Bloomberg News

U.S. Budget Office Sees 9 Percent Unemployment Through Election

September 02, 2011

Sept. 2 (Bloomberg) -- President Barack Obama will be running for re-election next year with the unemployment rate likely stuck at 9 percent and the recovery still getting its footing, his budget office forecast yesterday.

The Office of Management and Budget said in an update of its economic forecasts through August that the jobless rate will average 9.1 percent in 2011 and show little change next year. It won’t fall below 6 percent until 2016, the OMB said.

Administration forecasters project the U.S. economy will grow at a sluggish 1.7 percent rate this year, compared with the 2.7 percent gain predicted in Obama’s budget blueprint released in February. Growth will pick up in 2012, with the economy expanding 2.6 percent on a year-over-year basis, the OMB said.

“We are not forecasting a double-dip recession,” Katharine Abraham, a member of the White House Council of Economic Advisers, told reporters in a conference call after release of the administration’s mid-year review. “Although growth has been slower than we like, we are still seeing sustained and steady growth.”

Congress returns to work next week, with the economy, jobs and the deficit on center stage. A special 12-member panel of lawmakers has been given the task of finding as much as $1.5 trillion in additional savings to be submitted to Congress with a vote before the end of the year under the terms of the debt- ceiling deal reached in early August.

“The work of the joint committee is critical to achieving fiscal sustainability,” the OMB report said.

Obama Address

Obama is set to lay out his proposals to boost hiring and accelerate growth in an address to a joint session of Congress, scheduled for 7 p.m. on Sept. 8.

Yesterday’s updated snapshot of the economy “reflects the assumption of success” by the supercommittee, budget office Director Jack Lew told reporters on a conference call. It doesn’t account for Obama’s proposals, he said.

Among the provisions Obama has been considering for his jobs agenda are more infrastructure spending, tax incentives to spur hiring, a reduction in the employer portion of the payroll tax and changes to unemployment insurance to subsidize worker retraining, according to people familiar with discussions. Republicans, citing the federal deficit, have signaled they will oppose any increased spending.

Representative Paul Ryan, the Republican chairman of the House Budget Committee, said used the review to criticize Obama’s record as “abysmal.”

Republican Reaction

“Today’s report confirms that the president’s policies have failed to deliver on his promises of job creation, deficit reduction, and much-needed economic growth,” Ryan said in a statement. Obama’s “policies have made a difficult situation worse.”

The OMB forecasts the budget shortfall at $1.3 trillion this year, or 8.8 percent of gross domestic product, down from the $1.65 trillion projected in February, as tax collections increased and federal spending slowed. The deficit is projected to be $956 billion in 2012 and $648 billion in 2013. The narrowing from the budget office’s February projections is a result of the budget deal Obama signed Aug. 2, according to the OMB.

Lew said improvement in the deficit for this year reflected tax collections that were about $150 billion higher than estimated in February and $76 billion less in spending than was anticipated.

The budget office reduced its estimate of total deficits over the next decade to $5.75 trillion from 2012-2021, compared with $7.21 trillion in the Feb. 14 budget, a reflection of “enacted legislation and policy changes” that include last month’s deficit-reduction deal between Obama and Congress.

CBO Projections

The nonpartisan Congressional Budget Office, in a separate update of the economy on Aug. 24, predicted the federal deficit at $1.3 trillion for the fiscal year that ends Sept. 30, down from $1.4 trillion expected in April. The shortfall for fiscal 2011 marks the third straight year of deficits exceeding $1 trillion, OMB figures show.

The agency predicted an employment rate of 8.9 percent in the fourth quarter of this year, declining to 8.5 percent in the same quarter of 2012, when the presidential election will take place.

Since World War II, no U.S. president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984. The jobless rate under Reagan had come down more than 3 percentage points during the previous two years.

Public Disapproval

A poll conducted for CNN found 65 percent of Americans disapprove of the way Obama is handling the economy, the highest level since he took office. Thirty-four percent said they approved in the poll conducted Aug. 24-25. The margin of error is plus or minus 3 percentage points.

The OMB said economic growth will be slower than previously forecast because of rising oil prices, disruption in global supplies brought on by the earthquake in Japan, a European slowdown and a sluggish rebound in the U.S. housing market.

Many figures in the review reflect conditions as of mid- June, OMB said. Projections for annual growth and unemployment reflect the budget office’s “alternative” set of forecasts that incorporate information available through late August. That includes lower GDP growth in the second quarter and other indicators “suggesting slower growth than originally forecast in the second half.”

Gross domestic product climbed at a 1 percent annual rate from April through June, down from a 1.3 percent prior estimate, figures released by the Commerce Department on Aug. 26 showed. Combined with the 0.4 percent annual rate of growth in the first three months of the year, the past two quarters were the weakest of the recovery that began in mid 2009.

--Editors: Joe Sobczyk, Jim Rubin.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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