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Hard times befall party

Faltering economy could add to Republican political woes

Posted: Tuesday, October 04, 2005

WASHINGTON — Things are going so badly for President Bush and his fellow Republicans that it is hard to imagine what could come along and make it worse.

Think recession.

With Bush's approval ratings near a low point, he is running near empty on political capital and finds himself presiding over a restive GOP.

A recession could hasten his status as a lame-duck president ahead of the 2006 midterm elections and jolt the party that controls both ends of Pennsylvania Avenue.

The ''R'' word is being heard more often among economists, especially after recent reports showed tumbles in consumer spending and confidence.

New home sales are down. Auto sales have slowed. Higher energy prices — due partly to the hurricanes that damaged drilling and refining installations along the Gulf Coast — have eroded consumers' buying power. Inflation is trending higher. Interest rates, too.

''Recession risks are rapidly rising,'' said Mark Zandi, chief economist of Economy.com, an economic analysis service in West Chester, Pa. The last recession was in 2001.

Zandi is not forecasting a recession. But he said a cold winter, a further pullback in consumer spending, a terrorist attack and other variables could tip the scales. ''And if we are going into a recession, by time we get around to figuring that out, it will be too late,'' he said.

Bush's pledge to spend ''whatever it costs'' to rebuild the Gulf Coast and the high bill for the Iraq war will keep swelling the deficit and limit his options for fighting an economic downturn.

A recession would mean fewer dollars flowing into the treasury and force the government to pay out more benefits to the poor and those idled by the hurricanes.

If the economy slides into a recession because of inflation driven by energy prices, that could restrict the Federal Reserve's ability to stimulate the economy with lower interest rates. The scenario could unfold just as the central bank's chairman, Alan Greenspan, who has helped to keep the economy on an even keel during his 18-year term, nears his retirement in January.

Attention lately has focused on Bush's filling out the Supreme Court. But his selection of a new Fed chief ranks right up there in terms of far-reaching consequences.

Private economists and market watchers are suggesting that Bush follow the pattern he set in naming John Roberts as chief justice: Pick someone with solid credibility and experience to succeed Greenspan, in an effort to calm market jitters.

The betting is that Bush will not wait until January and will announce his choice in the fall. The post requires Senate approval.

Eventually, the economic damage from the hurricanes will wear off, replaced by a boost from reconstruction.

''We're fortunate that the economy is very, very strong now. It will continue to be strong,'' said Al Hubbard, chairman of Bush's National Economic Council.

But David Wyss, chief economist for Standard and Poors in New York, said the ''key question is how high energy prices go.''

''In the current range, I don't think they're high enough to cause a recession. But if something else goes wrong, or if energy goes high enough, it could still turn into a recession,'' said Wyss.

While people may be adapting to $3-a-gallon gasoline and making fewer trips, they are due for a much bigger shock later this year, economists suggest.

Home heating costs have soared, including a doubling in the price of natural gas, since the beginning of the summer. Consumers, however, have yet to feel the impact directly. That will change soon as colder weather sets in.

Recessions happen for psychological as well as economic reasons. They can be triggered when consumers and business executives alike restrict spending because the future looks bleak to them.

Polls suggest the public increasingly is troubled by rising energy costs and the economy.

Bush and his GOP allies, meanwhile, have been buffeted by waves of bad news: criticism on Iraq, a fumbled initial response to Hurricane Katrina, and investigations of House Majority Leader Tom DeLay, R-Texas, and Senate Majority Leader Bill Frist, R-Tenn.

DeLay stepped aside as leader after a Texas grand jury indicted him on a charge of conspiracy to violate state campaign laws. The Securities Exchange Commission is scrutinizing Frist for unloading his shares in hospital chain HCA ahead of a July earnings warning that sent the stock tumbling.

Bush gets good marks for his hands-on response to Hurricane Rita, even from Democrats, who applaud him for promising to lift those in the region from poverty. But they are a little skeptical of his math.

''What really bothers me is that the president is telling us that he wants to deal with poverty and address the issues that poor people confront. But at the same time, he says he wants to cut domestic spending and doesn't want to revisit his tax cuts,'' Rep. Ellijah Cummings, D-Md., past chairman of the Congressional Black, said in an interview.

''They just don't go together,'' Cummings said.

Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.



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