Will Bush ratings follow slumping economy?

The nation's jobless rate last week rose to its highest level in nine years, raising pressure on the President.

President Bush faces a new political danger in the last place he wanted: the economy.

In the first major economic news since the passage of his tax cut, the nation's unemployment rate has surged to 6.4 percent, a nine-year high, and a level that causes newspaper headlines to swell.

The latest numbers are the highest of the President's term and may make it more difficult for him to continue to blame former President Clinton for the economic downturn.

Unless the economy improves, Bush will have to run on a record of losing jobs - so far 2.5 million. That would give him the dubious distinction of being behind only Herbert Hoover in terms of job losses. Even the divided Democrats are quickly homing in on the economy, and their constant harping could prod voters to forget the quick war in Iraq or other foreign incursions. "He remains quite vulnerable on the economy," says Bruce Buchanan, a political scientist at the University of Texas at Austin.

This is not to say Bush is in immediate risk of losing his job. He remains a popular president, and despite the bad news on jobs, economists are still sticking to forecasts of better growth in the second half of this year, which they expect will be stimulated by the President's tax cuts, as well as continued low interest rates. A Wall Street Journal survey last week found economists are predicting a 3.5 percent annual growth rate in the third quarter and 3.8 percent in the fourth quarter. "That's probably enough growth to keep the jobs picture stable," says John Silvia, chief economist at First Union Bank in Charlotte.

Unrealized expectations

Stability, however, is not what the President had in mind when he campaigned for the tax cut. The President's Council of Economic Advisors estimated that Bush's Jobs and Growth Plan would create 1.4 million new jobs by the end of 2004. "I don't think it will pan out at this point," says Mr. Silvia. "That's the kind of number that comes back to haunt you."

The White House, for its part, says that once the tax cuts kick in, the economy will start to move forward. Labor Secretary Elaine Chao says the higher unemployment rate is a sign that more people are looking for work - largely because they think there are more jobs.

The political effect of the economy on Bush's popularity has been negligible: Bush's approval rating on the economy is lower than his overall rating, but still decent. And despite Democrats' attacks, the economy hasn't really hurt him overall, but this could change.

High unemployment numbers are "bad news for the White House," says Carroll Doherty, editor of the Pew Research Report. "What we've seen is that [Bush's] efforts on the economy are drawing more criticism - in spite of the fact that Congress has approved the tax bill." However Mr. Doherty says the economy could be worse. "The only thing that tempers it is the stock market, which has shown a lot of strength lately."

Much of that strength is based on Wall Street's expectation that the economy will improve in the second half of this year. After the unemployment numbers came out last Thursday, however, the market fell as traders began reassessing the country's economic prospects. "These numbers say the underlying economy is still weak," says Martin Mauro, an economist at Merrill Lynch. This weakness may mean Merrill Lynch will lower its estimate of economic growth for the year.

Until last week, Bush was able to avoid criticism about the economy by focusing public attention on other areas, such as the war on terror and conflict in Iraq. "That consumes some of the public attention and deflects it away from the economy," says Mr. Buchanan.

Bush has managed to keep people from growing even more restive by continually pointing to a "flurry of activity," such as the three tax cuts he's pushed through, adds Buchanan. "He's been getting credit from the financial press, from Wall Street, and from people on Main Street, for trying - for going overboard not to seem not to care, as his father sometimes seemed not to care," says Buchanan. "He's made it clear that he's willing to do whatever he can."

But the President's ability to deflect attention from the sagging economy may be diminishing. Congress is unlikely to pass more tax cuts before next year's election. "This was the President's last use of fiscal policy," says Bob Brusca, chief economist at Native American Securities. "He has taken his last fiscal bullet and shot an innocent bystander."

Slow going expected

Most of the economic numbers released this month are not expected to be much better. The nation's gross domestic product (GDP) probably grew at a lowly 1.2 percent rate in the second quarter. And July unemployment probably won't improve because it will reflect layoffs of government workers from cash-poor state and municipalities. "I think the attention is being shifted from geopolitical to pocketbook issues," says Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis.

Over the next several months, the public will also hear more about natural gas shortages. The Department of Energy will soon release recommendations on ways to prevent higher prices and potential shortages this winter. They could advise people to cut back on their use of air conditioning this summer.

And economists don't expect a major pickup in the economy - such as a return to 5 percent growth rates - any time soon. Mr. Silvia attributes this to structural changes reverberating through the economy. Now, when demand picks up, many companies will meet it by boosting productivity instead of hiring workers.

There is some evidence of this in the latest unemployment report. High school and college graduates are having a lot of trouble finding work. The unemployment rate for 16- to 19-year-olds is now 19.8 percent, up from 18.5 percent last month. "It probably doesn't matter for Bush," says Sohn. "If [teenagers] vote, they probably won't vote for him anyway."

However Doherty says the public is waiting to see how the economy develops. "If things don't get better, obviously we could see more middling ratings for Bush," he says. "If things get worse, then he's got a real problem."

Staff writer Liz Marlantes contributed to this article from Washington.

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