecast of 

individual income tax receipts. 

CBO regularly evaluates the quality of its economic forecasts by comparing them with the economy’s actual performance and with forecasts by the Administration (as 

published in the annual budget documents prepared by 

the Office of Management and Budget) and the Blue 

Chip consensus (an average of approximately 50 privatesector forecasts that is published periodically in the Blue 

Chip Economic Indicators). Such comparisons help CBO 

improve its economic projections. Specifically, they may 

indicate the extent to which imperfect information and 

analysis—factors that affect all forecasters—might have 

caused CBO to miss patterns or turning points in the 

economy.1

 They also may identify areas where CBO has 

tended to make larger errors than other analysts, which 

perhaps implies that the agency has not effectively used 

available information. Comparisons with the Blue Chip

consensus forecast are particularly helpful in that regard, 

because the variety of forecasts it embodies is produced 

from a broader blend of sources and methods than can be 

expected from any single forecaster. Consequently, over 

time, the Blue Chip consensus forecasts may provide 

better estimates than those by any single forecaster.2

Despite their value, comparisons of forecasting errors 

can be misleading when forecasts are made for different 

purposes. In particular, forecasters in the private sector 

attempt to predict the future stance of federal fiscal 

policy, and the Administration’s forecasts assume the 

adoption of the fiscal policy reflected in the President’s 

proposed budget. CBO, however, is required to assume 

that fiscal policy in the future will generally reflect the 

provisions in current law, an approach that derives from 

the agency’s responsibility to provide a benchmark for 

lawmakers as they consider proposed changes in law. 

Forecasting errors may be driven by those different 

assumptions, particularly when policymakers are 

1. See David Reifschneider and Peter Tulip, Gauging the Uncertainty 

of the Economic Outlook From Historical Forecasting Errors, Finance 

and Economics Discussion Series Working Paper 2007-60 (Board 

of Governors of the Federal Reserve System, November 2007).

2. See, for example, Andy Bauer and others, “Forecast Evaluation 

With Cross-Sectional Data: The Blue Chip Surveys,” Economic 

Review, vol. 88, no. 2 (Federal Reserve Bank of Atlanta, 2003), 

pp. 17–31; Henry Townsend, “A Comparison of Several 

Consensus Forecasts,” Business Economics, vol. 31, no. 1 

(January 1996); and Robert Clemen, “Combining Forecasts: 

A Review and Annotated Bibliography,” International Journal of 

Forecasting, vol. 5, no. 4 (1989), pp. 559–583.
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 5

CBO

considering major changes in the fiscal policy embedded 

in current law.3

This report evaluates CBO’s macroeconomic forecasts 

over two-year and five-year horizons, and the time 

periods used for the evaluations differ by variable and 

by forecast horizon. The forecasts by CBO and the 

Administration included in the evaluation were originally 

published in the early months of the years 1976 through 

2012. Forecasts published in early 2013 were not 

included because full-year historical data did not extend 

beyond 2013 when the analysis for this report was completed. The first two-year forecast by the Blue Chip 

consensus that CBO used for this evaluation was released 

in early 1982; five-year forecasts by the Blue Chip consensus were first published in early 1979 for real output and 

in early 1983 for inflation in consumer prices.4

Relative to the forecasting record that CBO published in 

2013, this evaluation now includes two-year forecasts 

conducted in 2011 and 2012 and five-year forecasts conducted in 2008 and 2009.5

 Those additional forecasts 

did not significantly alter findings from the previous 

forecasting record—namely, that the quality of CBO’s 

two- and five-year forecasts is similar to that of other 

organizations.

Measuring the Quality of Forecasts

Like CBO’s earlier studies of its economic forecasts, this 

evaluation focuses on two indicators of quality: statistical 

bias and accuracy. Other characteristics of forecast quality—such as the efficiency with which a forecast uses 

available information—are harder to assess.6

Statistical Bias. Statistical bias indicates the tendency of a 

forecast to err in a certain direction. To measure statistical 

bias, CBO used the mean error—the arithmetic average 

of the forecasting errors, which is the simplest and most 

widely used measure. Because it is a simple average, however, underestimates and overestimates offset one another. 

As a result, the mean error imperfectly measures the 

quality of a forecast: A small mean error would result if all 

of the errors were small or if large overestimates and 

underestimates generally balanced one another. As an 

alternative to the mean error measure, several studies 

by analysts outside of CBO have used more elaborate 

techniques to test for bias in the agency’s forecasts.7

Accuracy. The accuracy of a forecast is the degree to which 

forecast values are dispersed around actual outcomes. 

Narrower dispersion indicates greater accuracy. CBO used 

two measures of accuracy in its evaluation: the mean absolute error and the root mean square error. The mean 

absolute error—the arithmetic average of the forecasts’ 

errors without regard to sign—does not allow underestimates and overestimates to offset each other, unlike 

the mean error. The root mean square error also shows 

3. Different assumptions about monetary policy also can create 

differences between CBO’s forecasts and other forecasts. CBO’s 

assumptions about monetary policy reflect the economic 

environment that CBO expects under the fiscal policy specified 

in current law. 

4. The appendix to this report gives further details on the choice of 

historical time-series data and on the sources of forecast data for 

the comparisons.

5. See Congressional Budget Office, CBO’s Economic Forecasting 

Record: 2013 Update (January 2013), www.cbo.gov/publication/

43846.

6. For studies that have examined the relative efficiency of CBO’s 

economic forecasts, see Michael T. Belongia, “Are Economic 

Forecasts by Government Agencies Biased? Accurate?” Review, 

vol. 70, no. 6 (Federal Reserve Bank of St. Louis, November/

December 1988), pp. 15–23; Stephen M. Miller, “Forecasting 

Federal Budget Deficits: How Reliable Are U.S. Congressional 

Budget Office Projections?” Applied Economics, vol. 23 

(December 1991), pp. 1789–1799; and Robert Krol, “Forecast 

Bias of Government Agencies,” Cato Journal, vol. 34, no. 1 

(Winter 2014). Although statistical tests can identify sources 

of inefficiency in a forecast after the fact, they generally do 

not indicate how such information could be used to improve 

forecasts when they are being made.

7. One such alternative approach to testing a forecast for bias is 

based on linear regression analysis of actual values against forecast 

values. For details of that method, see Jacob A. Mincer and Victor 

Zarnowitz, “The Evaluation of Economic Forecasts,” in Jacob 

A. Mincer, ed., Economic Forecasts and Expectations: Analysis of 

Forecasting Behavior and Performance: National Bureau of 

Economic Research, 1969). Studies that have used that method to 

evaluate short-term forecasts published by CBO and the 

Administration have not found statistically strong evidence of bias 

over short forecast horizons. See, for example, George A. Krause 

and James W. Douglas, “Institutional Design Versus Reputational 

Effects on Bureaucratic Performance: Evidence From U.S. 

Government Macroeconomic and Fiscal Projections,” Journal of

Public Administration Research and Theory, vol. 15, no. 2 (April 

2005), pp. 281–306; J. Kevin Corder, “Managing Uncertainty: 

The Bias and Efficiency of Federal Macroeconomic Forecasts,” 

Journal of Public Administration Research and Theory, vol. 15, no 1 

(January 2005), pp. 55–70; Michael T. Belongia, “Are Economic 

Forecasts by Government Agencies Biased? Accurate?” Review, 

vol. 70, no. 6 (Federal Reserve Bank of St. Louis, November/

December 1988), pp. 15–23; and Robert Krol, “Forecast Bias of 

Government Agencies,” Cato Journal, vol. 34, no. 1 (Winter 

2014). For a more elaborate study of bias that included CBO’s 

forecasts among a sizable sample, see Corder, “Managing 

Uncertainty”; and David Laster, Paul Bennett, and In Sun 

Geoum, Rational Bias in Macroeconomic Forecasts, Staff Report 

No. 21 (Federal Reserve Bank of New York, March 1997).
6 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

the size of the error without regard to sign, but it gives 

greater weight to larger errors.8

Limitations of the Forecast Evaluations

There are several reasons for caution in drawing 

conclusions from this evaluation of CBO’s forecasts:

 Historical track records only weakly indicate the 

possible direction or size of inaccuracies in the future. 

To some extent, that fact results from changes in 

procedures used to develop economic forecasts by 

CBO and other analysts over the past three decades. 

Moreover, the forecasters included in the Blue Chip 

consensus have varied over time.

 When preparing forecasts, CBO, unlike private 

forecasters and the Administration, generally does not 

assume any future changes in federal fiscal policy other 

than those prescribed in current law.9

 The Administration’s forecasts normally include the 

projected economic effects of the Administrations’ 

policy proposals. The private forecasters included in 

the Blue Chip survey make their own assumptions 

about fiscal policy, but the survey does not report 

them.

 The common practice of revising statistical data could 

mean that forecasters make predictions about one 

concept of an economic variable and the statistical 

agencies that compile those data ultimately report on a 

materially different concept. For example, in 1999, 

the Bureau of Economic Analysis (BEA) redefined 

business and government spending on computer 

software as investment, which led to significant 

revisions to historical estimates of investment, 

particularly during much of the 1990s.10

Some Sources of Forecasting Error

The physicist Niels Bohr is credited with saying “Prediction is very difficult, especially if it’s about the future.” 

There are indeed many ways that economic forecasts can 

go wrong. Some key sources of error include the difficulties of predicting turning points in the business cycle, 

changes in productivity trends, and changes in crude oil 

prices. Moreover, revisions to historical data used by forecasters can complicate the interpretation of forecasting 

error.

Business Cycle Turning Points

Peaks and troughs (together known as turning points) in 

the business cycle mark the beginning and end of recessions, which are periods of significant contraction in 

economic activity. Forecasts by CBO, the Administration, and the Blue Chip consensus have made large overpredictions of real output growth before each recession 

since 1976, with the exception of the 1980 recession 

(see Figure 1). Forecasting errors tend to be large around 

business cycle peaks for a number of reasons:

 Recessions are sometimes prompted by events or 

shocks that cannot be reasonably predicted by 

forecasters. For example, in August 1990, the Iraqi 

invasion of Kuwait led to a spike in oil prices and a 

drop in consumer confidence, which probably 

contributed to the recession that followed.

 Economists cannot be sure that a recession has begun 

until sufficient data are available. For example, the 

Business Cycle Dating Committee of the National 

Bureau of Economic Research (NBER) did not 

announce the December 2007 business cycle peak 

until 11 months later. For that reason, forecasters may 

miss a recession even after it has started.

 Business cycle turning points often occur during 

periods of high uncertainty. For example, in January 

2008, one month after the business cycle peak, CBO 

reported, “The economic outlook this year is 

particularly vulnerable to uncertainty about the degree 

to which the problems in the housing and financial 

markets will spill over to affect other sectors of the 

economy. Growth in 2008 could be weaker than CBO 

expects if the turmoil in the financial markets leads to 

a more severe economywide curtailment of lending 

8. The root mean square error is calculated by first squaring the 

errors and then taking the square root of the arithmetic average of 

the squared errors. Squaring the errors places greater weight on 

larger errors.

9. The purpose of current-law assumptions in CBO’s economic 

forecasts is explored in Congressional Budget Office, What Is a 

Current-Law Economic Baseline? (June 2005), www.cbo.gov/

publication/16558.

10. Previously, business and government spending on software was 

considered to be the purchasing of an intermediate good—an 

input in the production process and not a component of gross 

domestic product.
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 7

CBO

Figure 1.

Errors in Forecasting the Two-Year Growth of Real Output Near Business Cycle Peaks

Percentage Points

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis (BEA).

Notes: Errors are shown for forecasts of the average annual growth rate of real output over two-year periods. Errors are forecast values minus 

actual values; therefore, a positive error is an overestimate. Errors are based on the most recent data reported by BEA. All forecasts 

were issued in the first half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of 

the two-year period.

Real (inflation-adjusted) output is either real gross domestic product (GDP) or real gross national product (GNP). GNP differs from 

GDP primarily by including the capital income that residents earn from investments abroad and excluding the capital income that

nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 onward.

Errors are shown for forecasts conducted near business cycle peaks in January 1980, July 1981, July 1990, March 2001, and 

December 2007. The dates of business cycle peaks are defined by the Business Cycle Dating Committee of the National Bureau of 

Economic Research.

n.a. = not available.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

b. As a point of comparison, the mean absolute error is one indicator of the accuracy of forecasts over the 1982–2012 period, excluding 

those produced near a business cycle peak. The measure is the arithmetic average of forecasting errors without regard to sign.

c. As a point of comparison, the root mean square error is one indicator of the accuracy of forecasts over the 1982–2012 period, excluding 

those produced near a business cycle peak. The measure is calculated by first squaring the errors and then taking the square root of the 

arithmetic average of the squared errors.

than CBO anticipates.”11 Under such uncertain conditions, widely different outcomes can appear equally 

probable, making it difficult to gauge whether an 

economic downturn is imminent.

Changes in Productivity Trends

Forecasts of productivity growth play a critical role in 

forecasting potential output, which is CBO’s estimate of 

the amount of output that the economy would produce 

with a high rate of use of its capital and labor resources. 

As such, CBO’s forecast of potential output shows how 

much the economy can sustainably grow during periods 

of expansion and determines the trajectory of gross 

domestic product (GDP) in the later years of the agency’s 

10-year forecasts. 

1980 1981 1990 2001 2008 Mean Absolute

Error in

Other Years

Root Mean

Square Error in

Other Years

-1

0

1

2

3

4

5

b c

CBO

Administration

Blue Chip Consensusa

n.a. n.a.

11. Congressional Budget Office, The Budget and Economic Outlook: 

Fiscal Years 2008 to 2018 (January 2008), p. 21, www.cbo.gov/

publication/41661.
8 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Labor productivity is the average real output per hour of 

work; by definition, real output equals labor productivity 

times the total number of labor hours worked. Some 

sources of growth in labor productivity include:

 Capital accumulation (more tools, equipment, 

structures, and infrastructure),

 Education and skills development (also called 

investment in human capital), and

 Innovation (the greater efficiency achieved through 

better capital, systems, or methods).

When forecasting productivity growth, CBO considers 

historical trends in capital accumulation and the effects of 

public policy on incentives to invest. Shifts in such trends 

may be difficult to identify until several years after the 

fact. Consequently, forecasters may make incorrect 

assumptions about the trajectory of productivity growth 

and, therefore, potential output growth.

Since the early 1970s, forecasting errors reveal three 

unexpected shifts in productivity trends: after 1973, after 

1995, and since 2007 (see Figure 2). In the years following 1973, labor productivity growth in the nonfarm 

business sector did not return to the previous trend rate 

of about 21⁄2 percent per year. Over the next two decades, 

productivity grew more slowly, by about 11⁄2 percent 

per year. Partly because most forecasters in the 1970s 

assumed that the productivity trend of the previous 

decades would prevail, their forecasts of real output in 

the mid- to late 1970s turned out to be too optimistic. 

Partly for the same reason, forecasters repeatedly 

underestimated inflation in the late 1970s.

After 1995, growth in labor productivity in the nonfarm 

business sector accelerated to nearly 3 percent per year on 

average. In part because most forecasters underestimated, 

in several consecutive years, the trend rate of productivity 

growth, their predictions of the economy’s growth rate 

were too low and their predictions of inflation were too 

high.12 As the economy continued to perform above 

expectations, analysts put more effort into investigating 

the possible causes of the increase in productivity growth. 

Those investigations initially focused on the possible contribution of technological progress that improved and 

quickened the flow of information among producers and 

between producers and consumers. Using revised data on 

production and inputs to production, CBO now estimates that an increase in the amount of capital (buildings, equipment, and software) per worker—sometimes 

called capital deepening—was the primary source of the 

faster growth in productivity in the late 1990s.13

Since 2007, the growth of labor productivity has been 

noticeably slower than its previous trend. Part of the 

slowdown is cyclical, related to the decline in output during the severe 2007–2009 recession and the slow growth 

of output since then. CBO estimates that another part of 

the slowdown is a permanent effect of the recession, 

which delayed how quickly resources are reallocated to 

their most productive uses, slowed the rate at which 

workers gained new skills as technologies evolve, and 

curtailed businesses’ spending on capital and research 

and development. That unexpectedly slow growth in productivity may be one reason forecasters have generally 

overpredicted the growth of output since the end of the 

recession. 

In addition to misestimating labor productivity, making 

incorrect assumptions about growth in labor hours may 

also cause large forecasting inaccuracies. In the early 

2000s, for example, productivity continued to grow at 

the strong post–1995 rate; however, labor hours unexpectedly grew very little, on average (see Figure 2). As a 

result, forecasters tended to overestimate the growth of 

real output during that period.

Changes in Crude Oil Prices

Prices for crude oil have fluctuated over a wide range in 

the past 40 years, creating sizable shifts in the price of 

petroleum imports and sometimes in overall consumer 

prices (see Figure 3). The effect of those fluctuations on 

overall inflation largely stems from the fact that crude oil 

is an important energy source. In the United States, 

petroleum accounts for more than one-third of total 

energy consumption.14

12. See Spencer Krane, “An Evaluation of Real GDP Forecasts: 1996–

2001,” Economic Perspectives, vol. 27, no. 1 (Federal Reserve Bank 

of Chicago, 2003), pp. 2–21; and Scott Schuh, “An Evaluation of 

Recent Macroeconomic Forecast Errors,” New England Economic

Review (Federal Reserve Bank of Boston, January/February 2001), 

pp. 35–56.

13. See Congressional Budget Office, Labor Productivity: Developments 

Since 1995 (March 2007), www.cbo.gov/publication/18469.

14. See Energy Information Administration, Monthly Energy Review 

(December 2014), Table 1.3, www.eia.gov/totalenergy/data/

monthly/archive/00351412.pdf (5.4 MB).
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 9

CBO

Figure 2.

Labor Productivity and Hours

Sources: Congressional Budget Office; Bureau of Labor Statistics.

Notes: Data show labor productivity and hours in the nonfarm business sector.

Labor productivity is inflation-adjusted output divided by hours worked.

Data are annual and are plotted through 2013.

0

Labor Hours

Index, 2009 = 100, Log Scale

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

120

100

80

60

40

0

Index, 2009 = 100, Log Scale

Labor Productivity

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

125

100

75

50

25

Trend Growth,

1947 to 1973

(2.6 percent)

Trend Growth,

1974 to 1995

(1.5 percent)

Trend Growth,

1996 to 2007

(2.8 percent)

Trend Growth,

2008 to 2013

(1.3 percent)

Actual

Trend
10 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 3.

Petroleum Prices and Consumer Price Inflation

Sources: Congressional Budget Office; Bureau of Labor Statistics; Bureau of Economic Analysis.

Notes: Data are annual and are plotted through 2013. Data for the price of petroleum imports are plotted beginning in 1967.

CPI-U = consumer price index for all urban consumers.

a. The price of petroleum imports is the price index for petroleum imports divided by the price index for personal consumption expenditures 

excluding prices for food and energy.

b. In the CPI-U, major components of energy prices include motor fuel (which is primarily composed of petroleum products), electricity, and 

natural gas purchased from utilities.

Consumer Price Index With and Without Energy Pricesb

Percentage Change

-4

0

4

8

12

16

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

CPI-U Without

Energy Prices

CPI-U

Price of Petroleum Importsa

0

0.4

0.8

1.2

1.6

2.0

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Index, 2009 = 1
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 11

CBO

At a fundamental level, the risk of large movements in 

crude oil prices stems from the fact that producers 

and consumers have limited capacity to adjust supply and 

demand quickly in response to changing market conditions.15 Fluctuations in oil prices are often difficult to 

forecast because markets for petroleum products can be 

sensitive to influences that are not reasonably predictable. 

In particular, sudden price changes have occurred because 

of political decisions or instability in oil-producing countries. During the 1973–1981 period, for example, oil 

prices spiked at the time of the Arab oil embargo (1973 

to 1974), the Iranian Revolution (1979), and the start of 

the Iran–Iraq War (1980).

In large part, CBO bases its forecasts of oil prices on the 

prices implied by oil futures contracts, adjusted for estimated economic conditions assuming federal fiscal policy 

as specified in current law. Although futures markets provide some predictive power, they are imperfect indicators 

of realized prices. 

Revisions to Historical Data

Forecasters rely on national data sets to project commonly used indicators of economic activity. Agencies like 

BEA estimate GDP and other economic indicators using 

various methods and statistical definitions and using 

data that they and others collect. As more information 

becomes available and as definitions and methodologies 

improve, published estimates are often revised. Some 

series, such as the consumer price index and interest rates 

examined in this report, are not revised.

Revisions to historical data sometimes complicate the task 

of evaluating forecasts by making it difficult to assess the 

extent to which errors were derived from imperfect forecasting approaches as opposed to imperfect data. For example, BEA made several downward revisions to estimates of 

real GDP growth during the 2007–2009 recession (see 

Figure 4). When CBO conducted its January 2009 baseline forecast, real GDP had reportedly fallen by 0.5 percent 

(at an annual rate) in the third quarter of 2008; however, 

revised data now show a 1.9 percent drop in that quarter. 

Similarly, current data show that average annual growth in 

real GDP was about one-half of a percentage point lower 

during the recession than forecasters knew in January 

2010. Had CBO and other forecasters used revised data 

rather than original estimates, their projections probably 

would have been different.

Changes to definitions and methodologies also affect the 

comparability of current data and past forecasts. For 

example, in 1999, in addition to redefining business 

and government spending on computer software as 

investment, BEA adopted new price indexes for various 

categories of consumption. Largely as a result of those 

changes, estimated growth in real GDP increased during 

the 1980s and 1990s. In particular, from 1992 to 1998, 

average annual growth in real GDP was increased by 

0.4 percentage points, and inflation in the GDP price 

index was decreased by 0.1 percentage points.16 Forecasts 

before 1999, of course, could not have anticipated those 

changes, so they used the definitions and methodologies 

that existed at the time.

CBO’s Two-Year Forecasts

CBO’s two-year forecasts have been about as accurate, as 

measured by the root mean square error, as those by the 

Administration and the Blue Chip consensus (see 

Table 1). The evaluation of those forecasts presented here 

involves various economic outcomes, including growth in 

output (in both real and nominal terms), inflation, the 

difference between inflation in the consumer price index 

and the GDP price index, interest rates on 3-month Treasury bills and 10-year Treasury notes, and changes in 

wages and salaries (a significant part of taxable income).17

(Box 1 on page 14 presents a comparison of CBO’s forecasts of real output growth and inflation over two-year 

periods with those of the Federal Reserve.)

Growth in Output

Two-year forecasts of output growth by CBO, the 

Administration, and the Blue Chip consensus have moved

15. In the near term, consumers are constrained by the energy 

efficiency of their homes, places of work, and modes of 

transportation; producers are constrained by their equipment, 

technology, and the availability and accessibility of natural 

resources. For additional discussion, see Congressional Budget 

Office, Energy Security in the United States (May 2012), 

www.cbo.gov/publication/43012.

16. See Eugene P. Seskin, “Improved Estimates of the National 

Income and Product Accounts for 1959–98: Results of the 

Comprehensive Revision,” Survey of Current Business (December 

1999), pp. 15–43, www.bea.gov/scb/pdf/national/nipa/1999/

1299niw.pdf (392 KB).

17. Tables showing the errors of each forecast are available as 

supplemental material on CBO’s website (www.cbo.gov/

publication/49891).
12 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 4.

Forecasts by CBO and Revisions to Values for Real Gross Domestic Product 

Percentage Change From the Previous Year

Sources: Congressional Budget Office; Bureau of Economic Analysis. 

Notes: Solid lines represent historical data that were available at the time each forecast was conducted. Dashed lines represent forecast data. 

Real gross domestic product is the output of the economy adjusted to remove the effects of inflation.

Data are quarterly and are plotted through the fourth quarter of 2011.

closely together over the past 30 years. As measured by 

the root mean square error, the projected two-year average growth rate of output (both real and nominal) by all 

three sets of forecasts deviated from the actual growth rate 

by about 11⁄2 percentage points between 1982 and 2012. 

In large part, errors in predicting output growth reveal 

forecasters’ difficulty in anticipating business cycle turning points and changing trends in productivity growth. 

Growth in Real Output. Forecasting errors over the period 

from 1976 to 1982 reflected the unusual economic 

developments of the time:

 Low productivity growth relative to the previous 

trend, 

 High rates of inflation exacerbated by sudden and 

unexpected movements in crude oil prices, and 

 The Federal Reserve’s monetary policy, which resisted 

those inflationary pressures and induced the two 

recessions that occurred between 1980 and 1982.18

In the late 1970s, CBO and the Administration, like 

most forecasters, had expected productivity growth to 

move back up to its earlier post–World War II trend, 

which contributed to overpredictions of the growth in 

real output. Early in 1980, CBO and the Administration 

anticipated the coming recession and produced relatively 

accurate forecasts that year. However, forecasts conducted 

in the next two years did not anticipate the advent 

and depth of the 1981–1982 recession, causing overpredictions of the growth in real output (see Figure 5 on 

page 16).

In 1983 and 1984, economic activity recovered strongly 

from the 1981–1982 recession, with real output growing 

faster than expected by CBO, the Administration, and 

the Blue Chip consensus. In forecasts conducted during 

the 1983–1989 expansion, CBO and the Blue Chip consensus underpredicted real output growth by roughly 

1 percentage point per year, on average; in the Administration’s forecasts, underpredictions were notably smaller, 

particularly during the latter half of the decade. 

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011

January 2010

Actuals and

Forecast

Current Actuals

January 2009

Actuals and

Forecast

18. The credit controls imposed in March 1980 contributed to the 

severity of the recession in that year. See Stacey L. Schreft, “Credit 

Controls: 1980,” Economic Review (Federal Reserve Bank of 

Richmond, November/December 1990), pp. 25–55. 
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 13

CBO

Table 1.

Summary Measures of Performance for Two-Year Forecasts

Percentage Points

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators.

Notes: The mean error is the arithmetic average of the forecasting errors. The mean absolute error is the arithmetic average of the forecasting errors 

without regard to sign. The root mean square error is calculated by first squaring the errors and then taking the square root of the arithmetic 

average of the squared errors. Errors are forecast values minus actual values; therefore, a positive error is an overestimate. 

To compare forecast and actual data, annual averages were computed for growth rates, inflation rates, interest rates, and wages and salaries 

as a share of output.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners 

and clerical workers; GDP = gross domestic product; GNP = gross national product; n.a. = not applicable (the Blue Chip consensus does not 

report forecasts of wages and salaries).

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

b. Output is either GDP or GNP. GNP differs from GDP primarily by including the capital income that residents earn from investments abroad and 

excluding the capital income that nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 

onward. Real output is nominal output adjusted to remove the effects of inflation.

c. Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began publishing the 

CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 1989 and by the 

Administration through 1991.

d. The GNP price index was forecast before 1992; the GDP price index was forecast from 1992 onward.

e. In most years, the secondary-market interest rate was forecast. However, the rate on newly issued bills was forecast by the Administration 

through 2000 and by the Blue Chip consensus from 1982 to 1985 and from 1992 to 1997.

f. The real interest rate is the nominal interest rate deflated by growth in the consumer price index.

g. Forecasts of the Moody’s Aaa corporate bond rate were used for the years in which the interest rate on 10-year Treasury notes was not forecast: 

1984 and 1985 for CBO’s forecasts and 1984 through 1995 for the Blue Chip consensus forecasts.

Growth in Real Output (1982–2012)b

Mean error -0.2 0.1 -0.1

Mean absolute error 1.1 1.2 1.1

Root mean square error 1.4 1.5 1.4

Growth in Nominal Output (1982–2012)b

Mean error 0.1 0.4 0.3

Mean absolute error 1.1 1.2 1.1

Root mean square error 1.4 1.6 1.4

Inflation in the CPI (1982–2012)c

Mean error 0.1 0.1 0.2

Mean absolute error 0.7 0.7 0.7

Root mean square error 0.8 0.9 0.9

Difference Between Inflation in the CPI and in the GDP Price Index (1982–2012)c, d

Mean error -0.1 -0.3 -0.2

Mean absolute error 0.3 0.4 0.4

Root mean square error 0.4 0.6 0.4

Interest Rate on Three-Month Treasury Bills (1982–2012)e

Mean error 0.6 0.3 0.6

Mean absolute error 1.0 1.0 1.0

Root mean square error 1.3 1.3 1.2

Real Interest Rate on Three-Month Treasury Bills (1982–2012)c, e, f

Mean error 0.4 0.2 0.4

Mean absolute error 1.0 1.0 1.0

Root mean square error 1.3 1.3 1.2

Interest Rate on 10-Year Treasury Notes (1984–2012)g

Mean error 0.4 0.2 0.5

Mean absolute error 0.7 0.8 0.7

Root mean square error 0.7 0.9 0.8

Growth in Wages and Salaries (1980–2012)

Mean error 0.5 0.7 n.a.

Mean absolute error 1.4 1.5 n.a.

Root mean square error 1.9 2.1 n.a.

Change in Wages and Salaries as a Share of Output (1980–2012)

Mean error 0.3 0.2 n.a.

Mean absolute error 0.8 0.8 n.a.

Root mean square error 0.9 0.9 n.a.

Blue Chip 

CBO Administration Consensusa
14 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Continued

Box 1.

Comparison of Two-Year Forecasts by CBO and the Federal Reserve

Like those by the Administration and the Blue Chip

consensus, forecasts by the Federal Reserve provide an 

informative point of comparison when evaluating the 

Congressional Budget Office’s forecasts. The Federal 

Reserve does not immediately release its two-year 

forecasts of interest rates or of wages and salaries, and 

it does not publish five-year forecasts. Therefore, 

CBO’s principal analysis for this report did not 

include the Federal Reserve’s forecasts. However, the 

Federal Reserve has published timely two-year forecasts of real (inflation-adjusted) output growth and 

inflation rates, allowing for a comparison of forecasts 

of those variables. 

CBO and the Federal Reserve have had largely similar 

forecasts of the growth of real output over two-year 

periods (see the figure below). Notable divergences 

occurred during the early 1980s, in 2010, and in 

2012. Before the 1980 recession, CBO produced a 

fairly accurate forecast of real output growth, and the 

Federal Reserve overestimated the depth of the coming recession. However, in early 1981 and 1982, 

CBO did not anticipate the advent or depth of the 

1981–1982 recession, whereas the Federal Reserve 

accurately forecast the downturn and subsequent 

recovery. In 2010, CBO’s forecast correctly 

anticipated a continued slow economic 

Errors in Forecasting the Growth of Real Output

Percentage Points

Sources: Congressional Budget Office; Federal Reserve; Bureau of Economic Analysis (BEA).

Notes: Errors are shown for forecasts of the average annual growth rate of real output over two-year periods. Errors are forecast 

values minus actual values; therefore, a positive error is an overestimate. Errors are based on the most recent data reported 

by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the preceding year. Date 

labels refer to the initial year of the two-year period.

Real (inflation-adjusted) output is either real gross domestic product (GDP) or real gross national product (GNP). GNP differs 

from GDP primarily by including the capital income that residents earn from investments abroad and excluding the capital 

income that nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 

onward.

From 2009 onward, growth rates are measured on a fourth-quarter to fourth-quarter basis.

Data are annual and are plotted through 2012. Data for the Federal Reserve are plotted beginning in 1979.

a. Before 2009, forecasts were prepared by the staff of the Board of Governors of the Federal Reserve System. Between 2009 and 

2012, the shaded area encompasses the central tendency of Federal Reserve forecasts. The central tendency reflects the 

forecasts of the members of the Board of Governors and the presidents of the Federal Reserve Banks without the three highest 

and three lowest forecasts.

1976 1981 1986 1991 1996 2001 2006 2011

Federal

Reserve

CBO a

-3

-2

-1

0

1

2

3

4
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 15

CBO

Box 1. Continued

Comparison of Two-Year Forecasts by CBO and the Federal Reserve

Errors in Forecasting Consumer Price Inflation

Percentage Points

Sources: Congressional Budget Office; Federal Reserve; Bureau of Labor Statistics; and Bureau of Economic Analysis (BEA).

Notes: Errors are shown for forecasts of the average annual growth rate of consumer prices over two-year periods. Errors are 

forecast values minus actual values; therefore, a positive error is an overestimate. All forecasts were issued in the first half of 

the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the two-year period.

Before 2009, the consumer price index (CPI) was forecast. For most years, the CPI for all urban consumers was forecast. 

However, the CPI for urban wage earners and clerical workers was forecast by CBO from 1976 through 1978 and from 1986 

through 1989. From 2009 onward, the price index for personal consumption expenditures was forecast, and errors are based 

on the most recent data reported by BEA. 

From 2009 onward, growth rates are measured on a fourth-quarter to fourth-quarter basis.

Data are annual and are plotted through 2012. Data for the Federal Reserve are plotted beginning in 1980.

a. Before 2009, forecasts were prepared by the staff of the Board of Governors of the Federal Reserve System. Between 2009 and 

2012, the shaded area encompasses the central tendency of Federal Reserve forecasts. The central tendency reflects the 

forecasts of the members of the Board of Governors and the presidents of the Federal Reserve Banks without the three highest 

and three lowest forecasts.

recovery following the 2007–2009 recession, but that 

forecast assumed additional fiscal restraint from 

expiring tax provisions that were subsequently 

extended.1

 In contrast, the central tendency of 

the Federal Reserve’s forecasts considerably overpredicted growth. In 2012, CBO’s underprediction 

of output growth in part reflects the extension of 

certain expiring tax provisions, which significantly 

reduced the amount of fiscal restraint compared with 

what had been embodied in CBO’s current-law 

projection. By comparison, the Federal Reserve 

overpredicted growth in 2012.

In general, CBO and the Federal Reserve also had 

similar forecasts of inflation (see the figure above). 

Forecasts conducted between 2001 and 2005, however, represent an exception. In early 2001, CBO’s 

forecast overpredicted growth in consumer prices, 

largely because of the unexpected 2001 recession, 

while the Federal Reserve’s expectations showed little 

error. Between 2003 and 2005, both forecasters 

underpredicted inflation rates, but the errors by the 

Federal Reserve were somewhat larger.

Federal

Reservea

CBO

1976 1981 1986 1991 1996 2001 2006 2011

-5

-4

-3

-2

-1

0

1

2

3

1. In early 2010, current law included the scheduled expiration 

of several tax provisions at the end of December 2010. Most 

of those provisions were originally enacted in the Economic 

Growth and Tax Relief Reconciliation Act of 2001 and the 

Jobs and Growth Tax Relief Reconciliation Act of 2003.
16 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 5.

Growth in Real Output: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of real output over two-year periods. Actual values are based on the 

most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the 

preceding year. Date labels refer to the initial year of the two-year period.

Real (inflation-adjusted) output is either real gross domestic product (GDP) or real gross national product (GNP). GNP differs from 

GDP primarily by including the capital income that residents earn from investments abroad and excluding the capital income that

nonresidents earn from domestic investment. Real GNP was forecast before 1992; real GDP was forecast from 1992 onward. 

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006 2011

-4

-2

0

2

4

6

Blue Chip

Consensusa

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

Actual

CBO

1976 1981 1986 1991 1996 2001 2006 2011

-2

0

2

4

6

8

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 17

CBO

The unexpected 1990–1991 recession resulted in overpredictions of real output growth in 1990. Even so, the 

errors by CBO and the Blue Chip consensus that year 

were actually smaller than the root mean square error for 

the 1982–2012 period. In contrast, the error by the 

Administration that year was considerably larger than its 

root mean square error for the whole period.

In every year between 1992 and 1999, all of the forecasts 

underpredicted two-year growth in real output, with 

very large errors made between 1996 and 1999. About 

one-fourth of the extent of those errors resulted from subsequent revisions that BEA made to the national income 

and product accounts (NIPAs), which included important definitional changes. Those data revisions aside, the 

significant underpredictions made between 1996 and 

1999 reflect several important economic developments 

that analysts did not anticipate—in particular, the investment boom of the late 1990s, which increased the capital 

stock and thereby boosted labor productivity and real 

output more than many forecasters had expected.

Forecasts conducted in 2001 did not anticipate the relatively mild recession in that year. As a result, CBO and 

the Blue Chip consensus overpredicted real output growth 

by about 1.5 percentage points, and the Administration 

overpredicted growth by almost 2 percentage points.

Following the recession, economic activity underwent an 

unusually slow recovery and weak expansion. During 

that time, productivity continued to grow at the strong 

post–1995 rate while labor hours grew very little. 

In forecasts conducted between 2004 and 2006, expectations for real output growth proved to be too optimistic; 

however, errors by the Administration and the Blue Chip

consensus were slightly smaller than those by CBO. Perhaps contributing to the overpredictions, rising energy 

prices (unanticipated by many forecasters) dampened 

growth in real GDP by roughly a quarter of a percentage 

point in 2004, less than half of a percentage point in 

2005, and about a quarter of a percentage point during 

the first half of 2006.19

Forecasts conducted in 2007 and 2008 failed to anticipate the growing imbalances in the housing and financial 

markets. During the early 2000s, real output growth was 

partly supported by a boom in residential construction, 

which was fueled by a growing bubble in house prices. By 

2007, a downturn in the housing market was apparent, 

and tensions in financial markets began to emerge. 

Despite those tensions, forecasts conducted in early 2008 

assumed that a recession would be avoided. For example, 

in January 2008, CBO reported, “If a severe credit 

crunch did occur, it would drive the economy into recession by significantly curbing financial activity and consumer spending. However, CBO assumes in its forecast 

that the Federal Reserve will implement policies to prevent such a crunch and that the financial sector is capable 

of absorbing most of the losses it faces.”20 Those assumptions did not hold true: In 2008, forecasts by CBO, 

the Administration, and the Blue Chip consensus overpredicted real output growth by at least 33⁄4 percentage 

points.

Between 2009 and 2012, CBO, the Administration, and 

the Blue Chip consensus all wrestled with uncertainty 

about underlying economic conditions and about future 

federal fiscal policy. 

In 2009 and 2010, CBO produced relatively accurate 

forecasts of the economic recovery. Compared to CBO, 

the Administration and the Blue Chip consensus expected 

a faster economic recovery and overpredicted real output 

growth in their 2009 and 2010 forecasts. One source of 

divergence between CBO’s forecasts and the other forecasts during those years was differences in fiscal policy 

assumptions. In early 2009, participants in the Blue Chip 

consensus reported that they expected additional fiscal 

stimulus, which implied stronger output growth than 

under then-current law.21 In early 2010, CBO’s forecast 

assumed additional fiscal restraint from expiring tax 

provisions that were subsequently extended.22

19. See Congressional Budget Office, The Economic Effects of Recent 

Increases in Energy Prices (July 2006), p. 6, www.cbo.gov/

publication/17984.

20. See Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2008 to 2018 (January 2008), p. 23,

www.cbo.gov/publication/41661.

21. See Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2009 to 2019 (January 2009), pp. 10–11, 

www.cbo.gov/publication/41753.

22. In early 2010, current law included the scheduled expiration 

of several tax provisions at the end of December 2010. Most of 

those provisions were originally enacted in the Economic Growth 

and Tax Relief Reconciliation Act of 2001 and the Jobs and 

Growth Tax Relief Reconciliation Act of 2003.
18 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

CBO’s forecast errors in 2011 and 2012 were notable and 

divergent, with an overprediction in 2011 and an underprediction in 2012. CBO’s underprediction of output 

growth in 2012 in part reflects the extension of certain 

expiring tax provisions, which significantly reduced the 

amount of fiscal restraint that had been embodied in 

CBO’s current-law projection. By comparison, the 

Administration and the Blue Chip consensus overpredicted growth in both 2011 and 2012.

Growth in Nominal Output. Differences in forecasting 

errors between real and nominal output growth indicate 

inaccuracies in projections of inflation in the GDP price 

index.23 (For information about the difference between 

the GDP price index and the consumer price index, or 

CPI, see the section “Inflation” below.) During the 1980s 

and 1990s, CBO, the Administration, and the Blue Chip 

consensus tended to overpredict inflation, which partially 

offset underpredictions of real output growth. Consequently, forecasts of nominal output growth appear to 

have less bias over that period than do forecasts of real 

output growth. 

During much of the 2000s, CBO, the Administration, 

and the Blue Chip consensus tended to underpredict 

inflation rates, which generally offset overpredictions of 

real output growth. However, forecasts conducted in 

2008 provided a notable exception. Early that year, all 

three sets of forecasts reflected the assumption that the 

economy would avoid a recession and therefore overpredicted both inflation and real output growth. As a 

result, forecasts conducted in that year overpredicted 

nominal output growth by about 4 to 5 percentage points 

(see Figure 6).

Inflation

The errors in inflation forecasts generally have reflected 

turbulence in crude oil prices and variation in the state 

of the economy. For example, rapidly rising oil prices 

contributed to forecasters’ sizable underpredictions of 

inflation during the late 1970s and mid-2000s. During 

the early 1980s, the deep recession dramatically and 

unexpectedly reduced the rate of inflation, but forecasters 

only gradually recognized the extent of that reduction 

and consequently made large overpredictions of price 

growth during much of the decade.

The evaluation focuses on two measures of inflation that 

are important for projecting federal outlays and revenues. 

One is the consumer price index, which measures inflation in the prices of a fixed group of consumer goods 

and services.24 Forecasts of federal outlays depend, in 

part, on expected inflation in that index. For example, 

the CPI is used to annually adjust payments to Social 

Security beneficiaries. Federal revenues also depend on 

inflation in consumer prices because elements of the individual income tax, such as tax brackets, have been 

indexed to the CPI since the mid-1980s. All else being 

equal, higher inflation in the CPI implies faster growth in 

outlays and slower growth in revenues.

The second measure is the difference between the rate of 

inflation in the CPI and the rate of inflation in the price 

index for GDP. The GDP price index is a summary measure of the prices of all goods and services that make up 

gross domestic product. Its growth is a critical determinant in forecasting the growth of nominal GDP and, 

therefore, the growth of income subject to federal taxes. 

All else being equal, higher inflation in the GDP price 

index implies faster growth in revenues. Consequently, 

if the GDP price index was forecast to grow more slowly 

than the CPI, the projected deficit would be larger than if 

the reverse was forecast.

Inflation in the CPI. During the late 1970s, CBO and the 

Administration made similarly large errors in forecasts 

of CPI inflation (see Figure 7). Primarily because of the 

spike in crude oil prices in 1979 and 1980, forecasts 

conducted in 1978 and 1979 underpredicted inflation by 

about 4 percentage points, on average.

In forecasts conducted between 1982 and 1986, CBO, 

the Administration, and the Blue Chip consensus overpredicted inflation in the CPI by about 11⁄2 percentage 

points, on average. That tendency largely stemmed from 

the fact that the 1981–1982 recession led to an unanticipated sharp and lasting reduction in the rate of inflation.

23. Gross national product and its price index were forecast by CBO, 

the Administration, and the Blue Chip consensus before 1992; 

GDP and its price index were forecast from 1992 onward.

24. In most years, the inflation forecasts are for the CPI-U, which 

measures inflation in the prices paid by all urban consumers. In 

the period from 1976 to 1978 and from 1986 to 1989, CBO 

forecast the CPI-W, which measures inflation in the prices paid by 

urban wage earners and clerical workers, while the Administration 

forecast the CPI-W through 1991. For the purpose of evaluating 

forecasts, the distinction between the two measures was 

consequential mainly in 1984, when inflation in the CPI-U and 

CPI-W diverged by 0.9 percentage points.
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 19

CBO

Figure 6.

Growth in Nominal Output: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of nominal output over two-year periods. Actual values are based on the 

most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the 

preceding year. Date labels refer to the initial year of the two-year period.

Nominal output is either gross domestic product (GDP) or gross national product (GNP). GNP differs from GDP primarily by including 

the capital income that residents earn from investments abroad and excluding the capital income that nonresidents earn from 

domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 onward.

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006 2011

-4

-2

0

2

4

6

Blue Chip

Consensusa

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

Actual

CBO

1976 1981 1986 1991 1996 2001 2006 2011

-2

0

2

4

6

8

10

12

14 Underestimate

Overestimate
20 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 7.

Inflation in the Consumer Price Index: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of Labor 

Statistics (BLS).

Notes: Actual and forecast data show the average annual growth rate of the consumer price index over two-year periods. All forecasts were 

issued in the first half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the 

two-year period.

Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

Blue Chip

1976 1981 1986 1991 1996 2001 2006 2011

-6

-4

-2

0

2

4

Consensusa

Average Annual Rate of Inflation Comparison of CBO Forecast and Actual Inflation

1976 1981 1986 1991 1996 2001 2006 2011

0

2

4

6

8

10

12

14

Actual

CBO

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 21

CBO

Also, the forecasters did not expect the drop in crude oil 

prices that occurred in early 1986. 

Between 1987 and 2003, CBO, the Administration, and 

the Blue Chip consensus made relatively small errors in 

forecasts of inflation in the CPI, with a root mean square 

error of roughly one-half of a percentage point. Inflation 

forecasts probably benefited from the relatively benign 

economic environment during most of that period, in 

contrast to the turbulence of the late 1970s and early 

1980s. Growth in the CPI in that period remained within 

a narrow range, particularly after 1990. Nevertheless, 

unexpected swings in energy prices and lower inflationary 

pressures from the 2001 recession led to forecasting errors 

between 1999 and 2001 that were generally among the 

larger errors for the 1987–2003 period.

Between 2004 and 2007, the forecasts persistently 

underpredicted inflation in the CPI largely because of the 

unexpected rise in crude oil prices. The predictions of 

two-year inflation rates were about 1 percentage point 

below actual inflation rates, on average. 

In 2008, CBO, the Administration, and the Blue Chip

consensus did not anticipate the 2007–2009 recession 

and the downward pressure that the recession would 

place on consumer price growth. As a result, CBO and 

the Administration overpredicted inflation slightly, as 

did the Blue Chip consensus but to a greater extent. 

The 2009 projections by all of the forecasters showed a 

decline in inflation close to what actually occurred, but 

the projections between 2010 and 2012 generally underpredicted inflation. The largest errors, in 2010 and 2011, 

reflect the unexpected increase in the price of energy in 

those years.

Difference Between Inflation Measures. For forecasts 

conducted between 1978 and 1980, CBO and the 

Administration underpredicted the difference in inflation 

measures by more than 2 percentage points, on average 

(see Figure 8). In 1979 and 1980, the difference between 

inflation in the CPI and the gross national product 

(GNP) price index spiked to levels unprecedented since 

the end of World War II. A significant part of the divergence can be explained by the oil price shock; a surge in 

oil prices has a larger effect on the CPI than on the GNP 

price index because petroleum products represent a much 

larger share of the goods and services consumed in this 

country than of the goods and services produced. Even 

so, the gap between the two inflation measures was 

unusually wide with the effect of energy prices removed. 

In forecasts conducted through early 1999, the tendency 

to underpredict the difference between the inflation measures largely reflected the methodological change to the 

national income and product accounts that year, when 

BEA added business and government purchases of software to investment and, therefore, to GDP. Because the 

price index for software purchases grew much less rapidly 

than other prices, on average, the change in the classification of software spending caused a downward revision of 

the historical data for the growth of the GDP price index. 

Hence, the forecasts made before 2000 were based on a 

pattern of historical growth in the GDP price index that 

was higher than is currently reported. That difference 

probably accounted for about 0.2 percentage points—or 

two-thirds—of the apparent bias in forecasts for that 

period.

Forecasts in 2000 were very accurate, but those between 

2001 and 2006 typically overestimated the difference in 

the inflation measures. The forecasts missed the large 

declines in the difference in 2001 and 2002 that resulted 

from the lower inflation in energy prices and lower inflationary pressures from the 2001 recession. Those two 

developments led to a larger decline in the rate of CPI 

inflation than in the rate of inflation measured by the 

GDP price index through 2002. Both inflation measures 

increased after 2002, but their difference did not rise as it 

generally had following past recessions, so forecasts conducted between 2003 and 2006 mostly overestimated the 

difference between inflation measures.

The sharp increase in the difference between the inflation 

measures in 2008 caught CBO, the Administration, and 

the Blue Chip consensus by surprise, raising the errors 

in the 2007 forecasts to their largest absolute values since 

1990. From 2009 onward, the difference between the 

inflation measures was smaller, and the Administration 

and the Blue Chip consensus tended to underestimate it 

by a moderate amount.

Interest Rates

On average, between 1982 and 2012, CBO, the Administration, and the Blue Chip consensus overpredicted 

interest rates. Forecasts by the Administration were less 

biased over the period because large negative forecasting 

errors in the late 1980s partly offset positive errors during 

other periods (particularly the 2000s). Notably, all of
22 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 8.

Difference Between Inflation in the CPI and in the GDP Price Index: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of Labor 

Statistics (BLS); Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the difference between average annual inflation measures (the CPI minus the GDP price index) over 

two-year periods. Actual values for the GDP price index are based on the most recent data reported by BEA. All forecasts were issued 

in the first half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the two-year 

period.

Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

The gross national product price index was forecast before 1992; the GDP price index was forecast from 1992 onward. 

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; 

CPI-W = consumer price index for urban wage earners and clerical workers; GDP = gross domestic product.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006 2011

Blue Chip

Percentage Points Comparison of CBO Forecast and Actual Difference

1976 1981 1986 1991 1996 2001 2006 2011

-4

-3

-2

-1

0

1

-1

0

1

2

3

4

Actual

CBO

Consensusa

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 23

CBO

the forecasts made after the 1990–1991, 2001, and 

2007–2009 recessions underestimated the duration of 

the easing of monetary policy, which largely accounts 

for the tendency to overpredict interest rates.

CBO forecasts interest rates on Treasury securities to 

project payments on the federal debt and other components of the budget. Those forecasts focus on two key 

rates—the rate on 3-month Treasury bills and that on 

10-year Treasury notes. All else being equal, higher interest rates result in larger interest payments and faster 

growth in federal debt held by the public. Forecasts of 

interest rates depend on a variety of factors, which 

include:

 Monetary policy. During periods of low inflation and 

high unemployment, for example, the Federal Reserve 

attempts to stimulate demand by lowering short-term 

interest rates, which in turn can lower the cost of 

borrowing over longer periods of time. 

 Inflation. Expectations of inflation are embedded in 

interest rates. Interest rates generally rise, for example, 

when participants in financial markets expect a higher 

rate of inflation in the future. Moreover, the Federal 

Reserve has responded to increasing inflationary 

pressures by taking actions to raise interest rates. 

 The issuance of federal debt securities. The federal 

government issues Treasury securities to finance 

budget deficits. All else being equal, an increase in the 

supply of those securities would tend to increase 

interest rates.

 Turmoil in the financial system. In periods when 

investors have been increasingly concerned about the 

safety of their investments, they have sought to hold 

more U.S. Treasury securities. Such an increase in 

demand lowers interest rates on those securities.

CBO has evaluated forecasts of the interest rate on threemonth Treasury bills in both nominal and real terms. 

The nominal rate of interest is the rate quoted in the secondary market.25 The real interest rate used here is the 

nominal rate deflated by the predicted growth in the 

consumer price index.

Interest Rate on Three-Month Treasury Bills. In 1978 

and 1979, both CBO and the Administration underpredicted the two-year average nominal interest rate on 

three-month Treasury bills by about 21⁄2 percentage 

points, on average (see Figure 9). That tendency 

stemmed from underpredicting inflation rates during 

that period. In fact, CBO and the Administration overpredicted real interest rates by more than 11⁄4 percentage 

points, on average, in those years (see Figure 10). Those 

overpredictions may have stemmed from the agencies’ 

overly optimistic forecasts of real output growth during 

the period.

During the early 1980s, actions by the Federal Reserve 

raised interest rates, which contributed to two consecutive recessions and ultimately a sharp and lasting cut in 

the rate of inflation. In 1980 and 1981, many forecasters 

did not fully anticipate that prolonged period of restraint 

in monetary policy or its impact on price growth. In 

1980, CBO and the Administration underpredicted both 

nominal and real interest rates, suggesting that monetary 

policy proved tighter than expected over the following 

two years. In 1981, CBO’s forecast overpredicted nominal interest rates but underpredicted real interest rates, 

reflecting an overprediction of inflation; the Administration’s forecast underpredicted both nominal and real 

interest rates.

Between 1982 and 2012, forecasts of nominal interest 

rates on three-month Treasury bills displayed notable 

upward bias. On average, forecasts by CBO and the Blue 

Chip consensus overpredicted nominal interest rates by 

0.6 percentage points, and the Administration overpredicted nominal interest rates by 0.3 percentage points. 

In part, that bias stemmed from forecasters’ tendency 

to overpredict inflation rates between 1982 and 1998. 

Forecasters’ difficulty in anticipating business cycle turning points also accounts for overpredictions of interest 

rates around the 1990–1991, 2001, and 2007–2009 

recessions.

Since 1990, forecasts made after recessions have tended to 

underestimate the duration of the easing of monetary 

policy. For example, forecasts conducted in early 1991 

and 1992 expected interest rates to begin rising as the 

economy recovered from the 1990–1991 recession. The

25. The rate on newly issued bills was forecast by the Administration 

through 2000 and by the Blue Chip consensus from 1982 to 1985 

and from 1992 to 1997. 
24 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 9.

Interest Rate on Three-Month Treasury Bills: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Federal 

Reserve; Bureau of the Public Debt.

Notes: Actual and forecast data show the geometric average of the interest rate over two-year periods. All forecasts were issued in the first 

half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the two-year period.

In most years, the secondary-market interest rate was forecast. However, the rate on newly issued bills was forecast by the 

Administration through 2000 and by the Blue Chip consensus from 1982 to 1985 and from 1992 to 1997.

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

recovery, however, was unexpectedly weak, and inflation 

remained low. That led the Federal Reserve to continue 

to ease monetary policy for several years, pushing down 

the nominal interest rate on three-month Treasury 

bills from nearly 8 percent in the first half of 1990 to 

3 percent in 1993.

In forecasts conducted during the 2000–2012 period, 

CBO, the Administration, and the Blue Chip consensus 

overpredicted real interest rates by about 11⁄4 percentage 

points, on average. Much of that bias can be attributed to 

the 2001 and 2007–2009 recessions and to the surprisingly sluggish recoveries in economic activity following 

those downturns. Indeed, despite the Federal Reserve’s

Forecast Minus Actual

Percentage Points

CBO

Administration

Blue Chip

1976 1981 1986 1991 1996 2001 2006 2011

-4

-2

0

2

4

Percent Comparison of CBO Forecast and Actual Interest Rate

1976 1981 1986 1991 1996 2001 2006 2011

0

2

4

6

8

10

12

14

Actual

CBO

Consensusa

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 25

CBO

Figure 10.

Real Interest Rate on Three-Month Treasury Bills: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of Labor 

Statistics (BLS); Federal Reserve; Bureau of the Public Debt.

Notes: Actual and forecast data show the geometric average of the nominal interest rate deflated by the predicted growth in the consumer 

price index over two-year periods. All forecasts were issued in the first half of the initial year of the period or in December of the 

preceding year. Date labels refer to the initial year of the two-year period.

In most years, the secondary-market interest rate was forecast. However, the rate on newly issued bills was forecast by the 

Administration through 2000 and by the Blue Chip consensus from 1982 to 1985 and from 1992 to 1997.

Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

Data are annual and are plotted through 2012. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

Blue Chip

1976 1981 1986 1991 1996 2001 2006 2011

-4

-2

0

2

4

Consensusa

Percent Comparison of CBO Forecast and Actual Interest Rate

1976 1981 1986 1991 1996 2001 2006 2011

-4

-2

0

2

4

6

Actual

CBO

Underestimate

Overestimate
26 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

prolonged easing of monetary policy following the 2001 

recession, real output growth during the mid-2000s 

remained weaker than expected. 

Interest Rate on 10-Year Treasury Notes. Between 1984 

and 2012, CBO overpredicted the nominal interest rate 

on 10-year Treasury notes by 0.4 percentage points, on 

average, while Blue Chip overpredicted it by 0.5 percentage points, on average (see Figure 11).26 Forecasts by the 

Administration were less biased (overpredicting the rate by 

0.2 percentage points, on average) because large negative 

forecasting errors in the late 1980s and early 1990s offset 

positive errors during other periods, particularly the 2000s. 

As measured by the root mean square error, forecasts 

by CBO deviated from actual interest rates by about 

0.7 percentage points, on average; forecasts by the Blue 

Chip consensus deviated from actual interest rates by about 

0.8 percentage points, on average; and forecasts by the 

Administration deviated from actual interest rates by 

about 0.9 percentage points, on average.

Between 2000 and 2008, CBO, the Administration, and 

the Blue Chip consensus persistently overpredicted the 

nominal interest rate on 10-year Treasury notes (by 

0.7 percentage points, on average). To some extent, the 

2001 and 2007–2009 recessions explain overpredictions 

in forecasts conducted before and during those downturns. To some extent, optimistic forecasts of real output 

growth probably account for overpredictions during the 

expansionary period of the mid-2000s. Given that outlook for faster growth in the economy, forecasters probably expected the Federal Reserve to try to temper that 

growth and the inflationary pressures that could have 

resulted from it.

By early 2009, forecasters had revised their expectations 

for interest rates downward. For that reason, forecasts of 

the rate for 10-year Treasury notes in 2009 were relatively 

accurate, deviating from actual interest rates by less than 

one-quarter of a percentage point. 

In early 2010, long-term interest rates were expected to 

rise, on average, during the economic recovery, but 

rates continued to decline over the next two years (particularly in 2011). From 2010 to 2012, CBO’s forecast 

overpredicted the 10-year Treasury note rate by 0.8 percentage points, on average; forecasts by the Administration and the Blue Chip consensus overpredicted that rate, 

on average, by 1.1 percentage points.

Wages and Salaries

Particularly since 2001, CBO and the Administration 

have tended to overpredict growth in wages and salaries 

and the change in wages and salaries as a percentage of 

GDP.27 (Because the Blue Chip consensus does not report 

forecasts of wages and salaries, the evaluation here discusses only forecasts conducted by CBO and the Administration.) To some extent, the fact that forecasters did 

not anticipate the 2001 and 2007–2009 recessions 

accounted for that tendency. However, both agencies also 

were surprised by the unusually sluggish recovery in 

wages and salaries relative to output following the two 

recessions.

Projections of federal revenues importantly depend on 

forecasts of wages and salaries, which are a major component of taxable income.28 Errors in forecasts of wages and 

salaries may result from inaccurate forecasts of various 

items: 

 Gross domestic product. Wages and salaries generally 

grow with overall economic activity and inflation. A 

forecast that fails to anticipate a downturn in output 

growth would probably overpredict growth in wages 

and salaries as well.

 The statistical discrepancy between GDP and gross 

domestic income (GDI, the income earned in the 

production of GDP). In principle, GDP and GDI 

should be equal, but in practice, they differ because 

BEA uses different primary sources to estimate product 

on the one hand and income on the other. To predict 

GDI, forecasters must also project the statistical 

discrepancy, which is difficult because the discrepancy 

stems from imperfect data collection and estimation 

processes. Unexpected swings in the discrepancy may 

raise or lower wages and salaries relative to GDP. 

26. For simplicity of exposition, this evaluation refers to 10-year 

Treasury notes. However, forecasts of the Moody’s Aaa corporate 

bond rate were used in years when forecasts of 10-year Treasury 

notes were not made. Those years are 1984 and 1985 for CBO’s 

forecasts and 1984 through 1995 for the Blue Chip consensus 

forecasts.

27. Reported data refer to wage and salary disbursements rather than 

accruals.

28. In some earlier editions of this report, CBO included an analysis 

of its forecast of the sum of wages and salaries and corporate book 

profits. That sum has been dropped from the analysis because 

legislative changes to the tax rules affecting corporations can 

affect book profits and have increasingly done so, which makes it 

difficult to identify the economic forecasting errors. Wages and 

salaries are less directly affected by legislation.
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 27

CBO

Figure 11.

Interest Rate on 10-Year Treasury Notes: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Federal Reserve.

Notes: Actual and forecast data show the geometric average of the interest rate over two-year periods. All forecasts were issued in the first 

half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the two-year period.

Forecasts of the Moody’s Aaa corporate bond rate were used for the years in which the interest rate on 10-year Treasury notes was not 

forecast: 1984 and 1985 for CBO’s forecasts and 1984 through 1995 for the Blue Chip consensus forecasts.

Data are annual and are plotted from 1984 through 2012.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

 Income shares. Income shares refer to the percentage of 

each type of income in GDI.29 Unexpected shifts in 

the composition of income may cause sizable errors in 

forecasts of wages and salaries.

Growth in Wages and Salaries. Between 1980 and 2012, 

the projected growth in wages and salaries exceeded 

actual growth by 0.5 percentage points for CBO and by 

0.7 percentage points for the Administration, on average 

(see Figure 12). As measured by the root mean square

Forecast Minus Actual

Percentage Points

-2

-1

0

1

2

CBO

Administration

Blue Chip

1976 1981 1986 1991 1996 2001 2006 2011

Consensusa

Percent Comparison of CBO Forecast and Actual Interest Rate

0

2

4

6

8

10

12

14

1976 1981 1986 1991 1996 2001 2006 2011

Actual

CBO

Underestimate

Overestimate

29. Gross domestic income includes wages and salaries, domestic 

economic profits, employee benefits, proprietors’ income, rental 

income, net interest payments, taxes on production and imports, 

the surplus of government enterprises, business current transfer 

payments, and depreciation—all minus subsidies.
28 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 12.

Growth in Wages and Salaries: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of wages and salaries over two-year periods. Actual values are based on 

the most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the 

preceding year. Date labels refer to the initial year of the two-year period.

The Blue Chip consensus does not report forecasts of wages and salaries.

Data are annual and are plotted from 1980 through 2012.

error, forecasts by both agencies deviated from actual 

growth by about 2 percentage points during that period. 

The directions of the errors in forecasting the growth of 

wages and salaries were similar to those for the errors in 

forecasts of nominal output, indicating that the errors 

stemmed in part from errors in predicting the growth of 

both real output and prices.

Change in Wages and Salaries as a Share of Output. 

To isolate the errors that were unique to the forecasts of 

wages and salaries, evaluating those forecasts as a 

share of output is helpful (see Figure 13). Historically, 

two patterns have been notable:

Forecast Minus Actual

Percentage Points

-4

-2

0

2

4

6

8

CBO

Administration

1976 1981 1986 1991 1996 2001 2006 2011

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

-2

0

2

4

6

8

10

12

1976 1981 1986 1991 1996 2001 2006 2011

Actual

CBO

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 29

CBO

Figure 13.

Change in Wages and Salaries as a Share of Nominal Output: Two-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the change in wages and salaries as a percentage of nominal output over two-year periods. Actual 

values are based on the most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or 

in December of the preceding year. Date labels refer to the initial year of the two-year period.

Nominal output is either gross domestic product (GDP) or gross national product (GNP). GNP differs from GDP primarily by including 

the capital income that residents earn from investments abroad and excluding the capital income that nonresidents earn from 

domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 onward. 

The Blue Chip consensus does not report forecasts of wages and salaries.

Data are annual and are plotted from 1980 through 2012. 

Forecast Minus Actual

Percentage Points

-2

-1

0

1

2

3

CBO

Administration

1976 1981 1986 1991 1996 2001 2006 2011

Percentage Points

Comparison of CBO Forecast and Actual Change

-3

-2

-1

0

1

2

1976 1981 1986 1991 1996 2001 2006 2011

Actual

CBO

Underestimate

Overestimate
30 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

 Wages and salaries as a share of output typically move 

in a cyclical pattern, falling during periods of high 

unemployment and rising when labor markets tighten.

 Since the early 1970s, the share has followed a 

downward trend. In part, that trend has stemmed 

from the fact that employers and employees have 

substituted untaxed noncash, or fringe, benefits (such 

as employer-paid health insurance premiums and 

pension contributions) for taxable wages and salaries.30 

Other factors, such as technological change and 

globalization, also appear to have contributed to the 

decline in the share during the past two decades.31

Between 1980 and 2012, forecasts of the two-year change 

in the wage and salary share displayed a very slight bias, 

with average overpredictions of about one-quarter of a 

percentage point.32 As measured by the root mean square 

error, forecasts by both CBO and the Administration 

deviated from the actual change in the share by about 

1 percentage point.

During the first half of the 1980s, wages and salaries fell 

markedly as a percentage of GNP. In large part, that 

decline can be attributed to the 1980 and 1981–1982 

recessions. CBO and the Administration correctly anticipated a decline in the wage and salary share but predicted 

a larger decline than what actually occurred in most years.

Following a slight rebound in the mid-1980s, the wage 

and salary share generally declined through the first half 

of the 1990s. To a large extent, that decline derived from 

a large and unexpected increase in the statistical discrepancy, indicating that the measure of total output grew 

faster than the measure of total income. That shift in the 

discrepancy probably explains overpredictions made by 

both agencies during the period. 

In the late 1990s, wages and salaries grew rapidly as a percentage of GDP, and CBO and the Administration made 

large underpredictions of the change in the share. Three 

factors probably contributed to the rise in the wage and 

salary share: 

 The statistical discrepancy generally declined during 

that period, indicating that GDP grew more slowly 

than GDI.

 Although labor compensation has increasingly been 

paid in the form of nontaxable benefits in the years 

since World War II, that trend reversed temporarily as 

employers’ contributions to pension funds and health 

insurance premiums fell as a share of compensation.33

 Employee stock options became more prevalent 

during the 1990s, and gains from exercising stock 

options count as wage and salary income in the 

NIPAs. Movements in the wage and salary share of 

GDP generally corresponded to movements in the 

stock market in those years.34

During the first half of the 2000s, forecasters expected 

the wage and salary share to either rise or remain roughly 

unchanged, but instead it fell sharply. In part, the decline 

resulted from the shift in labor compensation toward 

nontaxable benefits. The 2001 recession and sluggish 

recovery in the labor market also contributed to the 

decline. However, the recession had only modest effects 

on output growth and the rate of unemployment, so the 

decline in the wage and salary share appeared unusually 

large relative to the severity of the recession.

In forecasts conducted between 2008 and 2010, CBO 

and the Administration underestimated the effects of 

the severe 2007–2009 recession on the wage and salary 

30. See, for example, Congressional Budget Office, How CBO Projects 

Income (July 2013), p. 15, www.cbo.gov/publication/44433.

31. Further details about contributions to defined-benefit pension 

plans are outlined in Congressional Budget Office, The Budget 

and Economic Outlook: An Update (August 2005), Box 2-2, 

pp. 32–33, www.cbo.gov/publication/17091.

32. For forecasts conducted before 1992, wages and salaries were 

computed as a percentage of GNP; from 1992 onward, they 

were computed as a percentage of GDP.

33. For information about changes in employers’ contributions to 

health insurance during the late 1990s, see, for example, 

David M. Cutler, Employee Costs and the Decline in Health 

Insurance Coverage, NBER Working Paper 9036 (National 

Bureau of Economic Research, July 2002), www.nber.org/papers/

w9036.pdf (260 KB). 

34. See, for example, Hamid Mehran and Joseph Tracy, The Impact 

of Employee Stock Options on the Evolution of Compensation in 

the 1990s, NBER Working Paper 8353 (National Bureau of 

Economic Research, July 2001), www.nber.org/papers/w8353.pdf

(248 KB); and David Lebow and others, Recent Trends in 

Compensation Practices, FEDS Working Paper 1999-32 

(Board of Governors of the Federal Reserve System, July 1999), 

www.federalreserve.gov/pubs/feds/1999/199932/199932pap.pdf 

(1.93 MB).
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 31

CBO

share. In early 2008, neither forecaster anticipated the 

onset of the recession, which reduced the wage and salary 

share, and both expected the wage and salary share to be 

little changed over the following two years. In early 2009, 

both forecasters had significantly revised their expectations for real output growth downward because of the 

recession; however, they did not anticipate resulting 

effects on the wage and salary share over the following 

two years. Assuming that fiscal policy would follow current law, CBO actually forecast a slight increase in the 

wage and salary share toward the end of 2010 in anticipation of tax policy changes scheduled to take effect in 

2011.35

For the forecasts in 2011 and 2012, CBO’s errors were 

larger than those of the Administration. CBO expected 

a larger cyclical rebound in the share than actually 

occurred in 2011 and a slightly larger decline than actually occurred in 2012, while the Administration made 

negligible errors in both years.

CBO’s Five-Year Forecasts

Like the two-year forecasts, the five-year forecasts by 

CBO, the Administration, and the Blue Chip consensus 

have generally moved together, showing similar degrees of 

bias and accuracy (see Table 2). 

Compared with two-year forecasts, five-year forecasts 

by CBO and the others typically have some different 

characteristics: 

 They rely more heavily on underlying trends in 

the economy. CBO, for example, does not usually 

forecast fluctuations in the economy after the first few 

years. Instead, CBO projects output to return to its 

historical relationship with potential output and other 

variables to move to their long-term values. Therefore, 

errors in five-year forecasts often reveal inaccurate 

projections of the long-term trajectory of the 

economy.

 They are less likely to produce large errors because of 

relatively brief or small shifts in economic activity. For 

example, because CBO’s forecast conducted in early 

2001 did not anticipate the 2001 recession, CBO 

overpredicted the average two-year growth rate of real 

output by about 11⁄2 percentage points but overpredicted the average five-year growth rate by about 

one-half of a percentage point.

 They are more likely to produce errors because of 

changes in fiscal policy. CBO’s baseline projections 

assume that future fiscal policies will be consistent 

with current law, but changes in law can be sizable 

over a five-year span.

Growth in Output

Between 1982 and 2009, forecasts of the five-year average 

growth rate for both real and nominal output have deviated from actual growth by roughly 11⁄4 percentage 

points, as measured by the root mean square error. 

Growth in Real Output. In forecasts conducted between 

1976 and 1979, CBO and the Administration overpredicted the five-year average growth rate of real GNP 

by more than 2 percentage points, on average (see 

Figure 14). In part, those errors reflect slow productivity 

growth relative to the preceding trend following the 

1973–1975 recession, which led forecasters to overestimate the level of potential output during the late 1970s 

(see Figure 2 on page 9). Furthermore, forecasts conducted in early 1978 and 1979 did not anticipate the two 

recessions that occurred during the early 1980s, which 

contributed to errors made in those years. 

Forecasts of the five-year growth of real output by CBO, 

the Administration, and the Blue Chip consensus made 

during the early 1980s were relatively accurate despite the 

large and unexpected 1981–1982 recession. That outcome reflected the fact that growth rebounded very 

strongly after the recession, so cumulative growth during 

the recession and the subsequent recovery was close to 

previous forecasts. As economic conditions stabilized 

after the early 1980s, forecasts remained similarly accurate during the rest of the 1980s and the early 1990s. 

Between 1980 and 1991, the root mean square errors 

were 0.3 percentage points for CBO, 0.6 percentage 

points for the Administration, and 0.5 percentage points 

for the Blue Chip consensus.

35. In early 2009, CBO’s fiscal policy assumptions were consistent 

with the scheduled expiration of major provisions of the 

Economic Growth and Tax Relief Reconciliation Act of 2001 

and the Jobs and Growth Tax Relief Reconciliation Act of 2003. 

Those provisions were subsequently extended. The implications 

for the agency’s baseline forecasts of subsequent legislative changes 

are discussed in Congressional Budget Office, What Is a CurrentLaw Economic Baseline? (June 2005), www.cbo.gov/publication/

16558.
32 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Table 2.

Summary Measures of Performance for Five-Year Forecasts

Percentage Points

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators.

Notes: The mean error is the arithmetic average of the forecasting errors. The mean absolute error is the arithmetic average of the forecasting errors 

without regard to sign. The root mean square error is calculated by first squaring the errors and then taking the square root of the arithmetic 

average of the squared errors. Errors are forecast values minus actual values; therefore, a positive error is an overestimate. 

To compare forecast and actual data, annual averages were computed for growth rates, inflation rates, and wages and salaries as a share of 

output.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners 

and clerical workers; GDP = gross domestic product; GNP = gross national product; n.a. = not applicable (the Blue Chip consensus does not 

report forecasts of wages and salaries).

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

b. Output is either GDP or GNP. GNP differs from GDP primarily by including the capital income that residents earn from investments abroad and 

excluding the capital income that nonresidents earn from domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 

onward. Real output is nominal output adjusted to remove the effects of inflation.

c. Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began publishing the 

CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 1989 and by the 

Administration through 1991.

d. The GNP price index was forecast before 1992; the GDP price index was forecast from 1992 onward.

Forecasts made between 1992 and 1999 of the five-year 

average growth rate of real GDP were too pessimistic. On 

average, actual growth exceeded projected growth by 

1.2 percentage points for CBO and the Administration 

and by 1.1 percentage points for the Blue Chip consensus. 

Those errors largely resulted from the unexpected investment boom of the late 1990s, which increased the capital 

stock and thereby boosted labor productivity and potential output. Methodological revisions by BEA in 1999 

also contributed to underpredictions at the end of the 

period.

In forecasts conducted between 2000 and 2003, CBO, 

the Administration, and the Blue Chip consensus made

Growth in Real Output (1979–2009)b

Mean error 0.1 0.4 0.0

Mean absolute error 0.9 1.0 0.9

Root mean square error 1.2 1.3 1.1

Growth in Nominal Output (1982–2009)b

Mean error 0.6 0.7 0.7

Mean absolute error 1.0 1.1 1.0

Root mean square error 1.3 1.4 1.3

Inflation in the CPI (1983–2009)c

Mean error 0.3 0.1 0.4

Mean absolute error 0.5 0.5 0.6

Root mean square error 0.6 0.7 0.8

Mean error -0.2 -0.3 -0.3

Mean absolute error 0.3 0.4 0.4

Root mean square error 0.4 0.5 0.4

Growth in Wages and Salaries (1980–2009)

Mean error 1.0 1.1 n.a.

Mean absolute error 1.5 1.6 n.a.

Root mean square error 1.8 1.9 n.a.

Change in Wages and Salaries as a Share of Output (1980–2009)

Mean error 0.6 0.5 n.a.

Mean absolute error 1.5 1.5 n.a.

Root mean square error 1.7 1.6 n.a.

Difference Between Inflation in the CPI and in the GDP Price Index (1983–2009)c, d 

Blue Chip 

CBO Administration Consensusa
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 33

CBO

Figure 14.

Growth in Real Output: Five-Year Forecasts 

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of real output over five-year periods. Actual values are based on the most 

recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the preceding 

year. Date labels refer to the initial year of the five-year period.

Real (inflation-adjusted) output is either real gross domestic product (GDP) or real gross national product (GNP). GNP differs from 

GDP primarily by including the capital income that residents earn from investments abroad and excluding the capital income that

nonresidents earn from domestic investment. Real GNP was forecast before 1992; real GDP was forecast from 1992 onward. 

Data are annual and are plotted through 2009. Forecasts from the Blue Chip consensus are plotted beginning in 1979. 

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

-3

-2

-1

0

1

2

3

Blue Chip

Consensusa

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

1976 1981 1986 1991 1996 2001 2006

0

1

2

3

4

5

6

Actual

CBO

Underestimate

Overestimate
34 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

relatively small overpredictions of the five-year average 

growth rate of real GDP (less than one-half of a percentage point, on average). A portion of the errors probably 

stemmed from overestimates of potential output. For 

example, in early 2002, CBO projected potential output 

to grow at an average annual rate of 3.0 percent over the 

next five years; however, CBO now estimates that potential output grew at an average rate of 2.9 percent per year 

between 2002 and 2006.

The unexpectedly severe and prolonged effects of the 

2007–2009 recession account for most of the errors in 

forecasting the five-year average growth rate of real 

GDP from 2004 to 2009. Forecasts made between 2005 

and 2008, in particular, were much too optimistic. On 

average during that period, forecasts exceeded actual 

growth by 2.4 percentage points for CBO and the 

Administration and by 2.2 percentage points for the 

Blue Chip consensus.

Growth in Nominal Output. Differences in forecasting 

errors between real and nominal output growth indicate 

inaccuracies in forecasts of inflation in the GDP price 

index. For the entire 1982–2009 period covered in this 

evaluation, all three sets of forecasts overpredicted the 

five-year growth rate of nominal output by more than 

one-half of a percentage point, on average. In the 1980s 

and the early 1990s, forecasters’ tendency to overestimate 

inflation contributed to overpredictions of nominal output growth. In contrast, forecasts conducted between 

2000 and 2005 tended to underpredict inflation rates, 

which partially offset overpredictions of real output 

growth (see Figure 15).

Inflation

On average between 1983 and 2009, forecasts by CBO, 

the Administration, and the Blue Chip consensus overpredicted inflation in the CPI over the following five 

years and underpredicted the difference between inflation 

in the CPI and the GDP price index. As measured by the 

root mean square error, forecasts of the average five-year 

rate of inflation deviated from actual inflation by 

0.6 percentage points for CBO, 0.7 percentage points 

for the Administration, and 0.8 percentage points for 

the Blue Chip consensus. For forecasts of the difference 

between inflation in the CPI and GDP price index, 

the root mean square errors were about one-half of a 

percentage point.

Inflation in the CPI. By far, the largest errors in five-year 

forecasts of inflation in the CPI occurred during the late 

1970s and early 1980s (see Figure 16). Forecasts by CBO 

and the Administration between 1976 and 1979 underpredicted the average inflation rate by over 3 percentage 

points, on average. As inflation rates fell during and after 

the 1981–1982 recession, forecasters gradually revised 

their five-year estimates downward. Between 1982 and 

1984, forecasts by CBO and the Administration overpredicted average inflation rates by between 11⁄2 percentage points and 2 percentage points, on average.

As inflation rates moderated after the early 1980s, errors 

in five-year forecasts also diminished. Forecasts conducted by CBO and the Blue Chip consensus between 

1985 and 1999 overpredicted the inflation rate by about 

one-half of a percentage point, on average, while the 

Administration overpredicted the inflation rate by a negligible amount. Nevertheless, all three forecasts had the 

same mean absolute error over the 1985–1999 period. 

All of the forecasters made only small errors in predicting 

the five-year average rate of inflation in 2000 and 2001, 

but they failed to anticipate the rise in that rate after 

2001. As a result, they all underpredicted inflation 

significantly in their 2002–2004 forecasts.

Forecast errors for inflation were generally small from 

2005 to 2009. All of the forecasters correctly anticipated 

a fall in inflationary pressures as a result of the 2007–

2009 recession and subsequent slow growth of output. 

On average, CBO underpredicted inflation slightly, the 

Blue Chip consensus overpredicted inflation slightly, and 

the Administration predicted inflation accurately.

Difference Between Inflation Measures. In forecasts 

conducted between 1983 and 1998, CBO, the Administration, and the Blue Chip consensus consistently 

underpredicted the difference between five-year average 

inflation rates measured by the CPI and the GDP price 

index (see Figure 17 on page 37).36 On average, the 

projected difference was below the actual difference 

by 0.4 percentage points for CBO, 0.6 percentage points 

for the Administration, and 0.5 percentage points for the 

Blue Chip consensus. About 0.2 percentage points of that 

bias resulted from downward revisions to inflation in the 

GDP price index following the comprehensive revision to 

the NIPAs in 1999. 

36. For forecasts conducted before 1992, this evaluation analyzed 

forecasts of the GNP price index.
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 35

CBO

Figure 15.

Growth in Nominal Output: Five-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of 

Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of nominal output over five-year periods. Actual values are based 

on the most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December 

of the preceding year. Date labels refer to the initial year of the five-year period.

Nominal output is either gross domestic product (GDP) or gross national product (GNP). GNP differs from GDP primarily by including 

the capital income that residents earn from investments abroad and excluding the capital income that nonresidents earn from 

domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 onward.

Data are annual and are plotted through 2009. Forecasts from the Blue Chip consensus are plotted beginning in 1982.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

-2

-1

0

1

2

3

4

Blue Chip

Consensusa

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

1976 1981 1986 1991 1996 2001 2006

0

2

4

6

8

10

12

14

Actual

CBO

Underestimate

Overestimate
36 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 16.

Inflation in the Consumer Price Index: Five-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of Labor 

Statistics (BLS).

Notes: Actual and forecast data show the average annual growth rate of the consumer price index over five-year periods. All forecasts were 

issued in the first half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the 

five-year period.

Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991.

Data are annual and are plotted through 2009. Forecasts from the Blue Chip consensus are plotted beginning in 1983.

CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

-6

-4

-2

0

2

4

Blue Chip

Consensusa

Average Annual Rate of Inflation Comparison of CBO Forecast and Actual Inflation

1976 1981 1986 1991 1996 2001 2006

0

2

4

6

8

10

Actual

CBO

Underestimate

Overestimate
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 37

CBO

Figure 17.

Difference Between Inflation in the CPI and in the GDP Price Index: Five-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Blue Chip Economic Indicators; Bureau of Labor 

Statistics (BLS); Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the difference between average annual inflation measures (the CPI minus the GDP price index) over 

five-year periods. Actual values for the GDP price index are based on the most recent data reported by BEA. All forecasts were issued 

in the first half of the initial year of the period or in December of the preceding year. Date labels refer to the initial year of the five-year 

period.

Before 1978, BLS published only one consumer price index series, now known as the CPI-W. In January 1978, the bureau began 

publishing the CPI-U. For most years since 1979, the CPI-U was forecast. However, the CPI-W was forecast by CBO from 1986 through 

1989 and by the Administration through 1991. 

The gross national product price index was projected before 1992; the GDP price index was forecast from 1992 onward. 

Data are annual and are plotted through 2009. Forecasts from the Blue Chip consensus are plotted beginning in 1983.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage 

earners and clerical workers; GDP = gross domestic product. 

a. The Blue Chip consensus is the average of approximately 50 private-sector forecasts.

Forecast Minus Actual

Percentage Points

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

-3

-2

-1

0

1

Blue Chip

Consensusa

Percentage Points

Comparison of CBO Forecast and Actual Difference

1976 1981 1986 1991 1996 2001 2006

-1

0

1

2

Actual

CBO

Underestimate

Overestimate
38 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

In forecasts conducted from 2000 to 2003, CBO, the 

Administration, and the Blue Chip consensus did not 

anticipate that the difference between the two inflation 

measures would decline significantly. All of the forecasters 

moderately overpredicted the difference in those years, 

after moderately underpredicting the difference during 

the 1990s. 

After 2003, forecast errors were generally quite small. 

The average error for the forecasts from 2004 to 2009 

was roughly zero for CBO, -0.2 percentage points for 

the Administration, and -0.1 percentage point for the 

Blue Chip consensus. The largest errors in absolute 

magnitude were in 2007: -0.6 percentage points for 

the Administration and -0.3 percentage points for the 

Blue Chip consensus. 

Wages and Salaries

On average between 1980 and 2009, forecasts by CBO 

and the Administration tended to overpredict growth in 

wages and salaries and the change in wages and salaries 

as a share of output over five-year periods. Forecasting 

errors varied widely over time, however, with substantial 

underpredictions between 1995 and 1997.

Growth in Wages and Salaries. Between 1980 and 2009, 

forecasts of the five-year average growth rate of wages and 

salaries displayed notable upward bias; on average, CBO 

overpredicted growth by 1.0 percentage point, and the 

Administration did so by 1.1 percentage points (see 

Figure 18). As measured by the root mean square error, 

projections by CBO and the Administration deviated 

from actual values by 1.8 and 1.9 percentage points, 

respectively, over that period.

Change in Wages and Salaries as a Share of Output.

Between 1980 and 2009, CBO’s and the Administration’s 

projections of the change in wages and salaries as a 

share of output exceeded the actual change by about 

0.5 percentage points, on average (see Figure 19). As 

measured by the root mean square error, the projected 

change deviated from the actual change by 1.7 and 

1.6 percentage points for CBO and the Administration, 

respectively.

Forecasts conducted between 1982 and 1986 underpredicted the change in the wage and salary share over the 

upcoming five years. Those errors may have arisen in part 

because forecasters overestimated the depth and duration 

of the cyclical decline in labor compensation relative to 

output following the 1980 and 1981–1982 recessions. 

They may also have arisen in part because forecasters 

overestimated the extent to which labor compensation 

would shift away from wages in favor of nontaxable 

benefits.

In their five-year forecasts conducted between 1987 and 

1993, CBO and the Administration predicted only small 

changes in the wage and salary share, but, in fact, the 

share declined significantly over the years covered by 

those forecasts. The 1990 recession probably contributed 

to that unexpected decline.

Forecasts conducted between 1994 and 1997 showed relatively small changes in the wage and salary share over 

each five-year period, but the actual changes exceeded the 

projected changes by about 2 percentage points, on average, for both CBO and the Administration. As with the 

two-year forecasts, three factors probably contributed to 

the increase: 

 Measures of income grew more quickly than GDP, 

 Labor compensation shifted away from nontaxable 

benefits in favor of wages, and

 Employee stock options became more prevalent, and 

the value of the stock market rose. 

In almost every forecast conducted between 1999 and 

2009, CBO and the Administration projected the wage 

and salary share to remain roughly flat or to rise slightly 

over the five-year horizon. However, the change in the 

share over a five-year span was negative during the 2000s, 

particularly in the wake of the 2001 and 2007–2009 

recessions. 
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 39

CBO

Figure 18.

Growth in Wages and Salaries: Five-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the average annual growth rate of wages and salaries over five-year periods. Actual values are based on 

the most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or in December of the 

preceding year. Date labels refer to the initial year of the five-year period. 

The Blue Chip consensus does not report forecasts of wages and salaries.

Data are annual and are plotted from 1980 through 2009.

Forecast Minus Actual

Percentage Points

-3

-2

-1

0

1

2

3

4

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

Average Annual Percentage Change

Comparison of CBO Forecast and Actual Growth

0

2

4

6

8

10

12

1976 1981 1986 1991 1996 2001 2006

Actual

CBO

Underestimate

Overestimate
40 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

Figure 19.

Change in Wages and Salaries as a Share of Nominal Output: Five-Year Forecasts

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis (BEA).

Notes: Actual and forecast data show the change in wages and salaries as a percentage of nominal output over five-year periods. Actual 

values are based on the most recent data reported by BEA. All forecasts were issued in the first half of the initial year of the period or 

in December of the preceding year. Date labels refer to the initial year of the five-year period.

Nominal output is either gross domestic product (GDP) or gross national product (GNP). GNP differs from GDP primarily by including 

the capital income that residents earn from investments abroad and excluding the capital income that nonresidents earn from 

domestic investment. GNP was forecast before 1992; GDP was forecast from 1992 onward. 

The Blue Chip consensus does not report forecasts of wages and salaries.

Data are annual and are plotted from 1980 through 2009. 

Forecast Minus Actual

Percentage Points

-3

-2

-1

0

1

2

3

4

CBO

Administration

1976 1981 1986 1991 1996 2001 2006

Percentage Points

Comparison of CBO Forecast and Actual Change

-4

-3

-2

-1

0

1

2

3

1976 1981 1986 1991 1996 2001 2006

Actual

CBO

Underestimate

Overestimate
CBO

Appendix:

Forecast and Historical Data

This appendix offers an overview of the data that the 

Congressional Budget Office used to evaluate its forecasting record. The evaluation covers forecasts of growth in 

real (inflation-adjusted) and nominal output, inflation 

in the consumer price index (CPI), interest rates, and 

changes in wages and salaries. The historical data for 

output and the output price index are the current series 

available from the Bureau of Economic Analysis (BEA). 

Historical data for inflation and interest rates varied 

because CBO, the Administration, and the Blue Chip

consensus used slightly different measures in some years. 

Forecasts Used for this Evaluation

The forecasts by CBO and the Administration were originally published in the early months of 1976 through 

2012.1

 (Two-year forecasts published in early 2013 were 

not included because the latest full-year historical data 

did not extend beyond 2013 when the analysis in this 

report was completed.) The Administration’s forecasts 

were taken from its annual budget documents in all but 

one case; the forecast made in early 1981 by the Reagan 

Administration, based on revisions of the Carter Administration’s last budget, came from a separate document.2

The Blue Chip consensus forecasts that CBO used for this 

evaluation were those published as close as possible to the 

publication date of CBO’s forecasts. The first two-year 

forecast by the Blue Chip consensus that CBO used for 

this evaluation was released in early 1982. Although the 

Blue Chip consensus forecast is published each month, in 

only two months of the year—March and October—do 

the forecasts extend beyond two years. All but one of the 

five-year forecasts from the Blue Chip consensus that were 

used in this evaluation were published in March; the 

1980–1984 forecasts of real output were published in 

May. The Blue Chip consensus forecasts do not include 

several data series, most notably forecasts of wages and 

salaries, that are vital for budget projections. 

Since 1979, the staff of the Board of Governors of the 

Federal Reserve System has regularly prepared detailed 

two-year macroeconomic forecasts for the Federal Open 

Market Committee (FOMC), the body responsible for 

conducting monetary policy. Those forecasts are released to 

the public on a delayed schedule, typically five years later. 

In conjunction with certain meetings of the FOMC, members of the committee—the members of the Board 

of Governors and the presidents of the regional Federal 

Reserve Banks—also compile their own forecasts for 

selected economic indicators; the range and central tendency of those forecasts have been published in the minutes of the meetings in recent years. CBO’s comparison 

with the forecasts by the staff of the board covers 1979 

through 2008 for real output and 1980 through 2008 for 

the CPI. CBO’s comparison with the central tendency 

of the FOMC members’ forecasts of real output and inflation in consumer prices covers 2009 through 2012. All of 

the Federal Reserve’s forecasts used in this analysis were 

1. Because CBO has published forecasts for wages and salaries on a 

regular basis only since 1985, this analysis used some unpublished 

forecasts for wages and salaries that the agency made in earlier 

years.

2. CBO’s corresponding forecast was taken from the agency’s 

published analysis of President Reagan’s budgetary proposals. That 

forecast by CBO, provided as the agency’s baseline projections, 

did not include the economic effects of the new Administration’s 

fiscal policy proposals, but it did assume the continuation of the 

tax and spending policies of the Second Concurrent Resolution on 

the Budget for Fiscal Year 1981, including accelerated 

depreciation of investment and a 10 percent cut in personal 

income taxes. Another exceptional case occurred in early 1993, 

when the Clinton Administration adopted CBO’s economic 

assumptions as the basis for its budget. As a result, the errors from 

the early 1993 forecast are the same for CBO and the 

Administration.
42 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

issued in January or February of the initial year of the 

forecast period or in December of the preceding year.

Growth in Nominal and Real Output

Historical two-year average growth rates of nominal output are based on calendar year averages of the most recent 

quarterly values of gross national product (GNP) and 

gross domestic product (GDP) published by BEA. In 

1991, BEA changed its featured measure of output from 

GNP to GDP. GNP differs from GDP primarily by 

including the capital income that residents earn from 

investments abroad and excluding the capital income that 

nonresidents earn from domestic investment. 

Similarly, figures for real output are based on calendar 

year averages of the most recent quarterly chain-type 

annual-weighted indexes of real GNP and real GDP published by BEA. CBO used those recent values because the 

original real GNP and GDP series were subject to periodic benchmark revisions, making them unsuitable for 

historical comparisons. 

For example, during the 1976–1985 period, forecasters 

published estimates for a measure of growth in real GNP 

that was based on 1972 prices, which was the measure 

published by BEA at that time. In late 1985, however, 

BEA discontinued the series presented in 1972 dollars 

and began to publish figures for GNP in 1982 dollars. As 

a result, an official series of values for GNP growth in 

1972 dollars is not available for the years after 1984, and 

actual two-year average growth rates are not available to 

compare with the forecasts made in early 1984 and 1985.

Moreover, from 1986 to 1991, forecasters published estimates of growth in real GNP based on 1982 prices. BEA 

again revised the benchmark in the second half of 1991 

by publishing estimates of GNP in 1987 dollars. Today, 

the historical annual series for GNP presented in 1982 

dollars is available only through 1990, and actual twoyear average growth rates are not available to compare 

with the forecasts made in early 1990 and 1991. Late in 

1995, BEA made another switch, to a chain-weighted 

measure of GDP. Therefore, the historical annual series 

for GDP presented in 1987 dollars ends with the 1994 

annual value, and actual two-year average growth rates are 

not available to compare with the forecasts made in early 

1994 and 1995.

By periodically updating the series to reflect more recent 

prices, BEA’s benchmark revisions yield a measure of real 

output that is more relevant for analyzing contemporary 

movements in real growth. But that process makes it difficult to evaluate forecasts of real growth produced over a 

period of years in series that are later discontinued. 

Consequently, comparisons in this evaluation use BEA’s 

chain-type annual-weighted index of real GNP or GDP 

for all historical values.

CPI Inflation

CBO calculated two-year averages of inflation in the consumer price index from calendar year averages of monthly 

data published by the Bureau of Labor Statistics. Before 

1978, the bureau published only one consumer price 

index series, now known as the CPI-W (the price index 

for urban wage earners and clerical workers). In January 

1978, however, the bureau began to publish a second, 

broader consumer price index series, the CPI-U (the price 

index for all urban consumers), including its history.

Until 1992, the Administration published its forecasts 

for the CPI-W, the measure used to index most of 

the federal government’s spending for entitlement programs. By contrast, for all but four of its forecasts since 

1979—specifically, those published from 1986 to 

1989—CBO based its forecast of inflation on the CPI-U, 

the measure of inflation now used to index federal 

income tax brackets. The Blue Chip consensus has always 

included forecasts for the CPI-U. Although annual 

fluctuations in the CPI-U and CPI-W are virtually indistinguishable, the indexes differ in some years. For that 

reason, CBO used historical data for both series to 

evaluate the alternative forecasting records.

Interest Rates

CBO used monthly data published by the Board of 

Governors of the Federal Reserve System and the Department of the Treasury to calculate two-year averages of 

short- and long-term interest rates. 

The comparison of forecasts of short-term interest rates 

relied on historical values for two measures of the interest 

rate on three-month Treasury bills: the new-issue rate and 

the secondary-market rate. Before 2001, the Administration forecast the new-issue rate, which corresponds to the 

price of three-month bills auctioned by the Treasury; it 

reflects the interest actually paid on that debt. Since 

mid-2001, the Administration has forecast the secondarymarket rate, which corresponds to the price of threemonth bills traded outside of Treasury auctions. Such 
APPENDIX CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 43

CBO

transactions occur continually in markets that involve 

many more traders than do Treasury auctions. Thus, 

the secondary-market rate provides a better measure of 

conditions in financial markets.

CBO forecasts the secondary-market rate and, unlike 

the Administration, has never forecast the new-issue rate. 

The Blue Chip consensus has alternated between the two 

rates. It published the new-issue rate from 1982 to 1985, 

switched to the secondary-market rate from 1986 to 

1991, and then returned to the new-issue rate from 1992 

to 1997. Since March 1997, the Blue Chip consensus has 

forecast the secondary-market rate. There is no reason to 

expect the rates to differ persistently; indeed, the differences between their calendar year averages are minuscule.

CBO likewise compared the various forecasts of longterm interest rates with historical values for two measures 

of long-term rates: the 10-year Treasury note rate and 

Moody’s Aaa corporate bond rate. A comparison of forecasts is not possible before 1984 because not all of the 

forecasters published forecasts of long-term interest rates 

before then. For forecasts made in early 1984 and 1985, 

CBO projected the Aaa corporate bond rate. From its 

early 1986 forecast onward, however, CBO projected 

the 10-year Treasury note rate. The Administration 

has always published forecasts for the 10-year Treasury 

note rate, but the Blue Chip consensus forecast the 

Aaa corporate bond rate until January 1996, when it 

switched to the 10-year Treasury note rate.

CBO calculated separate historical values for real shortterm interest rates using the nominal interest rate and the 

inflation rate appropriate for each forecaster. In each case, 

the two-year average interest rate was deflated by the twoyear average growth rate of the consumer price index. 

The resulting real short-term interest rates were similar 

among forecasts.

Wages and Salaries

The income measure examined here—wage and salary 

disbursements—focuses on the source of income to 

which overall tax receipts are most sensitive. In particular, 

because some other types of income are not taxed (for 

instance, income derived from assets held in nontaxable 

accounts), the effective tax rate on wages and salaries 

exceeds the corresponding rate on other income.

Historical estimates of wages and salaries are subject to 

substantial statistical revisions. However, those revisions 

do not have much implication for projections of revenues 

as long as the revisions are carried forward into the forecast. The result is that the accuracy of forecasts of wages 

and salaries is measured by using the forecast change of 

the wage and salary share of GDP.
44 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE FEBRUARY 2015

CBO

List of Tables and Figures

Tables

1. Summary Measures of Performance for Two-Year Forecasts 13

2. Summary Measures of Performance for Five-Year Forecasts 32

Figures

S-1. Mean Error for Two-Year Forecasts 2

S-2. Root Mean Square Error for Two-Year Forecasts 3

1. Errors in Forecasting the Two-Year Growth of Real Output Near Business Cycle Peaks 7

2. Labor Productivity and Hours 9

3. Petroleum Prices and Consumer Price Inflation 10

4. Forecasts by CBO and Revisions to Values for Real Gross Domestic Product 12

5. Growth in Real Output: Two-Year Forecasts 16

6. Growth in Nominal Output: Two-Year Forecasts 19

7. Inflation in the Consumer Price Index: Two-Year Forecasts 20

8. Difference Between Inflation in the CPI and in the GDP Price Index: 

Two-Year Forecasts 22

9. Interest Rate on Three-Month Treasury Bills: Two-Year Forecasts 24

10. Real Interest Rate on Three-Month Treasury Bills: Two-Year Forecasts 25

11. Interest Rate on 10-Year Treasury Notes: Two-Year Forecasts 27

12. Growth in Wages and Salaries: Two-Year Forecasts 28

13. Change in Wages and Salaries as a Share of Nominal Output: Two-Year Forecasts 29

14. Growth in Real Output: Five-Year Forecasts 33

15. Growth in Nominal Output: Five-Year Forecasts 35

16. Inflation in the Consumer Price Index: Five-Year Forecasts 36

17. Difference Between Inflation in the CPI and in the GDP Price Index: 

Five-Year Forecasts 37

18. Growth in Wages and Salaries: Five-Year Forecasts 39

19. Change in Wages and Salaries as a Share of Nominal Output: Five-Year Forecasts 40
FEBRUARY 2015 CBO’S ECONOMIC FORECASTING RECORD: 2015 UPDATE 45

CBO

About This Document

The Congressional Budget Office regularly evaluates the accuracy of its economic forecasts by 

comparing them with the economy’s actual performance and with others’ forecasts. Such evaluations 

help guide CBO’s efforts to improve the quality of its forecasts and, as background information, are 

also intended to assist Members of Congress in their use of the agency’s estimates. In keeping with 

CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations.

Kim Kowalewski of CBO’s Macroeconomic Analysis Division wrote the report with guidance from 

Wendy Edelberg. Robert Arnold of CBO provided helpful comments. Alexander Arnon and 

Shiqi Zheng provided research assistance. 

Jeffrey Kling reviewed the report, and Jeanine Rees edited it and prepared it for publication. The 

report, along with earlier ones on this topic, is available on CBO’s website (www.cbo.gov/publication/

49891).

Douglas W. Elmendorf 

Director

February 2015