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April 27, 2020

ACEC Macro-Economic Update: Federal Deficit Forecast | Oil Market Mayhem

By Erin McLaughlin

CBO Forecasts Federal Deficit of $3.7 trillion by Fiscal Year End

The Congressional Budget Office (CBO) released a revised analysis on Friday, March 25, which included forecasting the federal budget deficit to reach $3.7 trillion by the end of federal fiscal year 2020. According to the Wall Street Journal this will bring the deficit-to-GDP ratio to the highest level since the year after World War II ended in the 1940s. The percent of deficit-to-GDP is expected to be 17.9% in 2020 and 9.8% in 2021, compared to 4.6% in 2019, says CBO.

Additional CBO forecasts include:  

  • Gross domestic product is expected to decline about 12% during the second quarter of 2020, equivalent to a decline at an annual rate of 40% for that quarter.
  • Unemployment is expected to average 15% during the second and third quarters of 2020, dramatically up from less than 4% in the first quarter.
  • CBO expects economic activity to increase in the third quarter as state and local governments ease stay-at-home and business closure orders.

In a blog posted by CBO Director Phillip L. Swagel reporting the projections, the non-partisan organization says its estimates are “subject to enormous uncertainty” due to unprecedented circumstances of the pandemic. CBO used a variety of public and private sources to create its forecast, including consideration of the major congressional legislation passed through April 23rd.

Dramatic Oil Prices Upend Energy Market

It was a dramatic week for the oil market as for the first time in history West Texas Intermediate, the U.S. oil benchmark, plunged into negative price territory. Between demand for oil being down considerably during the pandemic, and international volatility due to the Russia-Saudi Arabia price war, the energy sector is suffering even more than most.

It is interesting to look at what states may be most impacted, as unemployment in the oil sector will impact consumer spending and tax collection efforts—already at lows in a recession. According the U.S Energy Information Administration, these were the top five states for oil production in 2019; these top five states produced 69% of U.S. crude oil:

  1. Texas (41%)
  2. North Dakota (11%)
  3. New Mexico (8%)
  4. Oklahoma (5%)
  5. Colorado (4%)

Erin McLaughlin is ACEC Vice President Private Market Resources.

All comments to blog posts will be moderated by ACEC staff.


April 27, 2020



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