US budget deficit seen at $438bn

Economic weakness could presage a recession, the CBO warns

The US budget deficit is expected to reach a record $438bn in 2009, according to estimates from the Congressional Budget Office (CBO).

It also warns the deficit could go higher as the figure does not take into account possible government costs for taking over Fannie Mae and Freddie Mac.

The CBO added the US government will run a deficit of $407bn this year.

During the next fiscal year – starting on 1 October – a “turbulent” economy would cut revenues, the CBO warned.

‘Increase in spending’

The CBO estimate for 2009 does not include the possible costs of rescuing the two stricken giant mortgage firms, which was announced on Sunday.

Its assessment of $438bn would breach the 2004 record of $413bn and far outstrip the $161bn budget shortfall last year.

“The significant expansion in the deficit is the result of a substantial increase in spending and a halt in revenue growth,” the CBO report said.

In 2008, the CBO estimates, federal spending will be 8.3% higher than it was in 2007; at the same time, total revenues will be less than they were in 2007.

‘Past recessions’

At a news conference, CBO director Peter Orszag said it was too soon to say whether the US officially is in a recession.

But he said that the recent rise in unemployment and economic weakness “are consistent with the pattern seen in past recessions, the past few recessions to be precise”.

He also said CBO’s budget estimates did not take into account possible costs related to the US government for taking over Fannie and Freddie.

But he said the cost of the operation should be directly incorporated into the federal budget, which could further swell deficits.

Serb opposition leader resigns

Tomislav Nikolic went too far for party hardliners

The head of the main opposition party in Serbia has resigned after senior colleagues refused to back the country’s efforts to join the EU.

Tomislav Nikolic had recently persuaded his Serbian Radical Party to approve the ratification of an important agreement with the European Union.

But there was a party revolt over the issue, with critics saying it meant abandoning Serbia’s claim to Kosovo.

Kosovo unilaterally declared itself independent from Serbia this year.

Mr Nikolic had steered his party towards the centre of Serbian politics, focusing on social issues such as unemployment and poverty, rather than the militant nationalism of the past.

Mr Nikolic is officially the deputy president of the party as its leader, Vojislav Seselj is facing charges at the international war crimes tribunal in The Hague.

His endorsement of the Stability and Association Agreement, signed earlier this year but still awaiting ratification by the Serbian Parliament, was a bridge too far for many of his party colleagues, our correspondent says.

A meeting of the party leadership on Friday night reversed the decision to endorse the agreement with Brussels.

Mr Nikolic resigned in protest, both from his position as de facto leader of the party, and as the head of its group in parliament.

The parliamentary vote on the agreement with the European Union is expected next week.

US rules out new economic package

Jobs are being lost in the service, business and manufacturing sectors

The United States government says it does not see an immediate need for new measures to stimulate the US economy despite a sharp rise in unemployment.

The latest figures show a rate of 6.1% – the highest since December 2003.

A White House spokeswoman said that while the figures were disappointing, the existing economic stimulus plan was having the impact intended.

A call for more action had been made by the Democratic Party presidential candidate, Barack Obama.

A higher-than-expected 84,000 jobs were lost last month, which together with the unemployment rate has added to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

A separate report by the Mortgage Bankers Association said that almost one in 10 US homeowners were behind with their mortgage payments or was in foreclosure procedures.

The 9.2% default rate between April and June was up from 8.8% in the previous quarter, and nearly double the rate one year ago.

‘Convincing evidence’

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

“It seems unemployment in the US really is accelerating,” said the BBC’s North America business correspondent, Greg Wood.

“There do not seem to be many sectors of the US economy which are hiring.”

‘Clearly deteriorating’

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.

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US jobless rate near 5-year high

Jobs are being lost in the service, business and manufacturing sectors

The unemployment rate in the US is at its highest level in nearly five years after a higher-than-expected 84,000 jobs were lost last month.

The jobless rate has risen to 6.1%, the highest since December 2003, adding to concern about the US economy and its ability to stave off a recession.

In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.

The Federal Reserve said earlier that economic activity remained “weak”.

Worse than thought

The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.

All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.

This is more convincing evidence that the economy is still in trouble Gary Thayer, Wachovia Securities

The labor market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.

Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.

In the first eight months of 2008, 605,000 jobs have been lost.

Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.

“This is more convincing evidence that the economy is still in trouble,” said Gary Thayer, senior economist at Wachovia Securities.

“The economy is clearly deteriorating.”

Political focus

Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.

Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.

The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.

The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.

“The jobs number is weak again but we think this probably is not the time to panic,” said Steve Goldman, strategist at Weeden & Co.