Obama’s Economic Forecast Relies on Rosy Assumptions
Policy + Politics

Obama’s Economic Forecast Relies on Rosy Assumptions

REUTERS/Kevin Lamarque

The White House Council of Economic Advisers devotes a good deal of space in the 2015 Economic Report of the President, published today, to the considerable successes of the last year, in which the economic recovery finally began to take hold. But one doesn’t have to delve too far into the 419-page document to run into a palpable concern about the economy’s continued health. 

“With the unemployment rate in December 2014 at 5.6 percent, the labor force participation rate still below its expected level given demographic trends, the share of those working part-time for economic reasons still elevated, and the capacity utilization rate in manufacturing at about 78 percent, the economy still has room to utilize more of its potential,” the report finds. 

Related: 5 Government Reforms That Could Save Millions 

The administration forecasts the long-run potential GDP growth rate in the U.S. to be 2.3 percent a year — at the very top end of the estimates from outside groups — and assumes a plethora of administration priorities are acted on in order to help the economy reach that target.

Growth Forecast

It is a rather tall order. The administration assumes, among other things, that Congress acts to pass substantive immigration reform which, it says, has “the single largest effect on long-run potential output.” This is the same Congress currently threatening to shut down the Department of Homeland Security over immigration policy. 

The White House forecast also assumes that Congress approves the president’s Fiscal 2016 request for $116 billion in surface transportation infrastructure spending over 10 years, and another $75 billion in additional defense and non-defense discretionary spending over the next two years. 

Some of the administration’s assumptions are at least a little more likely to be realized. The forecast supposes a business tax reform measure, which the GOP has indicated some interest in, and the conclusion of several international trade agreements, including the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, each of which have some support among Congressional Republicans. 

Related: Here’s Why Obama’s and Congress’ Approval Ratings Are Up 

Additionally, the forecast relies on tax credits designed to encourage more women to enter the workforce and, in another hopeful stretch, $1.6 trillion in deficit reduction over the coming 10 years. 

Sadly, the administration’s forecast isn’t even solely dependent on everything going right in Washington. 

“But not all signals are green, and the United States faces headwinds from abroad. The available 2014 indicators suggest that the economies of Japan and our euro area trading partners are sagging. A slowdown abroad not only reduces our exports, but also raises risks of financial and other spillovers to the U.S. economy.” 

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