The Obama administration forecast the federal budget deficit will be $1.21 trillion this year, down from $1.33 trillion projected in February, as gridlock in Congress slows government spending.
The national unemployment rate will average 8 percent for the year, the president’s Office of Management and Budget said in an annual update of its budget projections. The updated figures were released yesterday amid a presidential election campaign in which the economy is the dominant issue.
Economic growth from the fourth quarter of 2011 to the fourth quarter of this year is projected to be 2.6 percent, according to the OMB’s mid-session review. While that’s lower than what the administration said it expected in February, it remains higher than the forecasts of private economists.
“Economic and financial fragility in the euro area remains a significant risk to the U.S. recovery and to the global economy,” according to the report, written by White House economists. “Despite these headwinds, the administration expects economic growth to continue at a moderate pace in 2012 and 2013 and to pick up in 2014.”
Jobs, taxes and the deficit are central points of debate in the presidential contest between Obama and Republican presidential candidate Mitt Romney, and polls indicate the two candidates are separated by a narrow margin. Obama has a 1.1 percentage point advantage in the average of seven national polls taken since July 9 compiled by the website Real Clear Politics.
The White House reports show that Obama will have run deficits exceeding $1 trillion throughout his four-year term, which Romney and other Republicans seized on. “Today was just another signal that President Obama’s policies haven’t worked,” Ryan Williams, a Romney campaign spokesman, said in an e-mailed statement.
Senator Jeff Sessions of Alabama, the top Republican on the Budget Committee, said the revised forecasts show a $10.6 trillion increase in gross debt in the next decade, even as an Obama campaign ad says “he has a plan to ‘pay down the debt in a balanced way.’”
The OMB forecast “reveals just how dramatically false this claim is,” Sessions said in an e-mailed statement. “These ads ought to be pulled down.”
The federal budget deficit was $1.4 trillion in 2009, and $1.3 trillion in 2010 and 2011. Even with the deficit, there was record demand for U.S. government bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995. Low Treasury yields show that most investors believe the U.S. government will meet its obligations even with a political stalemate in Washington.
The new White House deficit projection for this year marks a narrowing of the shortfall forecast in the budget the president released in February primarily because Congress has blocked many of Obama’s tax and spending plans.
“In the February budget, much of the cost of these proposals was estimated to occur in 2012,” according to the review. The current forecast “estimates that these costs will largely shift to 2013 and later years, which reduces the 2012 deficit.”
The deficit for 2013, the amount of spending that exceeds revenue, is forecast at $991 billion, up from $901 billion in the February forecast, because of lower tax collections than expected five months ago and the shift in costs of temporary jobs proposals. Administration economists said they expect a budget shortfall of $661 billion in 2014, little changed from $668 billion projected in February.
Obama and congressional Republicans remain at odds over how to reduce budget shortfalls. Unless a compromise is reached before Dec. 31, the government will come to a so-called fiscal cliff when $607 billion of automatic spending cuts and tax increases are triggered, which risks slowing the economy further or plunging the nation back into a recession.
The Commerce Department reported yesterday that the U.S. economy expanded at a 1.5 percent annual rate in the second quarter after a revised 2 percent gain in the first three months of the year, as a continuing weak job market caused consumers to pare spending. Consumer spending accounts for about 70 percent of the economy.
The White House budget office projected that the economy will expand 2.6 percent in the fourth quarter of 2011 to the fourth quarter of this year, compared with the 3 percent forecast in the budget Obama submitted to Congress in February.
That’s more optimistic than the outlook of private economists. The median forecast of 55 economists surveyed by Bloomberg News July 6 to July 10 is for GDP growth of 2.1 percent over the period.
The administration’s forecast showed the gross domestic product, the value of all goods and services, unchanged at 2.6 percent in 2013, rising to 4 percent in 2014.
Jared Bernstein, former chief economist to Vice President Joe Biden, said the 2.6 percent growth forecast for this year and next “may be a bit hopeful but it’s not outside the realm of possibility.”
“Housing was definitely pulling the economy down, now it’s pretty clearly bumping along at the bottom,” said Bernstein, who’s now a senior fellow at the Center on Budget and Policy Priorities. “That’s less of a drag on growth in the second half” of this year.
The unemployment rate has held at over 8 percent for the longest stretch since World War II, having peaked at 10 percent in October 2009. The OMB forecast forecasts a slow decline. It says the rate will dip to 7.9 percent in the fourth quarter of this year, around the time of the November elections.
Only one U.S. president has been re-elected since World War II with a jobless rate above 6 percent. Ronald Reagan won a second term with the rate on Election Day 1984 at 7.2 percent, having dropped almost 3 percentage points in the previous 18 months.
The nonpartisan Congressional Budget Office will issue its version of the mid-session budget review next month, spokeswoman Deborah Kilroe said in an e-mail.