The Congressional Budget Office says the unemployment rate will shoot up above 10 percent and gross domestic product will contract by at least 7 percent in the second quarter in an updated economic forecast reflecting the disruption caused by the coronavirus.
The decline in GDP could be “much larger,” CBO Director Phillip Swagel wrote in a blog post Thursday where he noted that the forecast included the impacts from the more than $2 trillion law signed into law Friday, March 27. Swagel called the estimates “very preliminary” based on economic data available as of Thursday morning.
“CBO expects that the economy will contract sharply during the second quarter of 2020 as a result of the continued disruption of commerce stemming from the spread of the novel coronavirus,” Swagel wrote.
He noted that in the CBO’s upcoming estimate on the second of three coronavirus-related bills signed into law in March it assumes a 12 percent unemployment rate. Swagel said that estimate would be published later Thursday.
The new unemployment estimate was based in part on Thursday morning’s news that new weekly unemployment claims hit 6.6 million, which Swagel pointed out is 10 times larger than any single weekly increase during the 2007-2009 recession.
The estimate and its assumption on unemployment is also based on the expectation that social distancing, a key part of attempting to curtail the spread of the virus as well as a key cause in the economic disruption, will continue “on average, and with local variation” for three months.
The agency assumes there could be later outbreaks of the disease, so it is assuming social distancing will diminish by three-quarters, but not completely, during the second half of the year.
The CBO assumes the unemployment rate will drop to 9 percent at the end of 2021. The rate was 3.5 percent as of February, according to the Bureau of Labor Statistics.
GDP had grown 2.1 percent in the fourth quarter of 2019, according to the Commerce Department. The Federal Reserve Bank of Atlanta’s GDPNow model was projecting Thursday that first quarter GDP grew at a 1.3 percent rate.