Sour economy top issue in U.S. presidential race

Some analysts say a flailing economy can benefit a challenger from the party that does not control the White House as voters can assign blame for an economic downturn to a president’s party, as occurred in the 1992 failed reelection bid by then-president George Bush, President George W. Bush’s father.
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"When it comes to voting, unemployment doesn’t matter. Inequality doesn’t matter (in the United States). Growth of real after-tax income does matter. The stock market does matter," said Alan Reynolds, a senior fellow at the Cato Institute, a free-market think tank.
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Reynolds said a rising stock market can boost the reputation of the party in power, but he said the perceived weakness of the U.S. economy at present could benefit the Democratic presidential hopeful, Senator Barack Obama.
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In such a climate, it is not surprising that Obama and his Republican rival, Senator John McCain, have sparred hotly over economic matters, taxes and high gasoline prices.
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Obama has called for a second economic stimulus package while McCain says he favors fresh tax cuts. Each candidate insists his plans would help fire up rocky economic growth.
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AMERICANS CONCERN

Americans are very troubled about their economic well-being, according to the results of a Pew poll published in late July which showed that 54 percent of respondents think the U.S. is in recession while 18 percent view it as a depression.
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A persistent housing downturn, a credit crunch in the banking industry, rising unemployment and high energy costs have all taken a toll on consumer sentiment.
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That leaves the Federal Reserve walking a policy tightrope. The central bank is trying to engineer an economic rebound, but it does not want to be accused of bending its policies to favor either Obama or McCain.
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Although Fed chairman Ben Bernanke is a moderate Republican appointed to office by President Bush, he has gone out of his way to underline the central bank’s independence and held a meeting with Obama last month.
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"People that think that the Fed is some kind of political creature are mistaken. They do a disservice to assume that and it’s very unfortunate that some people assume that," said Michael Swanson, an economist at Wells Fargo.
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Luckily for the Fed, the economic climate does not favor interest rate changes. Boxed in by sluggish growth and roiling inflationary pressures, the central banking has adopted a wait-and-see approach and left its main rate unchanged at 2.0 percent for it last two meetings.
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The central bank’s next policy meeting is scheduled for September 16 and analysts say there is little chance the economic winds will change dramatically between then and now. Most economists expect the Fed to keep rates on hold for some time.
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"There won’t be any reason to change anything at this meeting," said John Lonski, the chief economist for Moody’s Investor Service.
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Lonski said the Fed will not do anything that could make it look like it is trying to affect the November 4 election.
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While rates will likely be left unchanged, calls are mounting for a second economic stimulus, as the effect of a giant 168-billion-dollar government stimulus this year has been relatively disappointing.
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Not all economists are in favor of a second stimulus, however, saying it could swell an already bulging budget deficit.
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"I doubt a second stimulus package is going to happen. But it’s rarely prudent to overestimate the wisdom or fiscal prudence of politicians during an election year," the Cato Institutes Reynolds said.
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A second stimulus likely would be different from the first which was stuffed with one-off tax rebates for tens of millions of Americans, aimed at firing up consumer spending.
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But the window for such a stimulus is narrowing fast.
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"If it’s going to happen, it must happen in September," Alec Philips, a Goldman Sachs economist, wrote in a research report.
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The Democratic-controlled Congress will return from a summer recess on September 8.
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The legislative process typically stalls following the November 4 presidential election until a new leader takes office in January.

Photo: AP