WASHINGTON -- The U.S. economy will return to its pre-pandemic size by the middle of this year, even if Congress does not approve any more federal money to aid the recovery, the Congressional Budget Office said Monday. But it's projected to take years before everyone thrown off the job by the coronavirus is able to return to work.
The report was released amid a widening debate about economic stimulus, as a group of 10 Senate Republicans argues that President Joe Biden's $1.9 trillion proposal would spend too much taxpayer funding without justification.
In its report Monday, the Congressional Budget Office said the U.S. economy is projected to grow at a robust 4.6% annual rate this year, but employment isn't expected to return to pre-pandemic levels until 2024.
The 10-year outlook said the economic recovery got a boost from an unprecedented wave of government spending to combat the virus, such that growth could pass its maximum sustainable level in early 2025 before returning to a long-run average of 1.7%.
Based on the Congressional Budget Office's projections, economic growth this year would be the strongest since 1999.
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While the growth estimates suggest a quick snapback in gross domestic product, the projections show that hiring will occur at a lag as consumer spending returns and employers become more comfortable with adding workers. The Congressional Budget Office projected an average of 521,000 jobs will be added monthly this year, a pace that would fall to 145,000 in 2022.
Congress has spent $4 trillion to keep the economy stable since the pandemic shuttered schools, offices, restaurants, gyms and other businesses, leading to roughly 10 million job losses and an economic decline of 3.5% last year.
The Congressional Budget Office estimates factored in the roughly $900 billion approved in December, but they excluded Biden's $1.9 trillion plan because the projections are based on current law.
Biden's supporters can point to the projection of a three-year recovery in hiring as a need for more aid. But Republican lawmakers can argue that less money is needed to boost the economy because of the Congressional Budget Office estimates that the economy will return to its pre-pandemic size quickly.
White House officials have repeatedly said the risks of going too small in response to the pandemic are greater than those of going too big with aid.
Jen Psaki, the White House press secretary, said the Congressional Budget Office projection "is not a measure of how each American family is doing," adding that the administration's "focus is on what the American people need to get through this crisis." The proposal allocates funds for vaccinations, school reopenings, expanded jobless aid, $1,400 in direct payments, aid to state and local governments and tax credits for children and child care.
The group of 10 Republican lawmakers has countered the Biden plan with a $618 billion proposal that focuses on vaccinations, testing, and direct payments to individuals earning less than $50,000 and couples earning less than $100,000. Biden met with the lawmakers on Monday.
Several liberal economists on Monday repeated their calls for lawmakers to act swiftly and aggressively to help the large swaths of Americans still struggling to recover.
The advocacy group Invest in America, which supports the Biden plan, held a conference call in which economists said the report shows the need for stimulus to increase hiring.
"There's no reason to suffer through high unemployment just because the Republicans think it's prudent to shrink the number," said Gabriel Mathy, assistant professor of economics at American University.
"With a labor market this shaky and the pandemic raging, now is certainly not the time to take our foot off the gas," said Lindsay Owens, interim executive director of the Groundwork Collaborative, a left-leaning policy group.
Douglas Holtz-Eakin, president of the right-leaning American Action Forum, said the Congressional Budget Office's projection of a declining unemployment rate suggests Biden's large stimulus plan is unnecessary.
"This is a political thing. It's at odds with any of the numbers," said Holtz-Eakin, a former Congressional Budget Office director who also served as an adviser to Sen. John McCain. "You don't need $1.9 trillion to solve whatever problems we have left."
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the Congressional Budget Office report suggests that Biden's proposal appears to be excessive relative to the needs of the economy.
"The president is exactly right to focus on the need to contain the virus, and his American Rescue Plan includes many important elements," she said. "But many of his proposals are larger than necessary and could be better targeted."
The Congressional Budget Office cautioned that its projections are highly uncertain, in large part because of the pace of vaccinations and the risk of new variations of the coronavirus. A faster vaccination process -- the goal of both aid proposals -- would help hiring and growth, it said.
BRIGHTER OUTLOOK
Congressional Budget Office officials told reporters Monday that the brightening outlook stemmed from large sectors of the economy adapting better and more rapidly to the pandemic than originally expected. It also reflected increased growth driven by the $900 billion economic aid package that Congress passed in December, which included $600 direct checks to individuals and more generous and longer-lasting benefits for the millions of people who are still unemployed.
The budget office now expects the unemployment rate to fall to 5.3% at the end of the year, down from an 8.4% projection in July. The unemployment rate stood at 6.7% in December.
Other independent forecasts, including one from the Brookings Institution last week, have projected that another dose of aid -- like the $1.9 trillion package Biden has proposed -- would help the economy grow more rapidly, topping its pre-pandemic path by year's end.
Some budget hawks worry that too much aid would risk wasting money and stoking inflation. "It's probably better to overshoot than undershoot, but there can be too much of a good thing," said MacGuineas. "Sending money to people who don't need it, overstimulating the economy or unnecessary debt all set us up for more things to clean up later."
The budget office report shows little risk of overheating at the moment. On its current path, the economy is projected to remain below potential levels until 2025. By 2030, it is projected to run below potential again.
At the same time, big economic risks remain. The number of employed Americans will not return to its pre-pandemic levels until 2024, budget officials predicted, reflecting the prolonged difficulties of shaking off the virus and returning to full economic activity. Officials do not see the unemployment rate falling to its pre-pandemic level, 3.5%, by the end of the decade.
Jerome Powell, the chairman of the Federal Reserve, warned last week that the economy was "a long way from a full recovery," with millions of people still out of work and many small businesses facing pressure, and that the economic outlook will depend largely on success in containing the virus.
Getting the pandemic under control also factored into the budget office's projections, and officials said the rebound in growth and employment could significantly accelerate if public health authorities were able to more rapidly deploy vaccine doses.
As it stands, the budget office sees little evidence of growth running hot enough in the years to come to spur a rapid increase in inflation. It forecasts inflation levels below the Fed's target of 2% for years, even with the Fed holding interest rates near zero.
Information for this article was contributed by Jim Tankersley of The New York Times; by Josh Boak of The Associated Press; and by Jeff Stein and Andrew Van Dam of The Washington Post.