WASHINGTON: Five weeks before US congressional elections, there was more bad news for the economy on Tuesday when data showed the first downturn in factory output in eight months.
With the economy teetering between recovery and recession and a West Coast waterfront dispute crippling trade, it was another problem President George W. Bush’s Republicans did not need.
The Democrats’ weekly radio address listed rising job losses and poverty, falling stocks, weak growth, higher health-care costs and renewed deficit spending as economic “security threats”.
Despite the litany of economic woes, Bush put on a brave face Tuesday, saying, “Interest rates are low. Inflation’s low. Productivity’s high. This great country is going to recover.”
Bush has sought to focus voters’ minds on Iraq war plans rather than job losses and corporate scandals, but former Democratic vice president Al Gore was due to try to move the economy back on the agenda in a speech on Wednesday.
After attacking Bush’s foreign policy last week, the one-time and, possibly, future White House contender was sure to badger Bush about what he claims has been a record of economic mismanagement.
Democrats have tried to turn into a major election issue the return of large national budget deficits after the surpluses of the Clinton-Gore era, which coincided with the 1990s high-tech boom.
They have also implied that the corporate accounting scandals, from Enron to WorldCom, that have rattled Wall Street this year have especially tainted the pro-business Republicans.
US stocks rose Tuesday, but they have broadly fallen for weeks, as traders have also worried about low corporate profits and an Iraq war, which could send already high oil prices through the roof.
Low equity prices have also dampened consumer confidence, ever crucial in the United States, where consumer spending accounts for two-thirds of US economic activity. “Demand is weak, growth is below potential,” Dallas Federal Reserve Bank President Robert McTeer said this week.
McTeer suggested that the Federal Reserve might further cut interest rates below their 41-year-low of 1.7 per cent when policy- makers meet again November 6. “We need faster growth,” he said.
The Institute for Supply Management reported Tuesday that its index of business activity declined to 49.5 in September, compared to 50.5 in August. A manufacturing decline led last year’s nine-month downturn.
In more disappointing news Tuesday, the Commerce Department said construction spending fell 0.4 per cent in August. And an industrial dispute has dragged on since last week between shipping lines and dockworkers at West Coast ports, leaving millions of dollars worth of cargo sitting idle.
US foreign trade accounts for about one-fifth of the economy - and one-third of it flows through Pacific coast ports. The cost of the dispute has been estimated at 1 billion dollars per day.
Bush on Tuesday also urged Congress to pass a terrorism insurance bill, saying that more than 15 billion dollars’ worth of construction projects will not get started until such insurance exists.
But Bush was unlikely to get much bipartisan backing from Gore, who has repeatedly attacked the president’s 10-year, 1.3-trillion- dollar tax cut, even if most Democrats voted for it.
Democrats have charged that the tax cut was a major reason for the fiscal 2002 deficit that the Bush administration said will reach 165 billion dollars — or 1.6 per cent of gross domestic product.
The Bush administration has rejected this argument, instead blaming the recession and the war on terrorism for most of the budget blow-out.
“Last year’s recession and stock market weakness took a much heavier toll on federal revenues than previously thought,” Treasury Assistant Secretary Richard Clarida said on Monday.
The downturn and subsequent lower tax revenues made up for two- thirds of the shift, he said. And almost 20 per cent was due to “the vital needs of homeland security and the war effort”.
Another Iraq war, the Congressional Budget Office said on Tuesday, would explode government spending on defence, which already stands far above 300 billion dollars a year.
Just starting a war against Iraq with 250,000 ground troops, the office said, would cost 9 billion to 13 billion dollars, and every month after that would gobble up 6 billion to 9 billion dollars more.—dpa
