Bloomberg News

Growth Forecast in Obama Budget Exceeds Economist Estimates

February 21, 2012

(Updates with Zandi comment in seventh paragraph. For further information on the budget, see {BUDG <GO>})

Feb. 13 (Bloomberg) -- The Obama administration’s budget predicts the U.S. economy will grow 2.7 percent this year, a forecast that’s more optimistic than those of private economists and Federal Reserve policy makers.

The White House raised the 2012 estimate from 2.6 percent in September. Economists forecast an expansion of 2.2 percent at an annual rate, according to the median of 79 estimates in a survey by Bloomberg News conducted from Feb. 3 to Feb. 9.

“Today, we are seeing signs that our economy is on the mend,” President Barack Obama said in a letter to Congress accompanying the 2013 budget proposal and the projections. “But we are not out of the woods yet. We need to finish the work we started last year by extending the payroll tax cut and unemployment benefits for the rest of this year.”

The White House’s growth forecast for 2013 was cut to 3 percent from 3.5 percent in September. The administration’s projections released today are based on information available as of November.

The president’s economic team has become more optimistic about the economy, leading them to lower their unemployment forecast. Obama’s advisers see employers adding 2 million jobs this year if administration policies are adopted, Alan Krueger, chairman of the White House Council of Economic Advisers, said in a statement Feb. 8.

Unemployment Rate

That may bring the unemployment rate closer to 8 percent by the November election, Krueger said, while the numbers released today foresee an average rate of 8.9 percent this year. Krueger called the November-based predictions, which also forecast an 8.6 percent jobless rate for 2013, “stale and out of date.”

“The economic forecast underpinning the president’s budget is perfectly reasonable,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It is very consistent with my projections. While the budget’s near- term real GDP growth outlook is a bit higher than the consensus, its unemployment rate outlook is also higher.”

Zandi said the threats to the outlook, including the European debt crisis and dropping housing prices, “appear increasingly less threatening, and judging by the recent job and other economic data, the economy is on increasingly more solid ground.”

Fifth Decline

Unemployment last month fell to 8.3 percent, the fifth consecutive decline.

“While concerns lingered over the financial developments in Europe and the risk they posed to the U.S. economy, the pace of real GDP growth increased in the second half” of last year, the White House said in a statement.

While the Obama administration’s projection on a yearly basis is for 2.7 percent growth, the forecast is 3 percent when comparing the fourth quarter of last year to the fourth quarter of this year. That tops Fed policy makers’ projections of 2.2 percent to 2.7 percent.

The International Monetary Fund estimates a 1.8 percent increase for this year on an annual basis.

The White House projections released today call for GDP growth of 3.6 percent in 2014 and 4.1 percent in 2015. They foresee the jobless rate dropping to 8.1 percent in 2014 and 7.3 percent in 2015.

In today’s budget report, the administration projected the consumer price index would rise 2.2 percent this year, 1.9 percent in 2013 and 2 percent the following year.

Yields on 10-year Treasury notes are expected to be 2.8 percent this year, 3.5 percent in 2013 and 3.9 percent the following year, according to the projections released today. The yield was 1.96 percent at 11:04 a.m. today in New York.

--Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporters on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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