White House lowers growth forecasts, brightens jobs picture

WASHINGTON Sat Jul 28, 2012 1:33am IST

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WASHINGTON (Reuters) - The White House cut its outlook for U.S. growth in 2012 and 2013 on Friday, hours after data showed the economy grew at a tepid pace in the second quarter, raising concerns about a slowdown that could mar President Barack Obama's re-election chances.

In its semi-annual budget review, the White House said it expected gross domestic product to rise 2.3 percent this year and 2.7 percent next year - less than the 2.7 percent and 3.0 percent growth projections it made in February.

"The economy still faces significant headwinds that have held down growth and limited gains in employment," Jeffrey Zients, acting director of the White House Office of Management and Budget, said in a statement accompanying the review.

But the White House brightened its forecast for unemployment - one of the key barometers of Obama's economic leadership - to a 8.0 percent rate this year and 7.7 percent next year, from its first estimate of 8.9 percent in 2012 and 8.6 percent in 2013.

It also said the deficit would be slimmer this fiscal year - from October through September - than first anticipated, at $1.211 trillion instead of $1.327 trillion and be slightly wider than first projected in fiscal 2013. <ID:1E8IB01B> "Over the next decade, the White House said cumulative deficits would be $240 billion lower than it forecast in February."

The mid-session review, like the original White House budget proposal released in February, assumes Obama's economic and job growth proposals will be enacted despite the stark partisan divisions in election-year Washington.

Zients said it also "reflects the administration's belief that Congress can and must enact a comprehensive and balanced deficit reduction package" to avoid mandatory spending cuts that are due to take effect in January.

Kent Conrad, a North Dakota Democrat who chairs the Senate Budget Committee, said after the mid-session budget review was released that lawmakers needed to be ready to compromise to avoid damaging the economic outlook.

"The solution must include a comprehensive and balanced long-term deficit reduction plan. That can only happen if both sides agree to move off their fixed positions," he said.

FISCAL FIGHT

Obama's 2013 budget proposal was not passed by Congress, where Republicans controlling the House of Representatives oppose raising taxes and Obama's fellow Democrats who control the Senate want to collect more revenue alongside spending cuts.

An agreement struck last August to avert a sovereign default set spending levels for this year. Another fight is brewing over tax hikes and spending cuts slated for the end of 2012, a convergence of timing referred to as the "fiscal cliff."

Next week, the House is expected to vote against an Obama proposal to raise taxes on families making more than $250,000 a year. The Senate has backed the plan, which would extend tax rates begun under Republican former President George W. Bush for middle-class families for another year.

"If the president is serious about helping rebuild this economy, he will work with Republicans to stop these tax hikes and reform the tax code to create a better environment for private-sector job creation," House Speaker John Boehner, the top Republican in Congress, said in a statement on Friday.

Earlier on Friday, the Commerce Department said U.S. gross domestic product expanded at a 1.5 percent annual rate between April and June, the weakest pace of growth since the third quarter of 2011.

The federal budget was a searing political issue last summer, when a standoff between Democrats and Republicans over deficits and taxes brought the country to the edge of sovereign default and led to a credit rating downgrade.

Friday's weak second-quarter growth figure and continued concerns about U.S. unemployment are major political worries for Obama's campaign ahead of the November 6 election, which depends on a sense that the economy is improving.

A CBS/New York Times poll published last week showed 39 percent of respondents approved of Obama's economic leadership, while 55 percent disapproved. That represented a change from April, when 44 percent approved of the presidents' economic stewardship and 48 percent disapproved.

(Additional reporting by Margaret Chadbourn and David Lawder; Editing by Will Dunham and Todd Eastham)

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