New jobless benefits claims jumped last week to their highest rate since November, and Congress' chief scorekeeper said Thursday that the ongoing recovery has been "anemic" compared with past rebounds from deep recessions.
The Congressional Budget Office said that poor economic performance has sapped tax revenues and, when coupled with massive government spending designed to lift the economy, the federal government will run a $1.3 trillion deficit in fiscal 2010, a slight decrease from last year's record total.
CBO said the economy will grow at a 2 percent pace over the next year, and the unemployment rate will average 9 percent next year and won't fall to 5 percent until 2014.
"Growth in the nation's output since mid-2009 has been anemic in comparison with previous recoveries that followed a deep recession, and the unemployment rate has remained quite high," the nonpartisan agency said.
Trying to gain advantage in the face of polls that show voters disapprove of his handling of the economy, President Obama said the grim job news should push Congress to pass a bill containing small-business tax breaks and Mr. Obama's small-business lending fund.
"This is a bill that makes sense, and normally we would expect Democrats and Republicans to join together. Unfortunately, a partisan minority in the Senate so far has refused to allow this jobs bill to come up for a vote," Mr. Obama told reporters before leaving for his vacation at Martha's Vineyard.
Senate Republicans filibustered the bill in July, protesting Senate Democrats' moves to limit the number and scope of amendments.
It's the latest in a long line of bills that congressional Democrats have tried to pass to boost the economy over the past 18 months. Congress passed an $862 billion stimulus in February 2009 and repeatedly extended unemployment benefits for those who have been without jobs the longest.
Most recently, Democrats, aided by several Republicans, passed a $26 billion bill extending teacher and state health care funding that was first included in last year's stimulus.
That latest round was offset by spending cuts and tax increases on multinational corporations, but much of the previous stimulus spending was not offset, which has splashed red ink across the balance sheet the past two years.
In the past six months, Congress has added $29 billion to this year's deficit and $404 billion to the 10-year deficit projection, CBO analysts said in their updated budget projections.
Still, the CBO report projects that the budget deficit will drop over the long term as the economy inevitably recovers and as stimulus spending expires. Indeed, revenues will grow slightly this year for the first time in three years, at a rate of 2 percent, and spending, which had been fueled by the stimulus and the Wall Street bailout, will drop by 1 percent.
The report offered good news for Democrats, who want to continue stimulus spending, and Republicans, who want to keep in place the Bush-era tax cuts. The CBO update said that cutting back on the spending or allowing the tax cuts to lapse will hold back the economy.
"Both the waning of fiscal stimulus and the scheduled tax increases will temporarily restrain growth, especially in 2011," the scorekeepers said.
Democratic leaders have proposed more stimulus spending but have been limited by the ballooning deficit and the nation's staggering debt, which stood at $13.4 trillion on Wednesday.
House Majority Leader Steny H. Hoyer, Maryland Democrat, said the fact that the CBO's deficit projection is lower than earlier this year shows "that Democrats' actions have had a positive impact."
Still, he said, "job creation continues to be our top priority," and he backed Mr. Obama's call to pass the small-business lending bill.
That's a recognition that the main pain for voters comes from unemployment.
The Labor Department said Thursday that weekly unemployment insurance claims hit 500,000, the highest level since the end of last year. The unemployment rate stood at 9.5 percent nationwide in July.
When the administration was arguing for the stimulus, officials predicted that the spending would keep unemployment at 8 percent or lower. Now, Mr. Obama's team is trying to rehabilitate the image of the Recovery Act, signed into law 18 months ago this week.
Mr. Obama and Cabinet officials have traveled the country in a campaign that they've called "Recovery Summer," highlighting projects funded by the stimulus.
But after Thursday's jobless claims were announced, Republican National Committee Chairman Michael S. Steele said the attempt at a financial recovery has been an "epic failure."
"This month's jump in jobless claims may have surprised some economists, but it's no surprise to the American families who are struggling to adjust to the Obama economy," Mr. Steele said.
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