U.S. must tackle deficit without denting recovery - Obama

U.S. President Barack Obama talks about the economy with families in Columbus, Ohio August 18, 2010.

COLUMBUS, Ohio (Reuters) - President Barack Obama said on Wednesday the United States must work out how to control its long-term deficit without hurting an economic recovery, which remains hobbled by a battered housing market.

Obama acknowledged the deficit is worrying Americans and said cutting it would raise the public's confidence.

"People, consumers, are not going to start spending until they feel a little more confident that the economy's getting stronger," Obama told a gathering of about 30 voters in the backyard of a home in Columbus.

The president is on a three-day swing through important electoral states to tout his economic policies and raise millions of dollars for Democratic candidates campaigning for the November 2 elections.

The U.S. budget deficit is expected to reach $1.47 trillion (941.4 billion pounds) for the 2010 fiscal year, according to White House estimates. The non-partisan Congressional Budget Office will release an update of its own projections on Thursday.

"How do we, over the long term, get control of our deficit?" Obama said. "... The key is to make sure that we do so in a way that doesn't impede recovery but rather gives people confidence over the medium and the long term."

Obama has appointed a bipartisan commission to study the country's fiscal challenges. Its recommendations are due by year-end and are expected to include a mixture of spending cuts and revenue-boosting tax hikes.

Republicans have balked at plans to stimulate the economy with additional spending, citing the record deficit. Democrats in turn want to eliminate tax cuts for the richest Americans to address the same issue.

HOUSING DRAG

U.S. growth slowed in the second quarter, sparking fears the country might suffer a double-dip recession after climbing out of the worst economic slump since the Great Depression. Obama said housing oversupply was obstructing the recovery.

"The housing market is still a big drag on the economy as a whole," Obama said. "It is going to take some time for us to absorb this inventory, that was really too high."

Sharply rising prices encouraged far more homes to be built than were needed and overhang of inventory will take time to mop up.

"We were building 2 million homes a year when only 1.4 (million) were being absorbed," he said.

The trip is Obama's ninth to Ohio -- always an important swing state in U.S. elections -- since becoming president.

Obama took questions from a handful of voters and most asked about pocketbook issues, including pension plans, Social Security and the cost of healthcare and childcare.

The prospects for Obama's fellow Democrats to hold their majorities in the U.S. House of Representatives and Senate in November are complicated by fears over the economy, with unemployment stuck at 9.5 percent.

The president's approval ratings, which have fallen into the mid- to lower 40 percent range, also are a difficulty, although Congress' ratings are even worse, hovering at about 20 percent.

Obama acknowledged progress was too slow for many Americans but argued his policies would yield results.

"Slowly but surely, we are moving in the right direction," he said. "We are on the right track. The economy is getting stronger but it really suffered a big trauma. We're not going to get all 8 million jobs that were lost back overnight. It is going to take some time."

(Editing by Bill Trott)