Improving economy does little to help Obama shrink the budget deficit

A strong Friday jobs report may help President Obama’s reelection effort but economic growth is not explosive enough to do much about the budget deficit, experts warn.

This will mean the GOP will still be able to count on budget issues heading into the fall elections even if Obama continues to get good jobs news.

Keith Hennessey, an economist highly regarded by conservatives, wrote on his blog Friday that “even if the current positive trend were to accelerate I would anticipate economic policy to be a (the?) central focus of the election.”

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“If the economy looks good, debate will shift to the fiscal picture which is still miserable,” he wrote.

The economy added 227,000 jobs in February and the unemployment rate stayed at 8.3 percent.

Behind the numbers, however, the trade deficit grew and this led some forecasters to reduce their outlook for gross domestic product. 

Goldman Sachs said that it sees 1.8 percent growth in the first quarter of 2012, down from an earlier forecast of 2 percent. This compares to 3 percent quarterly growth at the end of 2011.

The U.S. economy grew at a sluggish 1.7 percent overall in 2011 and forecasters expect his year to be somewhat better.

The White House last month forecast 2.7 percent growth in 2012. Even with that high rate of growth, it estimated this year’s budget deficit to be $1.3 trillion. Even by assuming historically high growth of 4.1 percent in the middle of the decade, by Obama’s own figures his budget has $8.6 trillion in deficits over the next ten years.

“Growth may help but probably not substantially. It won’t have a major effect on deficit projections,” deficit hawk Bob Bixby of The Concord Coalition said.

Republicans will have a chance on Tuesday to put the focus back on the troubled U.S. budget outlook when the Congressional Budget Office releases its analysis of President Obama’s 2013 budget.

The CBO will apply its own economic projections, likely to be less rosy that that of the White House.

CBO will also use its own assumptions, known as a budget baseline, that will make President Obama’s budget look even worse.

CBO uses a current law baseline that assumes, for example, that middle class Bush era tax rates expire next year.

Since President Obama wants these tax cuts extended, CBO will say that Obama’s budget increases deficits by a larger amount than when the White House rolled out the document.

The CBO will also provide an estimate of the size of the deficit compared to gross domestic product. In this analysis, greater economic growth will help the president achieve a smaller deficit as a percentage of GDP.

House Budget Committee Paul Ryan (R-Wis.) will use the CBO projections to construct the House 2013 budget resolution. As with the president’s budget, near-tern economic growth could help Ryan to balance his budget earlier.

Last year’s Ryan budget did not balance until after 2035, a fact that made some conservatives uneasy.