$1.3 trillion deficit projected as economy cools down

WASHINGTON -- The White House on Thursday predicted that unemployment will remain at 9 percent next year, a gloomy scenario for President Barack Obama's re-election campaign.

The figures from the Office of Management and Budget, which also projected overall growth this year at just 1.7 percent, serve as further confirmation of a sputtering economy while dramatizing the challenge Obama will face in making his case for re-election. The 1.7 percent growth rate is a full percentage point less than the administration predicted at the beginning of the year.

The economy promises to be the leading-edge issue of the 2012 White House sweepstakes, and Obama already is facing a host of Republican rivals challenging his financial policies. No president in modern times has won re-election with unemployment as high as 9 percent, and Obama's poll numbers have suffered in recent weeks amid a steady drumbeat of bad economic news.

On the deficit, the White House report also projects red ink totaling $1.3 trillion for the budget year coming to a close on Sept. 30. That's slightly higher than last year's deficit but more than $300 billion less than the record sum that the White House predicted in February.

Tax receipts are up unexpectedly and spending is down from the administration's earlier predictions, in part because of GOP-mandated cuts to the day-to-day operating budgets of Cabinet-level departments and agencies.

‘Sustainable fiscal path'

Of Thursday's report, White House budget director Jacob Lew said: "We need to get back on a sustainable fiscal path" and we must "invest in long-term economic growth and job creation."

Obama plans to outline his ideas for jump-starting the economy and creating jobs in a primetime address to a joint session of Congress and the nation Sept. 8.

The White House report said higher oil prices, an economic slowdown in Europe, continuing weakness in the housing sector and the disruption in global supply chains after the devastating earthquake in Japan have dragged down the economy. Uncertainty over raising the U.S. debt ceiling hurt as well, the report said.

"In sum, economic growth and job creation, while positive, have not been strong enough to bring the unemployment rate down to an acceptable level," the budget office reported.

The grim report was expected, and it comes a week before Obama reveals his new jobs initiative. The nationally broadcast address from the Capitol will put Obama face to face with tea-party Republicans who are sure to fight any new "stimulus" spending that he might propose.

Thursday's figures do not reflect the potential effects of Obama's upcoming jobs plan on the economy or the deficit.

White House spokesman Jay Carney said the president's job initiative would lower unemployment and help spur a faster economic recovery than what the budget office forecast Thursday.

"The president will come forward with a specific proposal that by any objective measure would add to growth and job creation in the short term," Carney said.

The report, however, does incorporate expectations of deficit savings from a congressional "supercommittee" charged with cutting $1.2 trillion or more from the deficit over the coming decade. The panel begins its work this month, with a deadline of the Thanksgiving holiday.

The White House delayed release of the report, which was due in mid-July, as the debate over the debt limit and accompanying budget deal wore on. The delay caused a need to factor in new economic data released over the summer -- including downward revisions in the growth in gross domestic product -- and the result was a gloomier forecast than it would have issued based on information available in June.

The economy grew by just 0.7 percent in the first half of the year, the slowest pace since the recession ended two years ago.

The report sees the economy rebounding to a still-modest growth rate of 2.6 percent next year, a percentage point below what the administration predicted in February. It sees economic growth of 3.5 percent in 2013 and 3.9 percent in 2014, which is more optimistic than many private economists.

"We are not forecasting a double-dip recession," said Obama economic adviser Katharine Abraham