White House forecasts high unemployment through 2012

In a move underscoring the urgency of the nation’s economic problems, the White House issued a new assessment that predicted continued high unemployment through 2012.

The grim outlook, part of the summer report on the nation’s budget and the economy, was released Thursday as President Obama prepared to announce new stimulus proposals next week.

The administration said that based on the latest economic data, it now expects the unemployment rate to end the year at 9.1%, which is where it stood in July. The jobless figure for August will be released Friday with accompanying statistics on job creation.

The report shows the bind policymakers are caught in: A stagnating economy reduces tax revenue and increases the deficit, but government measures that economists say are needed to stimulate the economy also cost money and also add to the deficit — at least in the near term.

And that policy dilemma is magnified by the current political stalemate in Washington.

Many private analysts are expecting last month’s unemployment to be unchanged at 9.1%, with sluggish job growth of 70,000 to 80,000, about the same as the average of the previous three months when the recovery was stalling.

Under normal conditions, experts said, the U.S. economy would need to generate about 125,000 additional jobs every month to absorb new entrants to the job market and keep the unemployment rate steady.

But persistent weakness in hiring has prompted many of the unemployed to quit looking for jobs. In the government’s methodology, these people are not counted as part of the official unemployment rate, thus understating the jobless problem.

“If there are any signs of jobs being created, some large unknown proportion of the population will flood back into the labor market,” said Ron Blackwell, chief economist at the AFL-CIO.

And unless hiring rises dramatically, he said, the unemployment rate is sure to climb because some of those returning job seekers won’t be able to find work.

The White House forecast also sees hardly any change in the unemployment rate next year in the run-up to the presidential and congressional elections, with the jobless rate projected to drop a notch to 9% on average. Only modest improvement was forecast for 2013, when unemployment is projected to dip to 8.5%.

Despite the unusually bleak outlook, Katharine Abraham, a member of the White House Council of Economic Advisors, said the forecast doesn’t see a double-dip recession.

But in a conference call, she said the report from the Office of Management and Budget revealed economic numbers that were “not what we’re going to be happy with” and highlighted the importance of Obama’s new job-creation effort that he plans to unveil Thursday night.

Obama is expected to outline proposals such as increased job training, tax credits and investment in infrastructure as ways to get people back to work.

Many in the Democratic Party are pushing the president to announce an ambitious jobs package to juice up the waning recovery, but it’s unclear how much he will propose given stiff Republican opposition to increased spending that could increase the nation’s deficit.

In the so-called mid-session review released Thursday, the administration projected that the budget deficit would hit $1.32 trillion this year. The figure is about 20% lower than the $1.65-trillion deficit estimated in February because of more tax revenue and less spending than anticipated. The Congressional Budget Office issued a similar deficit projection last week.

Nonetheless, a federal deficit of $1.3 trillion would represent about 9% of the gross domestic product — triple the percentage that economists consider a sustainable rate over the long term.

The economic outlook component of the report contained two forecasts: an original projection using economic data through June and a special “alternative forecast” based on more recent information.

That information reflected the problems stemming from the debt-ceiling turmoil and subsequent downgrading of U.S. debt as well as the deepening debt crisis in Europe.

The difference between the two highlighted just how much confidence has withered in the last two months, sharply raising the risks of recession in the short term and downgrading prospects over the long range.

The White House report now sees the unemployment rate not returning to a normal range of just over 5% until 2018.

Economic growth also was sharply downgraded, to an anemic 1.7% rate this year and a moderate expansion of 2.6% next year.

Economists said the White House’s latest forecast was far more realistic than its earlier projections. But even the new one may be overstating growth and understating unemployment, some said.

don.lee@latimes.com