The White House’s mid-session forecast of economic trends says that in 2012 unemployment will remain at 9.0 percent and economic growth will be only 2.9 percent, and that the 10-year deficit will drop by $1.37 trillion compared to its previous forecast in February.
The report predicts annual budget deficits of roughly $515 billion after 2014, and a cumulative 2011–2021 deficit of $7 trillion.
This long-term forecast is vulnerable to even minor changes in economic conditions. For example, the report says that August’s economic data shifted its forecast of the cumulative 10-year deficit upward by $220 billion, partly because of higher cost-of-living estimates and lower estimates of tax collections.
The report actually offers two estimates: one based on June data, and the other on August data. The latter model paints a more pessimistic picture.
The August estimate forecasts unemployment at 9 percent in 2012, up from the June estimate of 8.3 percent.
The White House’s August figures also predict that economic growth will slow to 1.6 percent in 2011, down from the June data estimate of 2.4 percent growth. Growth in 2012 will be 2.9 percent, according to the August data, down from 3.2 predicted in June. The report cites the August data to predict a return to 4-percent growth by 2014, while the June data predicted that 4-percent growth would have begun in 2013.
The report is titled “Fiscal Year 2012 Mid-Session Review,” and it is usually published in July.
Despite some problematic numbers, “we are not forecasting a double-dip recession,” Katherine Abraham, a member of the Council of Economic Advisers, said during a midday press conference.
“The deficit reduction from the new discretionary caps [set by the August debt ceiling deal], the pending recommendations of the Joint Committee, and the expiration of the upper-income tax cuts, combined with winding down operations in Afghanistan and Iraq, will bring deficits down to approximately 2.2 percent of GDP toward the end of the 10-year budget window,” read the report.
The forecast assumes Congress will raise taxes on wealthier earners by allowing the tax cuts established in 2003 to lapse.
“These policy changes would be sufficient to put the debt on a declining path as a share of the economy and would therefore place the budget in a fiscally sustainable position,” the report says.
The new report predicts that annual federal deficits will be roughly $517 billion a year from 2014 to 2021. That’s down from February’s estimate of $660 billion a year during the same period.
The report says the federal debt is predicted to rise up to $10.3 trillion or 68.6 percent of GDP in 2012 , and decline to 70.5 percent of GNP at the decade’s end.
The slower economic growth predicted by the August data won’t have much impact on the 10-year deficit, said Jack Lew, the director of the Office of Management and Budget. That’s because the August data also predicts lower interest rates over the next three years, he said.
The report’s predictions for interest rates, however, are lower that the predictions offered by Wall Street. For example, the August data predicts that the interest rate for 10-year Treasury bills will be 3.3 percent in 2012 and 3.9 percent in 2013.
But the Wall Street “Blue Chip” forecast included in the White House report predicts those rates will be 3.6 percent in 2012 and 4.9 percent in 2013. If the higher predictions prove true, the U.S. government will have to greatly increase interest payments on the federal debt, which already stands at more than $14 trillion.