For voters, time to check wallets

As Election Day nears, the health of the economy is the subject of a major clash in which voters are hearing starkly different views.

The battle may be overshadowed in the news by the Iraq war, nuclear tensions in Asia, and a congressional scandal, but pocketbook issues are – as usual – very much on voters' minds.

"Today we got more good news," President Bush said Friday, citing lower unemployment, rising wages, and the creation of 6.6 million new jobs since August 2003.

"The Bush economy has been marked by falling wages and anemic job numbers that don't even keep up with population growth," the Democratic National Committee fired back in a statement.

Americans are accustomed to economic spin, but that makes it harder to sort out the underlying reality. Is this a good economy or not? Or, as Ronald Reagan once asked, "Are you better off" now than the last time Congress was up for election?

The numbers, shorn of partisan interpretation, point to an economy that is neither collapsing on its own weakness nor lifting all Americans to new heights of prosperity. In this climate, marked by the subsidence of an epic housing boom, personal debt may be the dividing line between those who are better off and those who are falling behind.

"Homeownership has increased, but through lots of leverage," says Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa. The economy is "certainly not bad," he says.

But it could be especially tough on people who stretched to buy a home. A cooling real estate market means that rising home values have stopped adding to families' net worth, for now. Meanwhile, their monthly payments can jump by several hundred dollars as adjustable loan rates reset.

"There are two distinct economies," Mr. Zandi says. Higher income households – say, the top 10 percent by income – have relatively low debt burdens and, often, a fixed-rate mortgage.

"The other is lower middle-income households, who have struggled," he says. For these households, a much larger group that Zandi reckons may include more than 1 in 3 Americans, incomes have been stagnant. They have debt and, often, an adjustable rate mortgage that's now adjusting higher.

Before Mr. Bush took office, consumer debt and mortgages in America totaled less than the sum of all personal income. Since then, that debt-to-income ratio has surged from below 100 percent to above 125 percent.

This election cycle, Democrats hope to capitalize on that edge of anxiety, the darker side of a housing-fueled economic expansion.

Republicans, struggling to maintain a majority in Congress and their governorships, are playing up brighter aspects of the economy, including a recent drop in energy prices.

In polls, the economy ranks high among voter concerns – generally No. 2 or 3 after the Iraq war. Even the current furor over inappropriate e-mails sent by a Republican lawmaker to young congressional pages won't overshadow concerns like gasoline prices and mortgage rates.

In a new survey by the Pew Research Center, 22 percent of registered voters ranked the economy as their top issue, second to the situation in Iraq at 24 percent.

Against that backdrop, here are some benchmarks of whether the economy has slackened or perked up since Fall 2004, when voters last went to the polls, and Fall 2002, when Republicans regained full control of Congress:

Energy. Prices of oil, natural gas, and gasoline are up since recent elections – but down sharply in the past two months. July's $3-a-gallon gasoline has given way to hopes of a $2 pump price.

"Everybody benefits across all income groups," says Brian Bethune, US economist at Global Insight, a consulting firm in Lexington, Mass.

Jobs. Jobs are being created at a pace steady enough to keep the jobless rate below 5 percent. "If somebody wanted to change jobs right now, it would be actually a pretty good time," Mr. Bethune says.

That's what Deborah Dutcher did recently. A travel photographer, she left a job in San Francisco to move to Boston, and launched a freelance career. Her hope: that Boston's real estate market, priced a bit better than the Bay Area's, will fulfill her dream of homeownership. She feels better off in a place where dollars – and mortgage debt – will go a bit further.

Income. Wages – a long-time sore point for workers – have barely kept pace with inflation during Bush's presidency. But the picture isn't as bad as it may seem. A broader measure of income that's adjusted for inflation – real hourly compensation – is up 10 percent since Bush took office and 3.5 percent since 2002.

Housing. After soaring since 1999, home prices are in correction mode, retracing some of their heady gains. It's an economic trouble spot, especially if it makes consumers feel less able to spend. But many economists say the housing slowdown is manageable. Most homeowners don't have to sell in a weak market, and won't.

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