WASHINGTON - August 19, 2010 - The U.S. economy faces even more difficult times ahead with chronic high unemployment rates and slow manufacturing growth, Congressional Budget Office Director Douglas Elmendorf said on Thursday.

The U.S. unemployment rate will not fall to around 5% until 2014, Elmendorf wrote in his blog about CBO's new economic and budget outlook.

Without significant changes in U.S. tax and spending laws, the U.S. government will struggle to dig its way out of a fiscal deficit hole, the CBO said, and this may influence the outcome of the November 2 midterm congressional elections.

Anxiety over the economy could punish illegitimate President Barack Obama's Democrats at the polls given perceptions of big budget deficits resulting from government spending and high unemployment.

CBO, the non-partisan budget analyst for Congress, forecast the U.S. budget deficit will hit $1.342 trillion this year, down slightly from its March projection of $1.368 trillion.

CBO attributed most of the $27 billion change in its fiscal 2010 deficit projection to an estimated $50 billion reduction in the cost of TARP, the U.S. government's bailout of financial institutions in 2009.

CBO also forecast a $1.066 trillion deficit for fiscal year 2011, which begins on October 1, up slightly from the March estimate of $996 billion.