- The Washington Times - Wednesday, February 1, 2012

Hopes that America’s economic or budgetary situation might improve anytime soon were dashed Tuesday. The Congressional Budget Office (CBO) issued its outlook through 2022, with near-term figures looking increasingly negative. This shouldn’t surprise anyone.

The nonpartisan watchdogs expect sluggish growth through 2013, with the economy expanding an estimated 2 percent this year but slowing to a pitiful 1.1 percent next year. Unemployment is expected to hover around 9 percent. The CBO forecast is for 8.9 percent unemployment in 2012, climbing to 9.2 percent the following year.

American consumers didn’t need the CBO to tell them we’re stuck in a malaise. In January, the consumer-confidence index dropped from 64.8 to 61.1, according the Conference Board. Likewise, the business barometer maintained by the Institute for Supply Management-Chicago declined from 62.2 in December to 60.2 in January, led by slowing orders and employment. To round off this litany of gloom, there was a larger-than-expected 3.7 percent decline in the latest S&P/Case-Shiller index of property values. By measure after measure, the U.S. economy is headed down.

Things could have been even worse. The economy grew at 2.8 percent in the last quarter of last year, but that yielded an anemic 1.8 percent growth rate for the year, nowhere near the 3 percent needed for a sustained recovery. The economy added some jobs, but 400,000 people still filed for jobless benefits for the first time.

For the most part, Americans aren’t seeing their wallets grow. Personal disposable income rose a paltry 0.5 percent in December, according to the Bureau of Economic Analysis. What’s most striking about the BEA data is that personal consumption expenditures decreased slightly during the height of the holiday shopping season. The money not spent is going straight into bank vaults, with the personal savings rate up from 3.5 percent in November to 4 percent in December.

American families are so concerned about the future that they’re socking away as much cash as possible even though the Federal Reserve continues its policy of holding interest rates low. The public has a sense that worse days lie ahead, especially in light of the dire news emanating from across the Atlantic about the teetering European Union. U.S. financial markets will be affected by how Europe handles its debt crisis.

Still, the CBO’s numbers are just forecasts. It’s not too late for Congress and the president to set the stage for better outcomes. They can simplify and reduce taxes and regulation, enabling the private sector to jump-start investment, production and job creation. Congress can question Federal Reserve Chairman Ben S. Bernanke about the Fed’s liquidity swap arrangements with the European Central Bank and work to limit the exposure of the Fed and U.S. markets to the eurozone.

Reducing ambiguity and the regulatory burden is the surest way of generating the sustained economic growth needed to cut the unemployment rate long-term. When consumers see their government acting responsibly - by living within its means - they’ll respond by boosting personal spending, which will help get the economy rolling again.

The Washington Times