White House downgrades 2012 jobs, economic forecasts; cites 'turbulence'

The Obama administration downgraded its forecast for economic growth Thursday, predicting turmoil in the economy will likely keep unemployment above 9 percent through next year’s election.

The unemployment rate is considered to be one of the most important factors in presidential elections, so if the White House’s assessment holds, President Obama is in for one of the toughest reelection fights in memory.

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When the “substantial” economic “turbulence” of the last two months are considered, the administration expects the economy to grow as little as 1.7 percent in 2011 compared to last year. That is down from a rosier projection of 2.7 percent growth, made in February.

“The economic projections made clear that in the short-term, in particular, there is a real need to kick-start economic growth,” White House Budget Director Jack Lew said.

The assessments on unemployment are contained in the administration’s midsession budget review, which is an update on the president’s February budget request.

Voter dissatisfaction with the president is surging as the economic recovery falters. A new poll released Thursday found that public disapproval of Obama’s handling of the economy is at an all-time high. 

The CNN/ORC survey found that 65 percent of Americans disapprove of the way Obama is handling the economy, while 62 percent disapprove of his work to battle unemployment.


The president has scheduled a prime-time address to Congress on Sept. 8 to try and stem the damage and is promising a new package of proposals to create jobs.

White House spokesman Jay Carney on Thursday said the jobs proposals Obama will unveil should help ease unemployment.

“Economic analysts, economists, will be able to look at this series of proposals and say that, based on history, based on what we know, based on their collected expertise, that it would add to economic growth and it would cause an increase in job creation,” Carney said.

But even if some of Obama's proposals make it through Congress over the expected GOP opposition, it is likely too late to revive the economy in time for the 2012 election.

Even under a better-case scenario that excludes the worsening economic picture, the Obama administration still expects 8.3 percent unemployment in 2012, with only 3.3 percent growth that year. 

When the predicted worsened economy is taken into account, the White House sees anemic growth of 2.6 percent in 2012 — well below an earlier forecast of 3.6 percent.

“The pace of growth is not what we are going to be happy with,” said Council of Economic Advisers member Katharine Abraham.

She explained that the review contains two economic pictures because of the scope of economic changes that occurred in the last two months. Abraham noted that first-quarter GDP estimates had been revised downward, second-quarter numbers were surprisingly weak and the fiscal turmoil in Europe has caused great uncertainty.

The revised budget document, originally due in June, is the first comprehensive overview of the nation’s fiscal situation to come from the administration since the debt-ceiling deal was passed in August.

The White House used the document to explain this year’s budget battles and reiterate that Obama had hoped to use the standoff to find a grand bargain on cutting the deficit. 

The review claims that an April speech by Obama “set the stage” for the debt-ceiling deal and its budget cuts, but blames the GOP for refusing to accept a bargain that included new revenues.

The narrative does not mention that the initial Obama February budget was rejected 97-0 in the Senate in the spring. It only says that in April “the president looked again to the future” and presented his revised budget plan. 

The August deal to raise the federal debt ceiling averted a default on U.S. obligations by raising the ceiling through 2012; the administration estimates substantial deficit reduction will result.

The caps on discretionary spending already enacted in the debt-ceiling deal save $740 billion compared to Obama’s original budget. The April continuing resolution cut spending by $51 billion this year and $49 billion more over the next nine years, compared to the Obama budget. 

To take account of the deal, the administration puts to one side its own deficit-reduction proposals from the February budget and substitutes in the results of the debt-ceiling deal and the savings achieved in the April 2011 continuing resolution.

The White House says it stands by the cuts in the February budget, which it claims would have reduced deficits by $1 trillion over 10 years, and by the April budget address in which the administration sought a $4 trillion deficit grand bargain including tax increases from tax reform.

The speech is not fleshed out in the midsession review, however. Republicans for months derided Obama for failing to present a fully detailed deficit plan.

The document also does not include a detailed agenda for the deficit supercommittee to pursue. It says Obama later this month will outline a “balanced” plan for the debt supercommittee, created by the debt-ceiling deal, “that would place the country on firm fiscal footing by the middle of this decade.”

The recommendations are not in the midsession review, but $1.5 trillion in cuts are assumed in the projections.

Lew said the new Obama proposals for deficit reduction were not included because the midsession review "is not used as a vehicle for making broad new policy." He declined to say whether Obama would propose that the supercommittee go beyond its $1.5 trillion mandate and seek deeper cuts.  

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The document alludes to Obama’s Sept. 8 jobs speech but does not budget for any of the proposals he will make. It says the speech “could” include tax cuts, ways to “provide economic security” and “innovative infrastructure ideas.” Previous proposals for a payroll tax break, extending unemployment insurance and setting up an infrastructure bank are estimated to add $250 billion to the deficit over 10 years

Overall, the midsession review puts this year’s budget deficit at $1.316 trillion and projects deficits of $5.755 trillion over 10 years. This is an improvement from the $1.645 trillion projected for this year in February and the $7.205 trillion over 10 years projected at that time. 

Under the projections, gross federal debt rises from $14.9 trillion this year to $24 trillion in 2021. 

The improvement in the deficit this year is due in part to the deals with Congress, as well as to increased tax collection. 

The administration numbers differ substantially from those released last week by the Congressional Budget Office, largely because the CBO uses a different baseline to measure policy. The CBO assumes all the Bush-era tax rates expire, for example, while the administration assumes the rates are extended.

CBO projected a deficit this year of $1.282 trillion and $3.487 trillion over 10 years.

—This story was originally posted at 1:45 p.m. and has been updated.

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