CBO

REPORT

CBO’s Economic Forecasting Record

 A Supplement to

The Budget and Economic Outlook:

Fiscal Years 2003-2012

February 2002

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, SW

WASHINGTON, DC 20515
 
CBO’s Economic Forecasting Record

S

ince publishing its first macroeconomic forecast

in 1976, the Congressional Budget Office

(CBO) has compiled a forecasting track record

comparable in quality with those of a sizable sample

of private-sector forecasters as well as five Administrations. CBO’s misestimates for two-year forecasts

made between 1982 and 1999 did not differ markedly

either from those of the Administration or from the

average of the 50 or so forecasts that have made up

the Blue Chip survey over the years. Comparing

CBO’s forecasts with those of the Blue Chip consensus suggests that when CBO’s economic predictions

missed the mark by a margin wide enough to contribute to sizable misestimates of the surplus or deficit,

those inaccuracies probably reflected limitations that

confronted all forecasters. That result is not surprising because all forecasters, when making their predictions, have the same basic information available

about the state of the economy, which they may then

interpret differently. Moreover, CBO examines other

forecasts when constructing its own; in turn, CBO’s

forecast may affect others in a similar way.

Overview

For forecasts looking two years ahead—those that are

most important for the budget year being considered

by the Congress—CBO has been slightly more accurate than the various Administrations over the past

two decades (see Table 1). The differences between

the two forecasters are small, however, especially

when compared with the size of the forecast misestimates. Furthermore, for the past six two-year forecasts analyzed here, there has been virtually no difference in overall forecast accuracy between CBO

and the Administration. Also, CBO’s forecasts have

been about as accurate as the Blue Chip’s average

forecasts in general.

For longer-run budget planning, the accuracy of

five-year forecasting is important. CBO’s inaccuracies in five-year projections of growth rates for real

(inflation-adjusted) and nominal (current-dollar) output were similar to those of the various Administrations and the Blue Chip consensus. For projections

made between 1976 and 1996, CBO’s record of forecasting real growth is slightly better than the Administration’s and the Blue Chip’s, but the Administration

and the Blue Chip projected real growth slightly more

accurately for the last half of the 1990s.

CBO’s forecasts of real growth over the long

run have alternated between periods of optimism and

pessimism. The five-year forecasts produced during

the late 1970s turned out to be too optimistic, averaging about 2 percentage points a year too high. Forecasts from the early 1980s, in contrast, were too pessimistic by a little less than half a percentage point.

Forecasts from the late 1980s were overly optimistic

again, but the projections made between 1992 and

1996 have been too pessimistic by more than a percentage point on average. (The five-year forecast

from January 1996 is the most recent one that can be

compared with actual results.)

As the track record shows, forecasters collectively tend to err during periods that include either

turning points in the business cycle or significant

shifts in major economic trends. For example, most

forecasters overestimated the economy’s growth rate

and underestimated inflation in forecasts they made

just before and during the back-to-back recessions of

the early 1980s. That pattern was repeated, albeit to

a lesser degree, in the forecasts they made just prior

to the more moderate recession of the early 1990s. In
2 CBO’S ECONOMIC FORECASTING RECORD February 2002

addition, during the middle to late 1970s, forecasters

continued to assume that the productivity trend of the

previous two decades would prevail. In retrospect,

however, the productivity trend of the 1970s and

1980s was significantly lower than that of the 1950s

and 1960s. Because forecasters in the 1970s felt that

the previous trend would recur, their forecasts of real

output in the middle to late 1970s turned out to be too

optimistic.

The years from 1995 to 2000 were a mirror image of the forecasting experience of the late 1970s.

Partly because forecasters underestimated the trend

rate of productivity growth since 1996, they underpredicted the economy’s growth rate and overpredicted inflation. To be sure, as the economy continued to outperform expectations, analysts put more

effort into investigating the possible causes of the

increase in productivity growth. Those investigations

focused on the possible contribution of the so-called

new economy—especially the better flow of information among producers and between producers and

consumers, which has permitted improved productivity, lower inventories, and greater customer satisfaction. However, it is too soon to draw unambiguous

conclusions about the role of the new economy from

the historical evidence. Because the reasons for the

phenomenal economic performance of those five

years are not yet fully understood, the uncertainty

about the next few years may be larger than indicated

by the average misestimates of the past two decades.

CBO also underestimated taxable income in its

forecasts for the 1995-2000 period, which in turn has

contributed to revenue projections far below what

actually occurred. However, underestimates of real

growth account for only part of those underpredictions. Projections of taxable income were pessimistic

not only because projections of nominal output were

too low, but because the projected relationship of

taxable income to output—the taxable-income share

—was too small. Income categories in the national

income and product accounts that are used for projecting revenues—primarily book profits, and wages

and salaries—grew much more rapidly between 1995

and 2000 than did nominal output, but CBO’s forecasts failed to anticipate that increase in the taxableincome share of output.

Sources of Data 

for the Evaluation

Evaluating CBO’s forecasting record requires compiling the basic historical and forecast data for

growth in nominal and real output, inflation in the

consumer price index (CPI), interest rates, and taxable income. Although each of those data series has

an important influence on budget projections, an accurate forecast of the two-year average growth in real

output is the critical economic factor in accurately

estimating the surplus or deficit for the upcoming

budget year. The data were compiled using forecasts

published early in the years from 1976 through 1999.

(Two-year average forecasts published in early 2000

and 2001 could not be included in this evaluation

because actual values for 2001 were not available in

time to be included in this document.)

Selection of Historical Data

Which historical data to use for the evaluation was

dictated by the availability of actual data and the nature of the individual forecasts examined. Although

CBO, the Administration, and the Blue Chip consensus all published the same measure for real output

growth, selecting a historical series was difficult because of periodic benchmark revisions in the actual

data.1

 By comparison, not all of the forecasters published the same measures for CPI inflation and interest rates, but the selection of historical data for those

series was clear-cut.

Growth in Real and Nominal Output. Historical

two-year averages of growth in real output were developed from calendar year averages of the quarterly

chain-type annual-weighted indexes of real gross national product (GNP) and real gross domestic product

(GDP) published by the Bureau of Economic Analysis (BEA). The fact that several real GNP and GDP

series were discontinued because of periodic benchmark revisions meant that they were unsuitable his1. Before 1992, CBO, the Administration, and the Blue Chip consensus survey used gross national product to measure output. Beginning in early 1992, however, all three forecasters began to publish

forecasts and projections of gross domestic product instead.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 3

torical series. For example, during the 1976-1985

period, the three 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 1972-dollar series and began to publish

GNP on a 1982-dollar basis. As a result, an official

series of values for GNP growth in 1972 dollars is

not available for the years after 1984, and actual twoyear average growth rates are not available to compare with the forecasts made in early 1984 and 1985.

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

BEA revised the benchmark again in the second half

of 1991: it discontinued the 1982-dollar GNP and

began to publish GNP on a 1987-dollar basis.2

 Consequently, the historical annual series for 1982-dollar

GNP is available only through 1990, and actual twoyear average growth rates are not available for the

forecasts made in early 1990 and 1991. The forecasters then published estimates of growth in real GDP

on a 1987-dollar basis until 1995, when BEA made

another switch, late in the year, to a chain-weighted

measure of GDP. Therefore, the historical annual

series for 1987-dollar GDP ends with the 1994 annual value, and actual two-year average growth rates

are not available for 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

the process makes it difficult to evaluate forecasts of

real growth produced over a period of years in series

that are later discontinued. This comparison avoids

the difficulties presented by periodic revisions of the

data by using one of BEA’s alternative measures of

real GNP and GDP, the chain-type annual-weighted

index.3

Historical two-year averages for growth of

nominal GNP and GDP were developed from calendar year averages of the quarterly values published

by BEA.

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). CBO’s comparison

of forecasts uses both series.

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. In contrast, for all but four of its

forecasts since 1979 (1986 through 1989), CBO

based its inflation forecast on the CPI-U, a more

widely cited measure of inflation and the one now

used to index federal income tax brackets. The Blue

Chip consensus has always published its forecast 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 to calculate two-year averages of nominal

short- and long-term interest rates.

The forecasts of short-term interest rates were

compared using historical values for two measures of

the interest rate on three-month Treasury bills: the

new-issue rate and the secondary-market rate. The

Administration forecasts the new-issue rate, which

corresponds to the price of three-month bills auctioned by the Treasury Department—that is, it reflects the interest actually paid on that debt. CBO

forecasts the secondary-market rate, which corresponds to the price of the three-month bills traded

outside the Treasury auctions. Such transactions occur continually in markets that involve many more

traders than do Treasury auctions. As a result, the

2. With the 1992 benchmark revision, GDP replaced GNP as the central measure of national output.

3. For a discussion of that index, see Congressional Budget Office,

The Economic and Budget Outlook: An Update (August 1995), pp.

71-73.
4 CBO’S ECONOMIC FORECASTING RECORD February 2002

secondary-market rate provides an updated evaluation of short-term federal debt by the wider financial

community. Blue Chip has alternated between those

two rates; it published the new-issue rate from 1982

to 1985, switched to the secondary-market rate during

the 1986-1991 period, and then returned to the newissue rate beginning in 1992. Clearly, there is no reason to expect the two rates to differ persistently;

indeed, the differences between their calendar year

averages are minuscule.

CBO likewise compared the various forecasts of

long-term interest rates using 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 projections of long-term interest rates before that year. For

forecasts made in early 1984 and 1985, CBO projected the Aaa corporate bond rate. Beginning with

its early 1986 forecast, however, CBO switched to

the 10-year Treasury note rate. The Administration

has always published its projection for the 10-year

Treasury note rate, but Blue Chip published the Aaa

corporate bond rate until January 1996, when it

switched to the 10-year Treasury rate.

CBO calculated separate historical values for

real short-term interest rates using the nominal shortterm interest rate and using the inflation rate appropriate for each forecaster. In each case, the two-year

average nominal interest rate was discounted by the

two-year average rate of inflation. The resulting real

short-term interest rates were similar. Because there

is no agreed-upon method for calculating real longterm interest rates, they were not included in the evaluation.

Taxable Income. Through its direct influence on

projections of federal revenues, the forecast for taxable income plays a critical role in determining the

accuracy of budget projections. The income measure

examined here—wage and salary distributions plus

the book value of corporate profits—combines the

two sources of income to which tax receipts are most

sensitive. Considering wages and profits together is

appropriate because the effective rates of taxation on

wages (including payroll and income taxes) and on

corporate profits are nearly the same. In addition,

those tax rates exceed the rate at which other income

sources (such as interest income) are taxed.

Although the level of taxable income is the factor that most directly affects federal revenues, historical estimates of that level are subject to substantial

statistical revision. As a result, using the level of taxable income would distort the comparison of forecasts. Instead, the forecasts are presented here as

changes in taxable income as a share of total income;

the historical revisions, carried forward consistently

to projections, should not affect projections of revenues. Moreover, the change in taxable income as a

share of total income is closer to the concept that

macroeconomists consider when they construct their

forecasts.

Sources of Forecast Data

For everything except taxable income, this evaluation

used the calendar year forecasts and projections that

CBO has published early each year since 1976, timed

to coincide with the publication of the Administration’s budget proposals. The Administration’s forecasts were taken from its budget in all but one case:

the forecast made in early 1981 came from the Reagan Administration’s revisions of President Carter’s

last budget. The corresponding CBO forecast was

taken from CBO’s published analysis of President

Reagan’s budget proposals. That forecast did not

include the economic effects of the new Administration’s fiscal policy proposals.4

The average two-year forecasts in the Blue Chip

consensus survey, which are published monthly, were

taken from those published in the same month as

CBO’s forecasts. Because the Blue Chip consensus

did not begin publishing its two-year forecasts until

the middle of 1981, the first such forecast available

for this comparison was published in early 1982.

Average five-year projections, however, are published by Blue Chip only two or three times a year.

All but one of its five-year projections used in this

4. 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 misestimates for the early 1993 forecast are the same for CBO and the Administration.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 5

evaluation were published in March; the 1980-1984

projection of real output was published in May.

Some of the CBO forecasts for wages, salaries,

and corporate profits that are used here were not published in CBO’s annual reports. Instead, they were

taken from CBO’s files of unpublished forecasts.

CBO has published forecasts for wages and salaries

regularly since 1985 but has published forecasts for

book profits only in recent reports.

Measuring the Quality 

of Forecasts 

Like earlier studies of economic forecasts, this evaluation focused on two aspects of the quality of CBO’s

forecasts: statistical bias and accuracy. Other desirable characteristics—such as the efficiency of a forecast, which is discussed later—are harder to assess

definitively and would require a larger sample than is

available for CBO’s forecasts.

Bias

The statistical bias of a forecast is the extent to which

the forecast can be expected to differ from what actually occurs. CBO’s evaluation used the mean error

(the arithmetic average of the forecast errors) to measure statistical bias. The mean error is the simplest

and most widely used measure of forecast bias. Because it is a simple average, however, underestimates

and overestimates offset each other in calculating it.

As a result, the mean error imperfectly measures the

quality of a forecast—a small mean error would result either if all the errors were small or if all the

errors were large but the overestimates and underestimates happened to balance each other out.

Accuracy

The accuracy of a series of forecasts is the degree to

which their values are narrowly dispersed around

actual outcomes. Measures of accuracy more clearly

reflect the usual meaning of forecast quality than

does the mean error. CBO’s evaluation used two

measures of accuracy. The mean absolute error (the

average of the forecasts’ errors without regard to

arithmetic sign) indicates the average distance between forecasts and actual values without regard to

whether individual forecasts are overestimates or underestimates. The root mean square error (calculated by first squaring the errors, then taking the

square root of the arithmetic average of the squared

errors) also shows the size of the error without regard

to sign, but it gives greater weight to larger errors.

Other Measures of Forecast Quality

The three statistical indicators described above are

not the only measures of a forecast’s quality. Studies

by analysts outside CBO have used measures that are

slightly more elaborate than the mean error to test for

statistical bias in CBO’s forecasts. Those studies

have generally concluded, as does this evaluation,

that CBO’s short-term economic forecasts do not

contain a statistically significant bias.5

A number of other methods have been developed to evaluate a forecast’s “efficiency.” Efficiency

indicates the extent to which a particular forecast

could have been improved by using additional information that was available to the forecaster when the

forecast was made.6

 The Blue Chip consensus fore5. Another approach to testing a forecast for bias is based on linear

regression analysis of actual and forecast values. For details of that

method, see J. Mincer and V. Zarnowitz, “The Evaluation of Economic Forecasts,” in J. Mincer, ed., Economic Forecasts and Expectations (New York: National Bureau of Economic Research,

1969). That approach is not used here because of the small size of

the sample. However, previous studies that have used it to evaluate

the short-term forecasts of CBO and the Administration have not

been able to reject the hypothesis that those forecasts are unbiased.

See, for example, M.T. Belongia, “Are Economic Forecasts by Government Agencies Biased? Accurate?” Review, Federal Reserve

Bank of St. Louis, vol. 70, no. 6 (November/December 1988), pp.

15-23. For a more recent and more elaborate study of forecast bias

that included CBO’s forecasts among a sizable sample, see David

Laster, Paul Bennett, and In Sun Geoum, Rational Bias in Macroeconomic Forecasts, Staff Report No. 21 (New York: Federal Reserve Bank of New York, March 1997).

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

economic forecasts, see Belongia, “Are Economic Forecasts by

Government Agencies Biased?”; and S.M. Miller, “Forecasting

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

Budget Office Projections?” Applied Economics, vol. 23 (December 1991), pp. 1789-1799. Although both studies identify series

that might have been used to make CBO’s forecasts more accurate,

they rely on statistics that assume a larger sample than is available.
6 CBO’S ECONOMIC FORECASTING RECORD February 2002

casts represent a wide variety of economic forecasters and thus reflect a broader blend of sources and

methods than can be expected from any single forecaster. In this evaluation, the Blue Chip predictions

can therefore serve as a proxy for an efficient forecast. The fact that CBO’s forecasts are about as accurate as the Blue Chip’s is a rough indication of

their efficiency.

Such elaborate measures and methods, however,

are not necessarily reliable indicators of a forecast’s

quality when the sample of observations is small, as

is the case with CBO’s sample of only 24 two-year

observations. Small samples present three main

problems in evaluating forecasts. First, they reduce

the reliability of statistical tests that are based on the

assumption that the underlying population of errors

in the forecast follows a normal distribution. The

more elaborate measures of forecast quality all make

such an assumption about the hypothetical ideal forecast with which the actual forecasts are being compared. Second, in small samples, individual misestimates in a forecast can have an unduly large influence on the measures. The mean error, for example,

can fluctuate in its arithmetic sign when a single observation is added to a small sample. Third, the small

sample means that CBO’s track record cannot be

used in a statistically reliable way to indicate either

the direction or the size of forecasting inaccuracies in

the future.

Apart from the general caveat that should attend

any statistical conclusions, there are several reasons

for viewing any evaluation of CBO’s forecasts with

particular caution. First, the procedures and purposes

of CBO’s and the Administration’s economic forecasts have changed over the past two decades and

may change again. For example, in the late 1970s,

CBO characterized its long-term projections as a goal

for the economy; it now considers them to be a projection of what will prevail, on average, if the economy continues to reflect historical trends. Unlike

CBO’s projections, the Administration’s have always

included the projected economic effects of its own

policy proposals. Second, an institution’s track record in forecasting may not indicate its future abilities because of changes in personnel or methods.

Third, inaccuracies in a forecast increase when the

economy is more volatile and when economic trends

change. All three groups of forecasters—CBO, the

Administration, and the Blue Chip survey—made exceptionally large misestimates when forecasting for

periods that included turning points in the business

cycle and for the past few years, when the sustainable

growth of the economy apparently increased.

CBO’s Forecasting Record

This analysis evaluates the Congressional Budget Office’s macroeconomic forecasts over two-year and

five-year periods. Because the budget reports that the

Administration and CBO publish each winter focus

on budget projections for the fiscal year that begins

in the following October, an economic forecast that is

accurate not only for the months leading up to that

budget year but also for the budget year itself will

provide the basis for a more accurate forecast of the

budget’s bottom line—hence the interest in the twoyear period. The five-year period is used to examine

the accuracy of longer-term projections of growth in

real and nominal output.

This analysis does not consider how assumptions about key economic factors can affect federal

budget projections. “Rules of thumb” for estimating

the effects of changes in various macroeconomic

variables appear in Appendix A of CBO’s The Budget and Economic Outlook: Fiscal Years 2003-2012

(January 2002).

Two-Year Forecasts

Historically, the Congressional Budget Office’s twoyear forecasts are slightly more accurate than the Administration’s and suffer from slightly less statistical

bias. In most cases, however, the differences are

small. Moreover, CBO’s forecasts are about as accurate as those of the Blue Chip consensus.

Growth in Real Output. For the two-year forecasts

made between 1976 and 1999, CBO had a slightly

Moreover, 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.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 7

better record than did the Administration in predicting growth in real output (see Table 2). CBO was

closer to the actual value in 11 of the 24 forecasts

made between 1976 and 1999, the Administration

was closer in nine periods, and the two had identical

errors in four periods. CBO’s predictions of real

growth made between 1982 and 1999 were, on average, as accurate as those of the Blue Chip consensus.

As noted earlier, forecast misestimates tend to

be larger during periods of economic turmoil or

upheaval. That tendency can be clearly seen in the

forecasts of real output growth by comparing the

large errors for 1979 through 1983—when the economy went through its most turbulent recessionary

period of the postwar era—with the smaller errors

recorded for later years. Similarly, the business cycle

accounts for the large errors in the predictions made

in the 1989-1991 period. During that time, the Congressional Budget Office’s errors were only slightly

larger than those of the Blue Chip consensus.

All three forecasters underpredicted two-year

real GDP growth in every year since 1992. Much of

that apparent pessimism, however, results from recent revisions in the national income and product accounts; the BEA benchmark revisions published in

November 1999 increased the two-year growth rates

for real GDP over most of the historical period, especially the past two decades. The upward revision in

growth rates stemmed largely from including software spending as investment in the accounts as well

as adopting new price series for various categories of

consumption. In addition to making the mean forecast error less informative, those revisions distort the

reliability of the statistical measures of accuracy.

Nevertheless, even after accounting for the latest revisions, the underpredictions of economic growth

since 1996 appear significant.

Growth in Nominal Output. The records of CBO

and the Administration in forecasting two-year

growth in nominal output are quite similar (see Table

3). Of the 24 forecasts made between 1976 and

1999, the Administration recorded the smaller error

13 times, CBO had the smaller error 10 times, and

the two forecasters recorded identical errors once.

CBO’s mean error and root mean square error for that

period are similar to the Administration’s.

Over the shorter interval between 1982 and

1999, the bias and accuracy of CBO’s forecasts of

two-year growth in nominal output are nearly identical to those of the Blue Chip consensus.

CPI Inflation. CBO and the Administration also had

very similar records in forecasting the two-year average growth in the consumer price index (see Table 4).

Both underestimated future inflation in their forecasts

for 1977 through 1980 and overestimated it for 1981

through 1986. Their average measures of bias and

accuracy were virtually identical. CBO was closer to

the actual value in eight of the 24 periods, the Administration was closer in 11 periods, and the two

forecasters had matching errors in five periods. For

the 1982-1999 period, CBO’s forecasts of inflation

were as accurate as those of the Administration and

the Blue Chip consensus.

Nominal Interest Rates. For the 1976-1999 forecasts, CBO’s record was about as accurate as the Administration’s for nominal short-term interest rates

over a two-year period (see Table 5). On average, the

Administration tended to underestimate those rates,

whereas CBO’s mean error was zero over that period.

CBO and the Administration were each closer to

the actual value in 11 of the 24 periods and had identical errors twice. Between 1982 and 1999, however,

the root mean square error of CBO’s forecasts was

slightly above those of the Administration and the

Blue Chip consensus, meaning that CBO made a few

relatively large errors (such as those in 1982, 1983,

and 1991).

For the 1984-1999 forecasts of long-term interest rates, CBO did somewhat better than the Administration (see Table 6). The Administration tended to

underestimate rates, and its mean error was slightly

larger than CBO’s. In addition, the Administration’s

forecasts were less accurate on average than CBO’s.

CBO was closer to the true value in 10 of the 16 periods, the Administration was closer in five periods,

and the two forecasters had identical errors in one

period.

The Congressional Budget Office’s forecasts of

long-term interest rates were about as accurate as

those of the Blue Chip consensus. Both CBO and

Blue Chip tended to overestimate long-term rates.
8 CBO’S ECONOMIC FORECASTING RECORD February 2002

CBO had a mean error of 0.2 percentage points compared with 0.3 percentage points for Blue Chip.

Real Short-Term Interest Rates. For the forecasts

made in 1976 through 1999, CBO had a slight edge

over the Administration in estimating short-term interest rates adjusted for inflation (see Table 7).

Again, the Administration was more likely than CBO

to underestimate interest rates. Both forecasters recorded similar mean absolute and root mean square

errors. CBO’s forecasts were closer to the actual

value in 13 of the 24 periods, the Administration’s

were closer in eight, and the two registered identical

errors in three periods. For forecasts made between

1982 and 1999, CBO’s errors were generally similar

in both direction and magnitude to those of the Blue

Chip consensus.

Taxable Income. One of the greatest sources of error in budget projections is error in forecasting taxable income. On average, both CBO and the Administration have been too optimistic in their projections

of the two major components of taxable income—

wages and salaries, and corporate profits (see Table

8). (The Blue Chip consensus does not forecast

wages and salaries.) Since 1994, however, both CBO

and the Administration have significantly underestimated the growth of wages and profits relative to output. Apart from the usual difficulties associated with

forecasting GDP, two other factors contribute to the

misestimates.

The first is the degree to which total income has

exceeded total product in the national income and

product accounts (NIPAs). In principle, those two

aggregate measures of economic activity should be

equal, but in practice they are not, largely because the

Bureau of Economic Analysis, which publishes the

NIPAs, must use different primary sources to estimate total income, on one hand, and total product, on

the other. The statistical discrepancy in the NIPAs

measures the difference between total product and

total income; between 1997 and 2000, the excess of

total income over total product grew (see Figure 1).

Changes in that discrepancy present a problem

for forecasters. If they have assumed, in line with

historical experience, that the discrepancy will revert

toward zero and that it mainly results from mismeasurements on the income side, they will have

Figure 1.

Statistical Discrepancy in the National Income

and Product Accounts

SOURCES: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis.

been more apt to understate income in recent years.

At this point, it is impossible to tell exactly how

much the discrepancy has caused forecasters to err in

their forecasts of income, but the sheer size of the

imbalance in recent years compounds the importance

of each forecaster’s assumptions about how to predict

the discrepancy. Forecasters’ use of alternative and

mutually exclusive assumptions for resolving that imbalance—each assumption is as reasonable as the

next—could broaden the dispersion of forecasts of

total income in coming years.

A second source of difficulty in forecasting taxable income as a share of output was the reversal in

the last half of the 1990s of another long-standing

trend. Throughout the postwar period, nonwage labor income rose as a share of total labor compensation, a trend that many analysts believe reflects an

increased tendency by employers to substitute fringe

benefits (such as employer-paid insurance premiums

and pension contributions) for wages and salaries as

a means of compensating their workforce. But beginning in 1994, that trend appears to have reversed (see

Figure 2). Because nonwage labor income is not

taxed, the decline in its share of total labor compensation has had the effect of increasing the share of
February 2002 CBO’S ECONOMIC FORECASTING RECORD 9

Figure 2.

Nonwage Labor Income as a Share of 

Total Labor Compensation

SOURCES: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis.

compensation that is taxed (namely, wages and salaries). That turnaround was relatively unpredictable

and as yet is imperfectly understood. However, one

important component of nonwage labor income— employers’ health insurance premiums—is no longer

growing more slowly than wages. Thus, the future

trend in nonwage labor income is not likely to continue to decline.

Five-Year Projections

In projecting real growth for the more distant future,

measured here as five years ahead, the Administration’s errors were larger than CBO’s (see Table 9).

Although that comparative advantage for CBO does

not directly affect the estimates of the surplus for the

budget year, accuracy in the longer term is obviously

important for budgetary planning over several years.

Neither the Administration nor CBO, however, considers its projections to be its best guess about the

year-to-year course of the economy. The Administration’s projections each year are based on the adoption

of the President’s budget as submitted, and for most

years, CBO has considered its projections an indication of the average future performance of the economy if major historical trends continue. Neither institution attempts to anticipate cyclical fluctuations

within the projection period.

CBO’s projections of longer-term growth in real

output were closer to the actual values than the Administration’s were in 13 of the 21 forecasts. The

Administration’s projections showed an upward bias

of 0.5 percentage points compared with an upward

bias of 0.1 percentage points for CBO. Those biases

occurred in part because the projections made in

early 1976 through 1979, which CBO and the Administration presented as target rates of growth, did not

incorporate the recessions of 1980 and 1982.

Through the subsequent years of expansion until the

1990-1991 recession, the upward bias was much

smaller in CBO’s projections. In the five-year-ahead

projection made between 1992 and 1996, both CBO

and the Administration underpredicted long-term

growth. The reasons are the surprisingly strong economy of the late 1990s and, to a lesser extent, the upward revisions to BEA’s estimates of the rate of

growth.

Those underpredictions of real growth also resulted in underestimates of long-run growth in nominal output, but the errors for nominal growth were

smaller than those for real growth (see Table 10).

That is because most forecasters have overestimated

the inflation rate in recent years. Between 1976 and

1996, CBO and the Administration appear to have

done equally well in forecasting five-year growth in

nominal output. Moreover, as the record since 1982

shows, both forecasters compared well with the Blue

Chip consensus.
10 CBO’S ECONOMIC FORECASTING RECORD February 2002

Table 1.

Summary Measures of Forecast Performance (In percentage points)

CBO Administration Blue Chip

Two-Year Averages

Growth Rate for Real Output (1982-1999)

Mean error -0.7 -0.5 -0.8

Mean absolute error 1.0 1.1 1.0

Root mean square error 1.3 1.4 1.2

Growth Rate for Nominal Output (1982-1999)

Mean error 0 0.2 0.1

Mean absolute error 1.1 1.2 1.0

Root mean square error 1.4 1.5 1.3

Inflation in the Consumer Price Index (1982-1999)

Mean error 0.5 0.4 0.6

Mean absolute error 0.7 0.8 0.8

Root mean square error 0.9 1.0 1.0

Nominal Interest Rate on Three-Month Treasury Bills (1982-1999)

Mean error 0.3 -0.1 0.3

Mean absolute error 1.0 0.9 0.9

Root mean square error 1.3 1.1 1.1

Nominal Long-Term Interest Rate (1984-1999)

Mean error 0.2 -0.3 0.3

Mean absolute error 0.6 0.9 0.6

Root mean square error 0.7 1.0 0.7

Real Interest Rate on Three-Month Treasury Bills (1982-1999)

Mean error -0.2 -0.5 -0.3

Mean absolute error 0.8 0.8 0.7

Root mean square error 1.0 1.0 0.9

Change in Wage and Salary Disbursements Plus Corporate 

Book Profits as a Share of Output (1980-1999)

Mean error 0 0.2 *

Mean absolute error 1.0 0.9 *

Root mean square error 1.2 1.1 *

Five-Year Averages

Growth Rate for Real Output (1979-1996) 

Mean error -0.2 0.2 -0.3

Mean absolute error 0.6 0.9 0.6

Root mean square error 0.9 1.0 0.8

Growth Rate for Nominal Output (1982-1996)

Mean error 0.6 0.8 0.8

Mean absolute error 1.0 1.0 1.0

Root mean square error 1.1 1.2 1.2

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Commerce, Bureau of Economic Analysis.

NOTES: The values reported here are derived from Tables 2 through 10.

 * = not applicable.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 11

Table 2.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average 

Growth Rates for Real Output (By calendar year, in percent)

Actual

1972

Dollarsa

1982

Dollarsb

1987

Dollarsc

Chain-Type

AnnualWeighted

Index

CBO Administration Blue Chipe

Forecast Errord Forecast Errord Forecast Errord

Real GNP

1976-1977 6.7 4.8 4.8 5.2 6.2 1.0 5.9 0.8 * *

1977-1978 5.2 5.0 4.7 5.1 5.5 0.4 5.1 0.1 * *

1978-1979 3.9 3.9 3.8 4.5 4.7 0.3 4.7 0.3 * *

1979-1980 1.3 1.1 1.1 1.6 2.7 1.1 2.9 1.3 * *

1980-1981 1.1 0.9 0.5 1.0 0.5 -0.5 0.5 -0.5 * *

1981-1982 0.2 -0.3 -0.4 0.1 2.1 2.0 2.6 2.5 * *

1982-1983 0.7 0.5 0.7 1.1 2.1 1.1 2.7 1.6 2.0 1.0

1983-1984 5.2 5.2 4.9 5.7 3.4 -2.3 2.6 -3.0 3.5 -2.2

1984-1985 * 5.1 4.4 5.3 4.7 -0.6 4.7 -0.6 4.3 -1.0

1985-1986 * 3.0 2.8 3.3 3.3 0 3.9 0.6 3.2 -0.2

1986-1987 * 3.1 2.9 3.2 3.1 -0.1 3.7 0.5 3.0 -0.2

1987-1988 * 3.9 3.5 3.8 2.9 -0.9 3.3 -0.5 2.8 -0.9

1988-1989 * 3.5 3.3 3.9 2.4 -1.4 3.0 -0.9 2.1 -1.7

1989-1990 * 1.7 2.0 2.7 2.5 -0.2 3.2 0.5 2.2 -0.5

1990-1991 * * 0.3 0.7 2.0 1.4 2.8 2.1 1.9 1.3

1991-1992 * * 0.7 1.2 1.6 0.4 1.4 0.2 1.2 0

Real GDPf

1992-1993 * * 2.7 2.9 2.6 -0.3 2.2 -0.6 2.3 -0.5

1993-1994 * * 3.6 3.3 2.9 -0.4 2.9 -0.4 3.0 -0.3

1994-1995 * * * 3.3 2.8 -0.5 2.9 -0.4 2.8 -0.5

1995-1996 * * * 3.1 2.4 -0.7 2.6 -0.5 2.6 -0.5

1996-1997 * * * 4.0 1.9 -2.0 2.2 -1.7 2.1 -1.9

1997-1998 * * * 4.4 2.1 -2.2 2.1 -2.3 2.2 -2.2

1998-1999 * * * 4.2 2.3 -1.8 2.2 -2.0 2.4 -1.8

1999-2000 * * * 4.1 2.0 -2.1 2.2 -1.9 2.3 -1.8

Statistics for 1976-1999

Mean error * * * * * -0.3 * -0.2 * *

Mean absolute error * * * * * 1.0 * 1.1 * *

Root mean square error * * * * * 1.2 * 1.4 * *

Statistics for 1982-1999

Mean error * * * * * -0.7 * -0.5 * -0.8

Mean absolute error * * * * * 1.0 * 1.1 * 1.0

Root mean square error * * * * * 1.3 * 1.4 * 1.2

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Commerce, Bureau of Economic Analysis.

NOTES: Actual values are for the two-year growth rates for real gross national product (GNP) and real gross domestic product (GDP) last

reported by the Bureau of Economic Analysis, not the first reported values. Forecast values are for the average annual growth of real

GNP or GDP over the two-year period. The forecasts were issued in the first half of the initial year of the period or in December of the

preceding year.

* = not applicable.

a. Data for 1972-dollar GNP and GDP are available only through the third quarter of 1985.

b. Data for 1982-dollar GNP and GDP are available only through the third quarter of 1991.

c. Data for 1987-dollar GNP and GDP are available only through the second and third quarters, respectively, of 1995.

d. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate. The chain-type

annual-weighted index of actual GNP or GDP was used in calculating the errors.

e. Two-year forecasts for the Blue Chip consensus were not available until 1982.

f. With the 1992 benchmark revision, GDP replaced GNP as the central measure of national output.
12 CBO’S ECONOMIC FORECASTING RECORD February 2002

Table 3.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average

Growth Rates for Nominal Output (By calendar year, in percent)

CBO Administration Blue Chipb

Actual Forecast Errora Forecast Errora Forecast Errora

GNP

1976-1977 11.6 13.1 1.6 12.3 0.7 * *

1977-1978 12.2 10.8 -1.4 11.2 -1.0 * *

1978-1979 12.5 10.9 -1.7 11.2 -1.4 * *

1979-1980 10.5 11.0 0.5 10.4 -0.1 * *

1980-1981 10.4 9.7 -0.7 9.5 -0.8 * *

1981-1982 7.9 12.1 4.2 11.9 4.0 * *

1982-1983 6.2 9.7 3.5 9.8 3.6 9.5 3.3

1983-1984 9.7 8.2 -1.5 8.0 -1.7 9.0 -0.8

1984-1985 8.9 9.9 0.9 9.6 0.7 9.6 0.7

1985-1986 6.1 7.6 1.5 8.2 2.1 7.4 1.3

1986-1987 5.9 7.1 1.2 7.7 1.8 6.7 0.8

1987-1988 7.1 6.5 -0.6 6.9 -0.3 6.4 -0.7

1988-1989 7.6 6.3 -1.3 6.8 -0.9 6.1 -1.5

1989-1990 6.7 6.8 0.1 7.1 0.4 6.6 -0.1

1990-1991 4.5 6.1 1.6 7.1 2.6 6.0 1.5

1991-1992 4.3 5.7 1.4 5.6 1.3 5.2 1.0

GDPc

1992-1993 5.3 5.7 0.4 5.4 0.1 5.5 0.2

1993-1994 5.7 5.3 -0.3 5.3 -0.3 6.0 0.4

1994-1995 5.6 5.6 0 5.7 0.1 5.6 0.1

1995-1996 5.2 5.2 0 5.6 0.3 5.7 0.5

1996-1997 6.0 4.7 -1.3 5.1 -1.0 4.5 -1.5

1997-1998 6.0 4.6 -1.5 4.7 -1.3 4.6 -1.4

1998-1999 5.6 4.5 -1.1 4.2 -1.4 4.5 -1.0

1999-2000 6.0 3.9 -2.1 4.0 -2.0 4.1 -1.9

Statistics for 1976-1999

Mean error * * 0.1 * 0.2 * *

Mean absolute error * * 1.3 * 1.2 * *

Root mean square error * * 1.6 * 1.6 * *

Statistics for 1982-1999

Mean error * * 0 * 0.2 * 0.1

Mean absolute error * * 1.1 * 1.2 * 1.0

Root mean square error * * 1.4 * 1.5 * 1.3

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Commerce, Bureau of Economic Analysis.

NOTES: Actual values are for the two-year growth rates for gross national product (GNP) and gross domestic product (GDP) last reported by

the Bureau of Economic Analysis, not the first reported values. Forecast values are for the average annual growth of nominal GNP or

GDP over the two-year period. The forecasts were issued in the first half of the initial year of the period or in December of the

preceding year. 

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.

b. Two-year forecasts for the Blue Chip consensus were not available until 1982.

c. With the 1992 benchmark revision, GDP replaced GNP as the central measure of national output.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 13

Table 4.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average 

Inflation in the Consumer Price Index (By calendar year, in percent)

Actual CBO Administration Blue Chipb

CPI-U CPI-W Forecast Errora Forecast Errora Forecast Errora

1976-1977 6.1 6.1 7.1 1.0 6.1 0 * *

1977-1978 7.0 7.0 4.9 -2.1 5.2 -1.8 * *

1978-1979 9.4 9.5 5.8 -3.7 6.0 -3.5 * *

1979-1980 12.4 12.5 8.1 -4.3 7.4 -5.0 * *

1980-1981 11.9 11.9 10.1 -1.8 10.5 -1.4 * *

1981-1982 8.2 8.1 10.4 2.1 9.7 1.6 * *

1982-1983 4.6 4.5 7.2 2.6 6.6 2.1 7.2 2.6

1983-1984 3.8 3.3 4.7 1.0 4.7 1.5 4.9 1.1

1984-1985 3.9 3.5 4.9 1.0 4.5 1.0 5.2 1.3

1985-1986 2.7 2.5 4.1 1.4 4.2 1.7 4.3 1.6

1986-1987 2.8 2.6 3.8 1.2 3.8 1.2 3.8 1.0

1987-1988 3.9 3.8 3.9 0.1 3.3 -0.5 3.6 -0.2

1988-1989 4.4 4.4 4.7 0.3 4.2 -0.2 4.3 -0.1

1989-1990 5.1 5.0 4.9 -0.1 3.7 -1.3 4.7 -0.4

1990-1991 4.8 4.6 4.1 -0.7 3.9 -0.7 4.1 -0.7

1991-1992 3.6 3.5 4.2 0.6 4.6 1.1 4.4 0.8

1992-1993 3.0 2.9 3.4 0.5 3.1 0.2 3.5 0.5

1993-1994 2.8 2.7 2.8 0.1 2.8 0.1 3.3 0.6

1994-1995 2.7 2.7 2.8 0.1 3.0 0.3 3.0 0.3

1995-1996 2.9 2.9 3.2 0.4 3.1 0.3 3.4 0.6

1996-1997 2.6 2.6 2.9 0.3 2.9 0.3 2.8 0.2

1997-1998 1.9 1.8 2.9 1.0 2.7 0.8 2.9 1.0

1998-1999 1.9 1.8 2.3 0.5 2.1 0.3 2.4 0.5

1999-2000 2.8 2.8 2.5 -0.2 2.2 -0.5 2.2 -0.6

Statistics for 1976-1999

Mean error * * * 0 * -0.1 * *

Mean absolute error * * * 1.1 * 1.1 * *

Root mean square error * * * 1.6 * 1.6 * *

Statistics for 1982-1999

Mean error * * * 0.5 * 0.4 * 0.6

Mean absolute error * * * 0.7 * 0.8 * 0.8

Root mean square error * * * 0.9 * 1.0 * 1.0

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Labor, Bureau of Labor Statistics.

NOTES: Values are for the average annual growth of the consumer price index (CPI) over the two-year period. Before 1978, the Bureau of

Labor Statistics 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, the bureau began to publish a second, broader consumer price index series, the CPI-U (the

price index for all urban consumers). For most years since 1979, CBO forecast the CPI-U; from 1986 through 1989, however, CBO

forecast the CPI-W. The Administration forecast the CPI-W until 1992, when it switched to the CPI-U. Blue Chip forecast the CPI-U

for the entire period. The forecasts were issued in the first half of the initial year of the period or in December of the preceding year.

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.

b. Two-year forecasts for the Blue Chip consensus were not available until 1982.
14 CBO’S ECONOMIC FORECASTING RECORD February 2002

Table 5.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average 

Nominal Interest Rates on Three-Month Treasury Bills (By calendar year, in percent)

Actual

New

Issue

Secondary

Market

CBO Administration Blue Chipb

Forecast Errora Forecast Errora Forecast Errora

1976-1977 5.1 5.1 6.2 1.1 5.5 0.4 * *

1977-1978 6.2 6.2 6.4 0.2 4.4 -1.8 * *

1978-1979 8.6 8.6 6.0 -2.6 6.1 -2.5 * *

1979-1980 10.8 10.7 8.3 -2.4 8.2 -2.6 * *

1980-1981 12.8 12.7 9.5 -3.2 9.7 -3.1 * *

1981-1982 12.4 12.3 13.2 0.9 10.0 -2.4 * *

1982-1983 9.7 9.6 12.6 3.0 11.1 1.4 11.3 1.6

1983-1984 9.1 9.1 7.1 -2.0 7.9 -1.1 7.9 -1.2

1984-1985 8.5 8.5 8.7 0.3 8.1 -0.4 9.1 0.5

1985-1986 6.7 6.7 8.5 1.8 8.0 1.3 8.5 1.8

1986-1987 5.9 5.9 6.7 0.9 6.9 1.0 7.1 1.2

1987-1988 6.2 6.2 5.6 -0.6 5.5 -0.7 5.7 -0.5

1988-1989 7.4 7.4 6.4 -0.9 5.2 -2.1 6.1 -1.2

1989-1990 7.8 7.8 7.5 -0.3 5.9 -1.9 7.5 -0.3

1990-1991 6.5 6.4 7.0 0.6 6.0 -0.4 7.1 0.7

1991-1992 4.4 4.4 6.8 2.4 6.2 1.8 6.4 2.0

1992-1993 3.2 3.2 4.7 1.5 4.5 1.3 4.6 1.4

1993-1994 3.6 3.6 3.4 -0.2 3.4 -0.2 3.8 0.2

1994-1995 4.9 4.9 3.9 -1.0 3.6 -1.3 3.6 -1.3

1995-1996 5.3 5.2 5.9 0.7 5.7 0.4 6.1 0.9

1996-1997 5.0 5.0 4.8 -0.2 4.7 -0.3 5.0 0

1997-1998 4.9 4.9 5.0 0.1 4.8 -0.1 5.1 0.2

1998-1999 4.7 4.7 5.2 0.5 4.9 0.2 5.1 0.4

1999-2000 5.3 5.2 4.5 -0.7 4.2 -1.0 4.3 -0.9

Statistics for 1976-1999

Mean error * * * 0 * -0.6 * *

Mean absolute error * * * 1.2 * 1.2 * *

Root mean square error * * * 1.5 * 1.5 * *

Statistics for 1982-1999

Mean error * * * 0.3 * -0.1 * 0.3

Mean absolute error * * * 1.0 * 0.9 * 0.9

Root mean square error * * * 1.3 * 1.1 * 1.1

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

Reserve Board.

NOTES: Values are for the geometric averages of the three-month Treasury bill rates for the two-year period. The actual values are published

by the Federal Reserve Board as the rate on new issues (reported on a bank-discount basis) and the secondary-market rate. CBO

forecast the secondary-market rate; the Administration forecast the new-issue rate. Blue Chip alternated between the two rates,

forecasting the new-issue rate from 1982 to 1985, the secondary-market rate from 1986 to 1991, and the new-issue rate again

beginning in 1992. The forecasts were issued in the first half of the initial year of the period or in December of the preceding year.

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.

b. Two-year forecasts for the Blue Chip consensus were not available until 1982.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 15

Table 6.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Averages

for Nominal Long-Term Interest Rates (By calendar year, in percent)

Actual

10-Year

Note

Corporate

Aaa Bond

CBO Administration Blue Chip

Forecast Errora Forecast Errora Forecast Errora

1984-1985 11.5 12.0 11.9 -0.1 9.7 -1.8 12.2 0.2

1985-1986 9.1 10.2 11.5 1.3 10.6 1.5 11.8 1.7

1986-1987 8.0 9.2 8.9 0.9 8.7 0.7 9.9 0.8

1987-1988 8.6 9.5 7.2 -1.4 6.6 -2.0 8.7 -0.8

1988-1989 8.7 9.5 9.4 0.7 7.7 -1.0 9.8 0.3

1989-1990 8.5 9.3 9.1 0.6 7.7 -0.8 9.5 0.3

1990-1991 8.2 9.0 7.7 -0.5 7.2 -1.0 8.7 -0.3

1991-1992 7.4 8.5 7.8 0.4 7.3 -0.1 8.7 0.3

1992-1993 6.4 7.7 7.1 0.7 6.9 0.5 8.4 0.7

1993-1994 6.5 7.6 6.6 0.2 6.6 0.2 8.2 0.6

1994-1995 6.8 7.8 5.9 -0.9 5.8 -1.0 7.1 -0.7

1995-1996 6.5 7.5 7.3 0.8 7.5 1.0 8.6 1.1

1996-1997 6.4 7.3 6.2 -0.1 5.4 -0.9 6.2 -0.1

1997-1998 5.8 6.9 6.2 0.4 6.0 0.2 6.4 0.6

1998-1999 5.5 6.8 6.0 0.6 5.8 0.4 5.9 0.5

1999-2000 5.8 7.3 5.2 -0.6 4.9 -0.9 5.0 -0.8

Statistics for 1984-1999

Mean error * * * 0.2 * -0.3 * 0.3

Mean absolute error * * * 0.6 * 0.9 * 0.6

Root mean square error * * * 0.7 * 1.0 * 0.7

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

Reserve Board.

NOTES: Actual values are for the geometric averages of the 10-year Treasury note rates or Moody’s corporate Aaa bond rates for the two-year

period as reported by the Federal Reserve Board. CBO forecast the 10-year Treasury note rate in all years except 1984 and 1985,

when it forecast the corporate Aaa bond rate. The Administration forecast the 10-year note rate, but Blue Chip forecast the corporate

Aaa bond rate through 1995 and then switched to the 10-year Treasury note rate beginning in 1996. Data are only available beginning

in 1984 because not all of the forecasters published long-term rate projections before then. The forecasts were issued in the first half

of the initial year of the period or in December of the preceding year.

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.
16 CBO’S ECONOMIC FORECASTING RECORD February 2002

Table 7.

Comparison of CBO, Administration, and Blue Chip Forecasts of Two-Year Average 

Real Interest Rates on Three-Month Treasury Bills (By calendar year, in percent)

Actual

New Secondary

Issue Market CBO Administration Blue Chipb

CPI-U CPI-W CPI-U CPI-W Forecast Errora Forecast Errora Forecast Errora

1976-1977 -0.9 -0.9 -0.9 -0.9 -0.8 0.1 -0.6 0.3 * *

1977-1978 -0.8 -0.7 -0.8 -0.7 1.5 2.2 -0.8 -0.1 * *

1978-1979 -0.7 -0.8 -0.7 -0.8 0.2 1.0 0.1 0.9 * *

1979-1980 -1.4 -1.5 -1.4 -1.5 0.2 1.7 0.7 2.2 * *

1980-1981 0.8 0.9 0.7 0.8 -0.5 -1.2 -0.7 -1.6 * *

1981-1982 3.8 4.0 3.7 3.9 2.6 -1.2 0.3 -3.7 * *

1982-1983 4.8 4.9 4.7 4.9 5.0 0.3 4.2 -0.8 3.8 -1.0

1983-1984 5.1 5.7 5.1 5.6 2.2 -2.9 3.1 -2.6 2.9 -2.3

1984-1985 4.4 4.9 4.4 4.8 3.6 -0.8 3.4 -1.4 3.6 -0.8

1985-1986 3.9 4.1 3.9 4.1 4.2 0.3 3.6 -0.4 4.0 0.1

1986-1987 3.0 3.2 3.0 3.2 2.8 -0.4 3.0 -0.3 3.2 0.2

1987-1988 2.3 2.4 2.3 2.3 1.7 -0.6 2.1 -0.2 2.0 -0.3

1988-1989 2.8 2.9 2.8 2.9 1.7 -1.2 1.0 -1.9 1.8 -1.1

1989-1990 2.6 2.6 2.6 2.6 2.5 -0.2 2.1 -0.6 2.7 0.2

1990-1991 1.6 1.7 1.5 1.7 2.8 1.2 2.0 0.3 2.9 1.3

1991-1992 0.8 0.9 0.7 0.9 2.5 1.8 1.5 0.6 1.9 1.2

1992-1993 0.2 0.4 0.2 0.3 1.3 1.0 1.3 1.1 1.1 0.8

1993-1994 0.8 0.9 0.8 0.9 0.5 -0.3 0.6 -0.3 0.5 -0.4

1994-1995 2.1 2.1 2.1 2.1 1.0 -1.1 0.6 -1.5 0.5 -1.6

1995-1996 2.3 2.3 2.3 2.3 2.6 0.3 2.5 0.1 2.6 0.3

1996-1997 2.4 2.4 2.3 2.4 1.8 -0.5 1.7 -0.6 2.1 -0.3

1997-1998 2.9 3.1 2.9 3.1 2.0 -0.9 2.1 -0.9 2.1 -0.8

1998-1999 2.8 2.9 2.8 2.9 2.8 0 2.7 -0.1 2.6 -0.2

1999-2000 2.4 2.3 2.4 2.3 1.9 -0.5 2.0 -0.5 2.1 -0.3

Statistics for 1976-1999

Mean error * * * * * -0.1 * -0.5 * *

Mean absolute error * * * * * 0.9 * 0.9 * *

Root mean square error * * * * * 1.1 * 1.3 * *

Statistics for 1982-1999

Mean error * * * * * -0.2 * -0.5 * -0.3

Mean absolute error * * * * * 0.8 * 0.8 * 0.7

Root mean square error * * * * * 1.0 * 1.0 * 0.9

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Labor, Bureau of Labor Statistics; Federal Reserve Board.

NOTES: Values are for the appropriate three-month Treasury bill rate discounted by the respective forecast for inflation as measured by the

change in the consumer price index. CBO forecast the secondary-market rate, whereas the Administration forecast the new-issue

rate. Blue Chip alternated between the two rates, forecasting the new-issue rate from 1982 to 1985, the secondary-market rate from

1986 to 1991, and the new-issue rate again beginning in 1992. Moreover, for most years since 1979, CBO forecast the CPI-U (the

consumer price index for all urban consumers); from 1986 through 1989, however, CBO forecast the CPI-W (the consumer price

index for urban wage earners and clerical workers). The Administration forecast the CPI-W until 1992, when it switched to the CPI-U.

Blue Chip forecast the CPI-U for the entire period. All forecasts were issued in the first half of the initial year of the period or in

December of the preceding year.

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.

b. Two-year forecasts for the Blue Chip consensus were not available until 1982.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 17

Table 8.

Comparison of CBO and Administration Forecasts of the Two-Year Change in Wage and Salary 

Disbursements Plus Corporate Book Profits as a Share of Output (By calendar year, in percent)

CBO Administration

Actual Forecast Errora Forecast Errora

1980-1981 -3.2 -0.6 2.5 -1.3 1.9

1981-1982 -3.3 -2.6 0.7 -1.2 2.1

1982-1983 -1.9 -1.8 0.1 -1.7 0.2

1983-1984 -0.8 0 0.8 -1.0 -0.2

1984-1985 -0.5 -0.2 0.3 -0.2 0.4

1985-1986 -0.7 -0.6 0.1 -0.8 -0.1

1986-1987 1.2 1.0 -0.2 0.8 -0.4

1987-1988 2.5 0.9 -1.6 1.4 -1.1

1988-1989 -0.4 0.6 1.0 0.4 0.8

1989-1990 -1.2 0.4 1.5 0.7 1.9

1990-1991 -0.1 0.7 0.7 1.4 1.5

1991-1992 0 0.1 0 -0.1 -0.1

1992-1993 0 1.0 1.0 1.4 1.4

1993-1994 -0.3 0.5 0.9 0.5 0.9

1994-1995 1.2 0.2 -1.0 0.4 -0.8

1995-1996 1.7 -0.3 -2.0 -0.6 -2.3

1996-1997 1.0 -0.3 -1.3 0.8 -0.2

1997-1998 0.2 -0.6 -0.9 0 -0.2

1998-1999 0.4 -0.5 -0.8 0.2 -0.2

1999-2000 1.6 -0.1 -1.7 0.7 -0.9

Statistics for 1980-1999

Mean error * * 0 * 0.2

Mean absolute error * * 1.0 * 0.9

Root mean square error * * 1.2 * 1.1

SOURCES: Congressional Budget Office; Office of Management and Budget; Department of Commerce, Bureau of Economic Analysis.

NOTES: The forecasts were issued in the first half of the initial year of the period or in December of the preceding year. For the forecasts

made between 1980 and 1991, gross national product was used in calculating the shares; for the forecasts made in 1992 and later,

gross domestic product was used. The Blue Chip does not forecast wages and salaries.

* = not applicable.

a. Errors (which are in percentage points) are forecast values minus actual values; thus, a positive error is an overestimate.
18 CBO’S ECONOMIC FORECASTING RECORD February 2002

Table 9.

Comparison of CBO, Administration, and Blue Chip Projections of Five-Year Average

Growth Rates for Real Output (By calendar year, in percent)

Actual

Chain-Type

Annual1972 1982 1987 Weighted CBO Administration Blue Chipe

Dollarsa Dollarsb Dollarsc Index Projection Errord Projection Errord Projection Errord

Real GNP

1976-1980 4.2 3.4 3.3 3.8 5.7 1.9 6.2 2.4 * *

1977-1981 3.1 2.8 2.6 3.1 5.3 2.2 5.1 2.0 * *

1978-1982 1.6 1.4 1.2 1.8 4.8 3.0 4.8 3.0 * *

1979-1983 1.3 1.0 1.1 1.5 3.8 2.2 3.8 2.3 3.1 1.6

1980-1984 2.1 1.9 1.7 2.2 2.4 0.2 3.0 0.8 2.5 0.3

1981-1985 * 2.6 2.4 3.0 2.8 -0.2 3.8 0.8 3.0 0

1982-1986 * 2.7 2.6 3.2 3.0 -0.2 3.9 0.7 2.7 -0.4

1983-1987 * 4.0 3.7 4.3 3.6 -0.7 3.5 -0.8 3.5 -0.8

1984-1988 * 4.1 3.7 4.3 4.0 -0.3 4.3 0 3.5 -0.8

1985-1989 * 3.3 3.1 3.6 3.4 -0.2 4.0 0.4 3.4 -0.2

1986-1990 * 2.8 2.7 3.2 3.3 0.1 3.8 0.6 3.1 -0.1

1987-1991 * * 2.0 2.5 2.9 0.4 3.5 1.0 2.7 0.2

1988-1992 * * 1.9 2.4 2.6 0.2 3.2 0.8 2.5 0.1

1989-1993 * * 1.7 2.1 2.3 0.2 3.2 1.1 2.6 0.5

1990-1994 * * 1.9 2.2 2.3 0.1 3.0 0.8 2.4 0.2

1991-1995 * * * 2.3 2.3 0 2.5 0.2 2.0 -0.3

Real GDPf

1992-1996 * * * 3.2 2.6 -0.6 2.7 -0.5 2.5 -0.7

1993-1997 * * * 3.5 2.8 -0.7 2.8 -0.7 2.8 -0.7

1994-1998 * * * 3.8 2.7 -1.1 2.8 -1.0 2.8 -1.0

1995-1999 * * * 3.8 2.4 -1.4 2.6 -1.2 2.5 -1.3

1996-2000 * * * 4.1 2.0 -2.1 2.3 -1.8 2.2 -1.9

Statistics for 1976-1996

Mean error * * * * * 0.1 * 0.5 * *

Mean absolute error * * * * * 0.9 * 1.1 * *

Root mean square error * * * * * 1.2 * 1.3 * *

Statistics for 1979-1996

Mean error * * * * * -0.2 * 0.2 * -0.3

Mean absolute error * * * * * 0.6 * 0.9 * 0.6

Root mean square error * * * * * 0.9 * 1.0 * 0.8

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Commerce, Bureau of Economic Analysis.

NOTES: Actual values are for the five-year growth rates for real gross national product (GNP) and gross domestic product (GDP) last reported

by the Bureau of Economic Analysis, not the first reported values. Projected values are for the average growth of real GNP or GDP

over the five-year period. The majority of the projections were issued in the first quarter of the initial year of the period or in December of the preceding year.

* = not applicable.

a. Data for 1972-dollar GNP and GDP are available only through the third quarter of 1985.

b. Data for 1982-dollar GNP and GDP are available only through the third quarter of 1991.

c. Data for 1987-dollar GNP and GDP are available only through the second and third quarters, respectively, of 1995.

d. Errors (which are in percentage points) are projected values minus actual values; thus, a positive error is an overestimate. The chaintype annual-weighted index of actual GNP or GDP was used in calculating the errors.

e. Five-year projections for the Blue Chip consensus were not available until 1979.

f. With the 1992 benchmark revision, GDP replaced GNP as the central measure of national output.
February 2002 CBO’S ECONOMIC FORECASTING RECORD 19

Table 10.

Comparison of CBO, Administration, and Blue Chip Projections of Five-Year Average 

Growth Rates for Nominal Output (By calendar year, in percent)

CBO Administration Blue Chipb

Actual Projection Errora Projection Errora Projection Errora

GNP

1976-1980 11.4 12.3 0.9 12.0 0.5 * *

1977-1981 11.5 10.6 -0.9 10.5 -1.0 * *

1978-1982 9.9 10.7 0.8 10.6 0.7 * *

1979-1983 9.0 11.3 2.2 9.6 0.6 * *

1980-1984 8.8 11.3 2.5 11.3 2.5 * *

1981-1985 8.4 11.8 3.4 11.3 2.9 * *

1982-1986 7.1 9.8 2.6 9.7 2.6 9.7 2.5

1983-1987 7.6 8.2 0.6 8.5 0.9 9.0 1.4

1984-1988 7.5 9.0 1.5 8.9 1.4 9.1 1.6

1985-1989 6.8 7.7 0.9 8.1 1.3 7.8 1.0

1986-1990 6.6 7.5 0.9 7.4 0.8 7.0 0.4

1987-1991 6.1 6.9 0.8 6.9 0.8 6.6 0.5

1988-1992 5.9 6.6 0.7 6.7 0.8 6.6 0.7

1989-1993 5.4 6.6 1.2 6.5 1.1 6.9 1.5

1990-1994 5.1 6.3 1.2 6.9 1.8 6.4 1.3

1991-1995 4.9 6.1 1.2 6.4 1.5 5.9 1.0

GDPc

1992-1996 5.5 5.8 0.3 6.0 0.5 5.9 0.4

1993-1997 5.7 5.1 -0.5 5.1 -0.5 6.0 0.4

1994-1998 5.7 5.4 -0.3 5.7 -0.1 5.8 0

1995-1999 5.6 5.2 -0.4 5.5 -0.1 5.6 -0.1

1996-2000 5.9 4.8 -1.1 5.1 -0.9 4.5 -1.4

Statistics for 1976-1996

Mean error * * 0.9 * 0.9 * *

Mean absolute error * * 1.2 * 1.1 * *

Root mean square error * * 1.4 * 1.3 * *

Statistics for 1982-1996

Mean error * * 0.6 * 0.8 * 0.8

Mean absolute error * * 1.0 * 1.0 * 1.0

Root mean square error * * 1.1 * 1.2 * 1.2

SOURCES: Congressional Budget Office; Office of Management and Budget; Aspen Publishers, Inc., Blue Chip Economic Indicators; Department of Commerce, Bureau of Economic Analysis.

NOTES: Actual values are for the five-year growth rates for gross national product (GNP) and gross domestic product (GDP) last reported by

the Bureau of Economic Analysis, not the first reported values. Projected values are for the average annual growth of nominal GNP

or GDP over the five-year period. The projections were issued in the first half of the initial year of the period or in December of the

preceding year.

* = not applicable.

a. Errors (which are in percentage points) are projected values minus actual values; thus, a positive error is an overestimate.

b. Five-year projections for the Blue Chip consensus were not available until 1982.

c. With the 1992 benchmark revision, GDP replaced GNP as the central measure of national output.


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