CBO: $1.1T deficit, at least 8% jobless rate this year

By David Jackson, USA TODAY

Updated 2h 46m ago

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By Haraz N. Ghanbari, AP

The Congressional Budget Office is projecting some rough economic numbers for President Obama this re-election year, but perhaps with some relief in the years ahead.

"In its baseline, CBO projects that the 2012 federal budget deficit will be about $1.1 trillion, and that the economy will continue its sluggish recovery, with unemployment remaining above 8 percent both this year and next," says a summary of a report released this morning.

As a percentage of the overall economy, the projected deficit of 7% is "nearly 2 percentage points below the deficit recorded in 2011, but still higher than any deficit between 1947 and 2008," the report says.

The CBO also says that annual deficits are projected to "decline markedly" over the next decade -- but only if the George W. Bush-era tax cuts expire as scheduled at the end of this year.

Recall that Congress and Obama extended those tax cuts for another two years back in 2010.

Also from the Congressional Budget Office:

In part because of the dampening effect of the higher tax rates and curbs on spending scheduled to occur this year and next, CBO expects that the economy will continue to recover slowly, with real GDP growing by 2.0 percent this year and 1.1 percent next year (as measured by the change from the fourth quarter of the previous calendar year). CBO expects economic activity to quicken after 2013 but to remain below the economy's potential until 2018.

In CBO's forecast, the unemployment rate remains above 8 percent both this year and next, a consequence of continued weakness in demand for goods and services. As economic growth picks up after 2013, the unemployment rate will gradually decline to around 7 percent by the end of 2015, before dropping to near 5½ percent by the end of 2017.

While the economy continues to recover during the next few years, inflation and interest rates will remain low. In CBO's forecast, the price index for personal consumption expenditures increases by just 1.2 percent in 2012 and 1.3 percent in 2013, and rates on 10-year Treasury notes average 2.3 percent in 2012 and 2.5 percent in 2013. As the economy's output approaches its potential later in the decade, inflation and interest rates will rise to more normal levels.

The report adds, however: "Many developments could produce economic outcomes that differ from CBO's forecast."