Unemployment figures in the United States have hit a nine-month high, prompting fears that the country's economic recovery is faltering.
Claims for state unemployment benefits increased to about 500,000 last week, causing Wall Street stocks to tumble on Thursday.
The head of Congressional Budget Office (CBO) said the US economy faces even more difficult times ahead with chronic unemployment and slow manufacturing.
"The considerable number of vacant houses and underused factories and offices will be a continuing drag on residential construction and business investment, and slow income growth as well as lost wealth will restrain consumer spending," Douglas Elmendorf said.
However, CBO predicted a 3 per cent economic growth rate this year.
The unemployment rate will not fall to around 5 per cent until 2014, Elmendorf said.
Concerns about the pace of economic recovery particularly hit industrial stocks on Thursday, down 2.6 per cent.
Figures released earlier this month put the unemployment rate for July at 9.5 per cent.
The jobless figures could spell trouble for the Democratic Party, which could lose control of Congress in November midterm elections.
Judd Gregg, the senior Republican on the Senate Budget Committee, warned of fiscal calamity.
"Today's CBO outlook only underscores what we already know - the current pace of US spending is unaffordable and unsustainable and without a change in direction this country is headed for fiscal calamity," he said.
But Barack Obama, the president, slammed Republican senators for blocking a $30bn plan to help community banks boost lending to small businesses.
"It's obstruction that stands in the way of small business owners getting the loans and the tax cuts that they need to prosper. It's obstruction that defies common sense," he said.
The president accused his opponents of stalling the bill for political purposes ahead of the November polls.
"When Congress reconvenes, this jobs bill will be the first business out of the gate and the Senate Republican leadership needs to stop its efforts to block it."
Democrats blame the administration of George Bush, the former president, for the budget deficit which Thursday's forecast from CBO suggested will reach $1.342
trillion this year.