The current administration and the Congressional Budget Office project a considerable reduction of the budget deficit as a percentage of GDP in 2012 and 2013 (see Chart 1). The current administration predicts the federal budget deficit to decline to 7.0% of GDP in 2012 from 10.9% in 2011 and further reduction to 4.6% is anticipated for 2013. The Congressional Budget Office's (CBO) predictions show the federal budget deficit also dropping to 7.0% in 2012 from 9.8% in 2011. The CBO expects the budget deficit to stand at 4.3% of GDP in 2013.

However, economic forecasts underlying these predictions are dissimilar. Starting with growth of real GDP, the current administration's projected growth of real GDP is more optimistic for the period 2012-2014 compared with the Congressional Budget Office's outlook for economic growth (see Chart 2).

However, forecasts of the unemployment rate of the current administration and the Congressional Budget Office are not radically different given the discrepancy in forecasts of real GDP (see Chart 3). In other words, the large difference in growth of real GDP between the two estimates does not translate into a noticeable difference in the jobless rate.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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