Obama team cuts deficit forecast

It’s now $583 billion for ’14; GDP growth outlook also falls

President Barack Obama's administration lowered its 2014 deficit forecast to $583 billion, the smallest in five years, and lowered its projections for economic growth.

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United States budget, debt and deficit charts and graphs.

In its midsession budget update, the White House Office of Management and Budget projected this year's deficit will be $66 billion less than its March 4 estimate.

The shortfall is estimated at $525 billion next year, compared with a $564 billion estimate in early March.

The administration said it expects the economy to grow 2.4 percent this year, down from 3.1 percent seen in March, with a 3.5 percent increase next year.

The median forecast of 89 analysts surveyed by Bloomberg is a 1.7 percent gain in the economy for 2014 and a 3 percent increase in 2015.

The updated forecast, completed in early June, mostly reflects the outlook presented in the 2015 budget released in March with "modifications to account for a decline in the gross domestic product during the first quarter of 2014, the rapid drop in the unemployment rate since the budget economic forecast was finalized in November, a reassessment of projected interest rates and other factors," the report said.

The report gives an optimistic picture for the world's largest economy after accelerating job growth took the unemployment rate down from its peak of 10 percent in October 2009 to 6.1 percent in June.

"The housing market has also begun to contribute to the recovery," the administration said. "The steep decline in residential investment ended in 2010, and housing starts and home prices have rebounded over the past three years."

The revised forecasts assume that Obama's budget for increased spending on employment, education and job-training programs -- financed by reduced tax breaks for upper-income families and some businesses -- will be approved by Congress.

But that's unlikely to happen as Democrats and Republicans are at an impasse over spending with the midterm congressional elections four months away.

In appearances this week in Colorado and Texas, Obama gave a pep talk on the U.S. economy and blamed congressional Republicans for the legislative gridlock in Washington.

"By almost every measure, we are better off now than we were when I took office," Obama said Thursday in Austin, Texas. "We've still got a long way to go."

Obama has yet to sign any of the 12 annual spending bills needed to keep the government running after Sept. 30, the end of the fiscal year. The House, controlled by Republicans, has passed six bills, while disputes over amendments have kept the Senate, where Democrats hold a majority, from acting on any of the measures.

Lawmakers might pass a stopgap measure to keep the government functioning through the November elections, potentially affecting the projections released Friday.

The White House estimated the unemployment rate for this year will average 6 percent, down from 6.9 percent forecast in March.

The revised jobless rate for next year was put at 5.7 percent, compared with 6.4 percent in the March projections.

Revised deficit forecasts show shrinking in absolute terms and in comparison with the size of the economy. The deficit-to-gross domestic product ratio this year is projected at 3.4 percent, down from 3.7 percent in the March estimate. Administration economists expect it will represent 2.9 percent of the economy next year.

The deficit amounted to 10.1 percent of GDP when Obama took office in 2009.

For this fiscal year, the deficit has been the smallest since 2008 as a stronger economy bolstered tax payments by consumers and businesses.

The $365.9 billion shortfall from October through June compared with a $509.8 billion gap in the same period a year earlier, the Treasury Department said in a report Friday. Last month, the government posted a $70.5 billion surplus compared with a $116.5 billion surplus a year earlier, the report showed.

The June surplus was lower than a year ago, when record income prompted Fannie Mae, the Federal National Mortgage Association, to boost dividends it paid to the Treasury.

"Absent that payment, this June's surplus would have been slightly larger than that in June 2013," the Congressional Budget Office said.

The deficit in fiscal 2014 is projected to be 2.8 percent of gross domestic product, the budget office said, compared with 4.1 percent in 2013.

The budget office is to issue its revised forecast for economic growth, deficits and unemployment Tuesday.

Information for this article was contributed by Alexandre Tanzi, Erik Wasson, Kasia Klimasinska and Carlos Torres of Bloomberg News.

A Section on 07/12/2014

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