U.S. economy forecast to grow by 1.5 percent in 2014

WASHINGTON - The Congressional Budget Office on Wednesday forecast that the U.S. economy will grow by just 1.5 percent in 2014, undermined by a poor performance during the first three months of the year.

The assessment was considerably more pessimistic than the Obama administration's, which predicted last month that the economy would expand by 2.6 percent this year even though it contracted by an annual rate of 2.1 percent in the first quarter.

The economy did grow by 0.9 percent during the first half of 2014.

Looking ahead, the CBO said it expected the economy to grow by 3.4 percent over 2015 and 2016, and predicted that the unemployment rate would remain below 6 percent into the future.

The economy went into reverse at the beginning of this year, reeling from an unusually harsh winter that disrupted consumer spending, factory production, and other business activity.

Growth in the gross domestic product, the economy's total output of goods and services, recovered in the second quarter, advancing at an annual rate of 4 percent, according to the government's first estimate. That forecast will be revised on Thursday.

The CBO also projected that the government would run a deficit of $506 billion for the budget year that ends Sept. 30. That would be the lowest level of the Obama presidency.

When the deficit is measured against the size of the economy, the comparison used most by analysts, it is within historic levels at 2.9 percent of GDP. Last year's deficit was $680 billion.

The deficit spiked at $1.4 trillion in Obama's first year in office and remained above $1 trillion for his entire first term.

The CBO foresees a slight increase from its earlier $492 billion projection of this year's deficit in part because of a decline in expected corporate tax receipts. But it sees modest improvement over the coming decade compared with earlier forecasts, in large part because it predicts lower-than-expected interest payments on the national debt.

Obama inherited a recession and trillion-dollar-plus deficit picture when he took office in the aftermath of the 2008 fiscal crisis. The economy has recovered more slowly than hoped; some of the recent drop in the jobless rate is due to frustrated job-seekers' leaving the labor market.

"There is no question we have made progress - businesses have added 9.9 million jobs over 53 straight months of job growth," said Maryland Rep. Chris Van Hollen, the top Democrat on the House Budget Committee. "But there is more we need to do."

The report confirms a trend of short-term improvement in the deficit but an unsustainable long-term fiscal path if Washington doesn't cut spending or raise additional revenue.