By Peronet Despeignes, USA TODAY
August 17, 2004

President Bush was saying last month that the economy had "turned the corner," but the recovery he's counting on to help drive him to re-election Nov. 2 has hit some potholes lately.

In the past few weeks, job creation has stalled, oil prices have soared to record heights, and the overall economic recovery has slowed. Groups that track poverty and health insurance data say next week's annual Census Bureau figures are likely to show more Americans in poverty and without health insurance.

There has been good news: The U.S. economy has generated more than 1.2 million jobs since the end of 2003, more than in any seven-month period in nearly four years. A recent drop in mortgage interest rates is giving the housing market a boost. And Bush got a ray of sunshine Tuesday, when reports showed upbeat news on inflation, housing and manufacturing.

But for the moment at least, the glow is off the recovery, which could keep the issue in play as Bush battles John Kerry less than three months before the election.

At a time when the president is counting on the recovery to restore confidence in the economy and counter bad news out of Iraq, key reports are reviving concerns about the strength of the economic rebound:

• Fewer new jobs. On Aug. 6, the Labor Department's monthly report on payroll employment showed 78,000 jobs were created in June and 32,000 jobs in July, compared with an average of 225,000 a month through the first five months of the year. The numbers shocked economists and fueled talk that the economy remains sick.

Bush is about 1.2 million jobs short of the total number of U.S. jobs when he took office. If job creation recovers its earlier pace, the economy could erase that deficit by year-end. But for that to happen before Election Day, the economy would have to generate an average 600,000 jobs a month — something that has happened only twice in records going back to 1955. If job creation stays sluggish, Bush could be stuck with the stigma of being the first president since Herbert Hoover to lose jobs on his watch.

• Sagging stock market. Stock prices, a key indicator of future growth, have been pointing south, weighed down by record oil prices, terrorism worries, election-related uncertainty and fears that business profit growth is slowing. Despite gains in the past two days, the benchmark Standard & Poor's 500 index is down more than 5% since early July, the biggest six-week drop since the buildup to the invasion of Iraq last year.

•Confidence rebound stalls. A steady rebound in consumer surveys has suddenly stopped, signaling that consumers are beginning to get worried again. Last week, for example, the ABC/Money magazine confidence survey reported an abrupt decline. "This hasn't been a good month for the administration," says Bill Hoagland, budget adviser to Senate Majority Leader Bill Frist.

• Poverty and health insurance. Census Bureau reports due out next week are likely to show more Americans living below the poverty line and going without health insurance in 2003, according to detailed analyses by three groups that closely track those numbers.

The predictions, from the conservative Heritage Foundation, the liberal Center on Budget and Policy Priorities and the centrist National Poverty Center at the University of Michigan, are based on government and private-sector reports on income, the cost of living, health insurance premiums and other figures.

The three think tanks expect the annual Census reports, scheduled for release Aug. 26, to show modest increases in the number of those below the poverty line and without health insurance in 2003. Americans in poverty would increase by at least 280,000 people to a total of at least 34.9 million, while the number of uninsured would post a similar gain to at least 43.8 million, according to the think tanks' forecasts. If the predictions are accurate, the numbers would probably add fuel to the debate over whether the administration's economic policies are skewed toward better-off Americans.

For now, the president, his advisers and many economists argue the recovery is a work in progress, job figures are volatile and that recent reports may be a blip.

"The current slowdown is temporary," says Donald Straszheim, an independent consultant and former chief economist at Merrill Lynch. "Eight similar job slowdowns in the postwar era ... subsequently evaporated."

Bush has made a subtle shift in the words he uses in campaign speeches to describe the economy. Instead of saying "we've turned a corner," which was part of his stump remarks before the Aug. 6 jobs report, Bush has reverted to the phrase he has used for much of the year: "The economy is strong and getting stronger."

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