WASHINGTON — The Obama administration forecast the federal budget deficit at $1.21 trillion this year, down from $1.33 trillion projected in February, as government spending slows.
The president’s Office of Management and Budget said in an update of its economic forecasts Friday that unemployment will average 8 percent this year, unchanged from about 8 percent the administration predicted five months ago.
Economic growth from the fourth quarter of 2011 to the fourth quarter of this year is projected to be 2.6 percent. While that’s lower than the administration said it expected in February for that fiscal year - 3 percent - 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.”
The economy is a dominant issue for the election campaign as President Barack Obama runs for a second term against presumptive Republican nominee Mitt Romney. The White House reports show Obama will have run deficits exceeding $1 trillion during his four year term.
Even though jobs are probably the top political issue in the Nov. 6 election, the deficit will be part of the debate, said Stan Collender, partner with Qorvis Communications LLC in Washington and a veteran budget analyst in Congress.
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.
Earlier Friday, the Commerce Department reported in Washington 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’s projected economic expansion of 2.6 percent for the fiscal year is 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 gross-domestic product growth of 2.1 percent over the period.
The administration’s forecast showed the GDP, 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,” Bernstein said. “That’s less of a drag on growth in the second half” of this year.
The White House deficit projection for this year declined 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,” the review says. 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 $661billion in 2014, little changed from $668 billion projected in February.
Deficit forecasts may have little validity beyond this year, partly because they assume enactment of Obama’s tax-increase proposals for individuals with incomes of more than $200,000 and families earning more than $250,000 a year in January. Lawmakers may postpone many tax and spending decisions until after the November elections, and their actions may affect the deficit by hundreds of billions of dollars.
The nonpartisan Congressional Budget Office will issue its version of the midsession budget review next month, spokesman Deborah Kilroe said in an e-mail.
Front Section, Pages 4 on 07/28/2012