63,000 barrels per day. that is not 1,000 barrels. that has changed the level of respon and those first weeks, in those first months because of the misleading information. people were less vigilant than they would have been and the response was less intense than it would have been if we understood the magnitude. we must continue that level of vigilance, we must assume that we need to use all of our resources to understand what is going on right now so that there can be pper protections which are put in place and that proper compensation is given to all of those whose lives have been adversely affected by what has happened. well they might be spending tens

of millions of dollars on their television commercials saying that they are on the job even today, they have identified many questions which have yet to be answered in a satfactory way and we need to make sure that they are or the long term will be the residence of the gulf. we think all of you for being here today and we hope to stay in contact with you. behalf [captioning performed by national captioning institute] [captions copyright tional cable satellite corp. 2010]

years. this is a little less than an hour. >> good morning, everybody. thanks for coming. this morning, cto released the summer update to our annual budget and economic outlook. it is available on our website

at www.cbo.gov. if you have any questions during the day or afterwards, please don't hesitate to find me. are briefer today is our director, douglaslmendorf. he will do a short talk and then will be happy to take your questions. >> good morning, and thank you all for being here. cto released its annual budget update. our current projection of budget deficits is not much different om our previous projection in march. our current forecast of economic conditions is not much different from our previous economic

forecast in january. unfortunately, this is a case where no news is not good news. the country faces serious budget problems and serious economic problems. let me summarize the key points of that report, and then my colleagues and i will be happy to answer your questions. i will begin with our outlook for the budget and then turn to our outlook for the economy. for fiscal year 2010, we estimate the federal budget deficit will be about $1.30 trillion. that is 7 $1 billn below last ye's total and $27 billion below our estate in march. relative to the size of the economy, this year's deficit is expected to be the second largest shortfall in 65 years. at 9.1of gdp, is exceeded only by last year's deficit of 9.9% of gdp. as was the case last, this

year's deficit is attributable in large part to the weak revenues and elevated spending that occurred automatically because of the financial crisis and recession. as well as the policy responses adopted. for the period from 2011 to 2020, it is assumed as always the current law will be unchanged. make that assumption so the projections can serve as a neutral benchmark to help evaluate the effects of their actions. this means for our current projections that we assume that the tax reductions enacted earlier in this decade expire at the end of the year as scheduled. that no new legislation aimed at keeping the alternative minimum tax from affecting many more taxpayers is enaed, and that future annual appropriations increase only with inflation. under those assumptions, the federal budget deficit will decline substantially over the

next several years to 2.5% in 2014. from 2015-2020, it would stay in the range -- projected deficits total more than six trilln dollars over the coming decade. raising federal debt held by the public to nearly 70% of gdp by 2020, almost double the 36% observed at the end of 2007. however, the assumption that current law is unchanged may significantly underestimate actual future deficits. because we presume the changes in tax laws, we project that revenues will reach 21% of gnp in 2020. compared with an average level of about 18% during the past 40 years. because we assume that future annual appropriations will be in the inflationary adjusted

terms, we project that inflationary spending will fall by 2020, compared with 9% of the past four years. if instead our baseline assumptions, the tax reductions enacted earlier in the decade were continued, the alternative minimum tax with indexed for inflation and future annual appropriations remain the share of gdp they are this year, the budget outcome would be quite different. the deficit in 2020 would equal about 8% of gdp, and debts held by the public would total nearly 100% of gdp. unfortunately, the economic picture is no brighter. according to our projections, recovery from the economic downturn will continue at a modest pace during the next few years. growth in gdp since the middle of calendar year 2009 has been nemic in comparison with that of previous recoveries following deep recessions. the unemployment rate has remained quite high, averaging

9.7% in the first half of the year. such weak growth is typical in the aftermath of financial crises. the united states, a considerable number of vacant houses and factories and offices will be a continuing drag on residential construction and business investment, and slow income growth as well as lost well will restrain consumer spenng. in addition, the rapid redti of the budget deficit that will occur under current law means that the budget will provide much less support to the economy that has been the case for the past two years. the projected drop in the budget deficit from 9.1% of gdp in fiscal year 2010 to4.2% in 2012 would be the sharpest two-year drop since shortly after world war ii. all those forces will tend to restrain spending by individuals and businesses and therefore economic growth during the

recovery. we project the economy will grow by two. % between the fourth quarter 2009 and the fourth quarter of 2010. just 2.0% in 2011, given our consumption at current laws affecting the budget or unchanged. our forecast, the growth of gdp picks up after 2011, averaging 4.1% through 2014. the modest growth in output projected for the rest of thi year and out your point to sluggish growth in employment. as a result we projected unemployment rate will fall slowly to 9.3% at the end of 2010, at 8.8% at the end of 2011, 7.6% at the end of 2012, and back to around 5% by the end of 2014. a different fiscal policy will yield different economic outcomes and different budget outcomes. for example, cbo estimates that most of the tax reductions

enacted earlier in the decade were continued and the amt was indexed for inflation, real growth of gdp in 2011 would be 0.6% higher than it is in the baseline forecast. the unemployment rate at the end of 2011 would be 0.3% lower. all are -- under this alternative scenario, real gdp would fall below the level later in the coming decade bause the larger budgedeficits would reduce investment in productive capital. i want to emphasize that economic forecasts are always subject to a certain degree of uncertainty. uncertain regarding our current bridgette current forecast is large because forecasting growth in economy your porn in -- near turning points is difficult. many developments could lead to outcomes that differ substantially in one direction or the other from those cbo is

projecting. our report highlights some of the ways in which economic growth could turn out to be stronger or weaker than we project. as well as some of the ways in which inflation could be higher or lower than we project. beyond the 10-year budget window, the country will face daunting, long-term fiscal challenges posed b rising costs for health care and aging of the population. continued large deficits and the resulting increases in federal debt over time would reduce long-term economic growth. putting the nation on a sustainable fiscal course will require policy makers to restrain the growth and spending substantially, to raise revenues significantly above their average percentage of gdp during the past 40 years, or adopt some mbination of those approaches. thank you. we are happy to take your questions. >> i will start.

i am a reporter with modern healthcare magazine. i was going through the first box which talks about the effects of the new health care reform law. i was wondering if you could talk abouthat. -no later in the report there is a couple of paragraphs on what impact it might have on the labor market. can you summarize what effect the new reform law will have? >> in the keyword or less. those of you have not had a chance to lookt report, there is a box on pages 6 and 7 that summarizes the budgetary effects of the health legislation enacted in march. there is a box later in the economics chapter that summarizes the effects of the legislation on supply and demand for labor in economy. in addition, in appendix a to the report where we discuss changes in a report for the budget since march, there is a link the and repeated discussion of the aspects of the health

legislation. the short description of what we have done is that we have taken the estimate of the legislation that we made with our colleagues on the tax committee in march and subtracted that to what the projections would otherwise have been. our view of the effects of the legislation has not generally been altered, but it is true that in incorporating that into the baseline, we have done so consistent with our new economic forecast and a variety of technical assumptions. for a number of aspects of the law, one cannot separate out any more the effects of that legislation from the effect of all the preceding law. when you project medicare spending on physicians or hospitals or other things, we do that based on the totality of law. there's no easy way to know how much is duto the law as it exists waked -- as it existed

last february versus the way it exists today. there are other categories that established a new flow of spending or of tax receipts that appeareparately in our tables and will appear separately in the budget over time. in those cases, one can observe changes in our forecast of the effect of the law and we will eventually be able to observe what the reality turned out to be relative to the projections. in the cases where rican identify the changes, the new economic and technical assutions make only a small difference relative to the estimates we produced in march. i want to emphasize this is by no means a complete reassessment of the legislation because we don't do it that way. is now part of the beverage of law, and we estimate complement's of spending and revenues based on all the law

that exists. based on the pieces that are observable, we see no reason to think those pieces have changed very much, and we see no reason to think if we were to do a complete estimate that we would end up with a substantially different answer than we had in march. >> could you give us an update on your estimate of the overall cost of tarp and if that has changed from last when you did? >> the cost of tarp now looks to be lower than it did in our previous estimate. i believe our previous estimate was that car would cost a total of $101 billion and then $9 billion. it is now down to $66 billion.

it reflects changes in law, reduction in the amount of funds available through tarp that was legislated earlier in the month, which plays a role as well. >> do you have any different assessment of the cost of tarp as it pertains to the auto industry? >> we know how much they contributed. >> in terms of the economy, can you give us some idea of this divergence between the baseline assumptions you are required us versus the more likely scenario, and what impact that had on your economic forecast in 2011 and so on? also, we have seen the recent low in 10-year interest rates. i wonder if that has any impact

that are not foreseen currently. >> on the first question, as i said in my prepared comments, we prayer b.g.e. prepare projections based on current law. is not our place to build in some gas on our part on what members of congress will choose to do. on our part. where they have proposed a the changes in current law, we thought it was important and useful to give our readers some sense about how se set of possible changes would affect the budget and the economy. in economic ter, what we chose to use for this alternative was the alternative fiscal scenario that we developed as part of our long-term budget outlook that we released in june. but that scenario, -- under that

scenario, essentially all the tax cuts enacted in the decade are extended except for those applying to taxpayers with high incomes. the threshold to the alternative minimum tax are indexed to inflation, medicare payments to physicians don't drop the way they are expected to under current law. those of the most important assumptions at matter in the near term. ere are others that matter more for the long-term analysis, but those are the important ones. we looked at economic forecasts would be different under that alternative set of fiscal assumptions. we offered our estimate as arrange to try to reinforce the view that this is a very uncertain business. we did our original estimate of the effects of the american recovery and reinvestment act on the economy, which provided ranges. we have done the same thing here.

the alternative scenario provides considerable boost to economic activity in 2011 and beyond for a few years. it represents a very substantial increase in budget deficits relative to the baseline projection of deficits, and over time, the negative consequences of very high levels of federal borrowing build up. by the end of the decade, we would expect gdp to be somewhat lower under that scenario than under the baseline projections. >> also there is the rect low in interest rates. >> we completed this forecast about a month ago. the economic news since then has been more negative than we had anticipated. we note this in the report. if we were putting the forecast together today, we might be

slightly less optimistic about growth in the second half of the year. i don't think the news has been dramatic. the decline in interest rates, in part that reflects people's assessment of the weaker economy, and the other indications are the things i describe that would make our forecast less optimistic today. the current interest-rate itself helped to stimulate economic activity. all else equal about the economy, it helps to encourage borrowing. spending, it was just reported that mortgage refinancing is moving up strongly, and that helps to provide more disposable inme for households and more spending. declining interest rates by itself is good news,ut in this caset reflects an assessment by market participants that economic data had been a little

weaker than expected. that news caused us to weaken our forecast a little bit. >> as you point out in your report, you are forecasting the debt heldy the public as a percentage of gdp in 2020 would be almost 70%. can you put that in historical context? is that higher even than in world war ii? >> u.s. debt at the public was ov 100% a ge pe at the end of world war ii. 7% of gdp, our baseline projection for 69% of gdp, our baseline projection for 2020, puts it back to where it was in the early 1950's. it is an extraordinarily high level of debt by our -- experience of ourountry over the past 65 years. there is also an

extrrdinarily difficult situation in which we find ourselves. the unemployment rate picture on the front of our document, going back to 1950, is nearly as high as it was at its highest point in the early 1980's. the significant part of the run- up in the debt from its historical average has occurred in just a couple of years, the last fiscal year and this fiscal year, attributable in large part to the economic conditions and the policy responses -- a very worrisome budget projection of arises from longstanding features that we have talked about year after year, rising healthcare costs and the age of the population.

now it is compounded by the sharp run-up in debt due to the financial crisis and a severe recession. it is a combination of the underlying, long-term problems that we have this short-term economic downturn, which is the most severe in decades. it has led now to accommodation of the levels of debt accept not quite high. -- that is now quite high. >> back on the tax cuts at are going to expire. you are talking about if they are extended indefinitely. did you look at what would happen if they were extended just for a few years? >> i should have made that clear before. the alternative scenario we in this report is a

permanent extension of those tax cuts. we did not in this report look at the effects of a short-term extension. in the report issued in january about policy options for dealing with economic weakness, trying to raise output and employment, we looked at the effect of short-term extensions on those tax cuts as well as the effects of a number of other policies and proposals. at that point, we focused on the bang for the buck, in a sense. the increase in gdp or production and unemployment that would otherwise occur per dollar increased budget deficit through higher spending and lower taxes. in terms of that bang for the buck, extending those tax cuts were at the bottom end of the .cale of effectiness bi

significant amounts of money involved go to people with fairly high incomes. if those people receive a temporary tax cut, they are not likely to spend a very large share of that, in our judgment. other policies that we examine in the january report that focus the flow of money were at people further on income distribution or focus on hiring specifically are some of the sorts of things were more effective for dollar budgetary impact and extending the tax cut and a broad based way. >> how can you make assumptions spending about wars in iq and afghanistan? >> our baseline projections for

diretionary spending, both defense and nondefense, jump off of the latest level of funding provided by the congress. for this report, that includes the supplemental appropriation passed a few weeks ago. we simply take the levels of funding for the latest year and grow those over time with inflation. that is n take any accounts of whether the specific deployments of troops will change over time. however, we do show in a table in the first chapter some alternative scenarios and their effect on the budget. alternative scenarios for revenues and for non-defense discretionary spending and for defense spending. with that purpose, it is on page

24. we look at two alternatives, and these are somewhat arbitrary. many other paths are possible. one in which the number of troops deployedverseas in iraq and afghanistan in relat operations, or something else that might arise to follow those actions. 30,000 by 2013, and that option would reduce discretionary spending by $1.20 trillion over the 10-year period. we have another option that reduces the number of troops to 60,000 by 2015. that saves $900 billion, roughly. one thing i would note regarding that is that the baseline projections don't take account of the possible savings to reductions in those overseas

deployments. neither do they take account of other pressures that might lead policy-makers to want to raise fense spending over time. particular we have written other reports discussing the effect of wearing down a lot of the equipment purchased in the 1980's, ships and planes and other sorts of equipment that are wearing out. if the congress chose to try to maintain the size of the current u.s. navy or the number of planes flown by the air force, there could be more money required to do that and is incorporated in our baseline projections, so i think it is a case where there are risks are pressures building on both sides. >> could explain the discrepancies of this fiscal year between cbo projection and the projections -- >> there is an of appendixb that

talks about the difference in the projections. the difference for this year is not exactly small, given the scale of numbers involved. we anticipated deficit of $1.34 trillion. our estimate is $62 billion lower. part of that is our assessment of the outlays that will be made by various departments over the remainder of the fiscal year. it is customary for departments to be optimistic about how much more business they will get done. those numbers below into the omb estimate. our numbers are traditionally somewhat lower. >> they did not know how much

wod be out late for fannie and freddie -- outlaid for fannie and freddie. >> i did not look at the way they pitched their number. >> there is well then on and off split there, so you can see our on budget compared to theirs. is about $60 billion difference. there is very little renue difference. >> it seems the difference in the outlays is $44 billion in mandatory spending and $35 million in discretionary spending. >> it looks like we are on track to have a larger debt that will be financed at higher interest

rates. what does that mean for consumers who are financing their own business? >> so far, the very large increases in federal debt over the past three years has not pushed up federal interest payments very much because interest rates are so low. all overpate that's time, that interest rates will rise. we showed the projection for treasury rates, but we also expect -- that will occur in large part because of the strength of the economy. households and businesses will begin to borrow more themselves, putting more pressure on the supply of funds. it also occurs ipart because the federal government will be borrowing. the increases in interest rates will make it harder for households and businesses to obtain funds. they will have to pay more than

they otherwise would, and that will raise the cost of mortgages. it will raise the cost of business loans and so on. we have not tried here to separate out that parts due to the federal budget due to other economic conditions. a very important factor in interest rates in this country is not just actions of the u.s. government and u.s. businesses and citizens, but also the actions of people overseas either in lending money to this country or not. the projections are one of the many uncertainties, but i think we have a good deal of confidence that rates will rise over time. >> i wonder if you can address the flip side of the bush ta cut question. if cuts are to lapse, we have

ard the argument that revenue will put a crimp on economic growth bause it will damage small business and so for. can you address that argument? >> i think report doesot address it on the flip side. addresses and on the front side, or maybe vice versa. the basic protectns here follow current law and as in the tax cuts expire. we tried to illustrate the effect of an alternative policy by supposing the congress insteachose to do something else. it was the alternative scenario used before. economic growth would be stronger next year, unempyment would be lower next year. also as i said, over time, that is a good deal of extra borrowing that would have a negative consequence to the economy. you t some sense of the

magnitude about the extra borrowing. going back to the table we talked about earlier, page 24 and 25, this is a budget effects of selective policy alternatives. the top half of the page is for discretionary outlays and the bottom is what affects the tax code. there are several sets of numbers. there is the extensi of the tax cuts, extension of other expiring tax provisions, indexing for inflation, and the ttom set of numbers is accommodation of extending and the alternative minimum tax. you'll notice the numbers are larger than the numbers in the other pieces. there's an interaction effec if one just extends some cult it

does not lose as much as otherwise. the combined effect is to raise the deficit by a belt $4 trillion over the next decade. in the alternative scenario we excluded the people with higher incomes. this is an extension of all those tax cuts. the budget deficit over the next decade would be instead of six trillion dollars, in the neighborhood of 11 trillion dollars. a very substantial difference that over time would have significant negative effects on the economy. >> you ao talked about the possibility of being able to do short-term stimulus to measures while still putting in place something that does more for the

long-term deficit outlook. does this lead index tax cuts expire fallen to the latter category? >> including the presentation i made to the physical commission, it i said to them there is no intrinsic contradiction between providing additional stimulus today when the unemployment is high and many factories and offices are under use, and imposing fiscal restraint several years from now. to do that, to provide additional stimulus in the near term and additional restraint later on, one needs to develop a somewhat subtle fiscal policy. so a temporary extension of these tax cuts would not quite

fit the bill, because it is not providing any additional restraint later on, relive to our baseline. whether it is the best way to provide stimulus in the short term is not for the cbot judge. and now that according to one metric that we used, which was the effect on gp per dollar of water budget deficit, it was not partularly effective. there are other objectives, other criteria that members of congress would use in making that sort of decision. it is a method of providing stimulus, but again, it only would provide additional restraint later on if it was done. our baseline projections assume that all the tax cuts expire as scheduled. $6 trillion in projected deficits is assuming revees 2020.in 20 to an

with those assumptions, the deficit is as low as $6 trillion. if the assumptions were revised, the deficit would be higher. it would require stringency beyond the things built into current law. >> last year you said when comparing your projections to the administrations, there was a poorly the difference due to the way you treat fannie and freddie. was that just a one time, 2009 issue, or is that difference going forward? >> the conceptual difference persist. for the conservatorship that the federal government established

for fannie and freddie, it took direct control over the operations we g8 it is the judgment of cbo that they should be viewed as part of the federal government for budgetary purposes. when we assess the budgetary costs of the conservatorship, we made an estimate of the expected losses, adjusting for market risk. it is my experience over the coming years -- when we look at the cost of fannie and freddie on an ongoing basis, we assessed the subsidy we think is provided through the guaranteed loans and other factors. omb, contrast, views fannie and freddie as not part of the government for budgetary purposes. when they assess the cost to the budget of what is happening at fannie and freddie, they look only at the cash transfers being

made from the government to those entities. the cash transfers or an intergovernmental transfer. those differenc in treatment lead to substantial differences in amounts. for this projection for fiscal year 2010, in this report, because omb will report the fannie and freddie effects on the budget, they will report on the ultimate total for the budget the cash transfers for the past year. our estimate for fiscal year 2010, we have used cash amount. there should not be a surprise from tt when the total scum then, because for the year which is almost over, in an effo to enhance the clarity of what is going on, we repted

the numbers here on the same basis we expect omb to report them. looking ahead, our projections 32020 include fannie and freddie on this market value subsidy basis. that does differ from the amounts we would project in terms of cash transfers in the amounts omb has projected for transfers. the differences are not huge. >> the mean in the future? about $10 billion a year. >> so about $10 million a year difference going forward because of this differencen ethnology. at the beginning it was ver different,ecause we book and our projection this onetime cost

for taking things into the government, which omb did not. >> has your estimate on a cost of the stimulus package change? >> only slightly. on page 12, it talks about the update on the budgetary effects of the american recovery and reinvestment act. there are two changes to our estimates. one is new economic and technical assumptions. the other is legislation. in this case it rescinded some of the budget authority original included in the recovery act. since our original estimate, the economy has been a little weaker than we expected. the unemployment rate has been higher than we expected. that has led to higher costs for unemployment compensation for the emergency benefits that we had originally expected. at the same time, the costs have

been reduced. the net difference is very small. our current estimate is that the act will cost in totaled $814 billion. we had originally estimated $787 billion. so is slightly more expensive than we had originally estimated. i should also say that the money is going out the door, both in terms of additional outlays and reduced revenues, at a pace which on balance across all the provisions is very close to what we and the staff and the committee estimated last february. there had been some criticism at the time that the money would flow faster than our estimate showed

it looks very close to what we had judged early on. when we made the original estimate, reviewed some aspects of the bill as generating very rapid blows of money and other aspects generating more gradual flows of money. if you look at this table, the two areas where there was a good deal more money yet to go out and has gone out today are from the transportation department and the energy department. those are to the areas we anticipated the money would flow more slowly because of the difficulty of making effective use very large increases in expanding -- in spending. experience has shown that it takes time to set things up.

>> just eyeballing your comparison on page 56 and the one that seems most potentially at variance. is that within the range you expected a difference, or is any of that expected by the differing assumptions of what happens on the physical side? >> our economic forecast is quite close to that of other forecasters for 2010. we anticipate significantly slower growth or real gnp in 2011. if instead one took our four best and at the effects of the alternative fiscal scenario that

i described, then our forecast for 2011 will look much closer to that of outside forecasters. we don'tnow in every case what other forecasters are assuming. they are making some assumptns of their on a we do not always know exactly what they are. if one assumes that most forecasters expect much of the tax cuts from 2001 and 2003 to be expanded, that explains the difference between our forecast for next year and that of most other forecasters. there may be specific issues about the it ministration forecast. in general, it is important in evaluating all these numbers to remember the importance of that assumption about fiscal policy. it is the assessment of how the

law is likely to be changed. >> we think real gdp growth next year will be up to 1.7 percentage points higher than 2.0%. are there other questions? >> there alternative scenario implies certain extension of all the tax cuts. x as you understand, many alternatives are possible. we wanted to give a sense of - a quantitative sense of how a significant difference in policy might matter. we developed a scenario in other contexts or long-term projections. here is a permanent extension of those cuts.

>> on unemployment, there is some talk that the jobless rate has not bounced back as much as expected given the rate of gdp growth in the last year or so. is there really expectation -- where you stand on that possibility that there will be some kedge of growth in joblessness? is that a relationship that was the rise to correctly? >> the unemployment rate has been higher the last couple of years than any economic models would have predicted, given the behavior of gdp. a number of economists have wrestled with that puzzle. it has been partly resolved by

downward revision to real gdp growth, annual revision to the national income accounts. it still seems higher than we would have predicted, given the level of gdp. there are a number of hot-button issues for that. even the current estimate of real gdp growth is not right. another reason our assessment of the potential level of gdp growth is incorrect. when one thinks about the unemployment rate, i am sure there are iortant economic models. one is thinking about an alternative path to dtv and if we had the alternative path wrong, we and others would have a different estimate of how much the employment rate in the future would have risen. it also could be particular things that have happened in this recession, the long-term unemployment rate, a share of the labor force out of work for more than 26 weeks has risen to

an unprecedented degree. there is is very striking picture on page 42, a figure 2- 11. this is the long-term unemployment re. we have gone back 60 years. you can see the level long-term unemployment relative to the labor force is well above its previous peak and w above the experience we have had over most of the. . -- our most of period . we now -- our projection of the unemployment rate after we think we are back to the potential level of output is 5.0%.

a couple of years ago it was four 0.8%. we of actually nudged up our projection of lower german unemployment rate in part for this reason. there is a box in the economic factor that talks about lingering effects of the recession. this is one of the effects we discussed there. i think it is very uncertain at this point how significant the longer-term effects will be. there are more straightforward effects through lower investment. it lowers our assessment of potential output. that is more strghtforward because it is mo familiar and the possible effect on the labor market of long-term employment. we have talked in other reports we have done abo the need in th recovery for there to be

new jobs, because many workers have lost their existingobs and have no prospect of going back. these new jobs member are people living in different places with different skills than the workers who have lost their jobs. i think that is a matter of very significant concern. it is also matter of very great uncertainty. >> there is no expectation of a catch up are a snap back in terms of greater than expected employment growth, given expected levels of ddt? >> we think the unemployment rate will eventually get back level -- down to the level that is sustainable. at some points the excess increase unemployment rate comes off. i don't know what the timing of that will be. we have a slow decline over the next years partly because of slow upward growth.

between now and 2014, the excess will come down. maybe it's worth saying that most of the increased unemployment rates we observe in this country is traceable to the decline in output. there was some excess beyond that, but we think principally what will need to happen to bring the unemployment rate down is that we will need to have growth of the demand for goods and services and then growth in production. that requires additional workers and the use of offices and factories that are not being fully used today. >> there may have been a structural shift in the labor market causing that effect. >> i think we are concerned about that. there are different sorts of structural shifts. part of what has happened is that we have a construction sector in this economy that was

very large a few years ago. it was much larger than is likely to go back to being, even when the economy recovers. there are significant numbers of people who have worked in building houses in 2006, for example, who are not likely to be doing that at any time in the foreseeable future. in part it is because certain sectors of the economy were hit very hard. the unemployment rate has risen much more for men than for women, more for those who have left education and for those with college degrees. so there is a structural shift in that sense. the jobs will bin different places in that future. there is a related but different factor which is that people who have lost their jobs and are out of work for a long time may end up with a weaker attack of the labor force. their skills will depreciate

over time a some of the habits of work will be lost. i think there is a different sort of structural change which is the concern that these people will have trouble getting back into the labor force. that concern is accentuated in a different sector of the economy. all those things play some role in hide the unemployment rate reedy and how high the unemployment rate is now. those are very difficult factors for us to asss quantitatively, and we have made our best estimate, but it is very hard to know. >> if other thingoccur to you, you know where to find us. we are very happy to answer your questions. thank you very much for coming

today. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] [captions copyright national cable satellite corp. 2010] >> in a few moments. today's head lines and your calls live on "washington journal". the national press club will talk about the response to the gulf oil spill and what still needs to be done. and in about 45 minute as discussion of the deficit with douglas elmendorf, head of the congressional budget office. travel restrictions to cuba with rentive mario diaz-balart and