Economic Jitters Cloud Prospects of Political Vows

WASHINGTON —  From its start, this year’s presidential campaign has basked in the warm glow of economic growth. Candidates have plied their proposals for growth-created budget surpluses. Voters have ridden the growth-fueled hiring binge and stock market boom. Everybody has agreed that the cure for whatever continues to ail the nation is still more growth.

But as the campaign heads down the homestretch, the good times are being caught in a nasty bind, a squeeze between the new high-tech economy and old manufacturing-and-service economy that could put the 10-year-old expansion at risk and leave the next president--whoever he is--operating on vastly different terrain than his predecessor.

The big economic question, according to analysts, is how serious the new problems could turn out to be. The big political one is whether they could affect the election or the new president’s early months in office.

Wednesday brought two new warning signs. The Dow Jones industrial average, which tracks the stock performance of many of the nation’s corporate stalwarts, closed below the 10,000 mark for the first time since March 14. Meanwhile, the nation’s core inflation rate climbed in September at its fastest pace in six months.

The Dow recovered much of its early loss, but the day’s decline captured the stark change that has come over the investment world. The inflation numbers too were hardly cataclysmic but still showed a worrisome upward creep.

Coming after years when most analysts could not find a single cloud on the economic horizon and following a presidential campaign almost entirely devoted to what Washington should do with its ever-growing good fortune, the recent string of setbacks has been deeply unsettling.

“The new economy has lost some of its luster,” said Mark M. Zandi, chief economist at Economy.com, a West Chester, Pa., consulting firm. “It’s certainly not going to shine as brightly for the next president as it did for the current one.”

The economy’s immediate problems: a slowdown in technology investment that’s shrinking many tech company sales and knocking the stuffing out of their stocks, and a budding energy crisis that has driven oil prices up nearly 50% in a year.

Analysts worry that this combination could end the virtuous cycle that has characterized the economy in the last decade, the self-reinforcing combination of rising investment underwriting new technology that improves productivity, or output per worker, that allows faster growth that helps fund more investment. They say that there already are signs of a return to the kind of economic double-binds that plagued the country in the 1970s and early 1980s.

“You can imagine scenarios at this point where the Goldilocks economy turns into a nightmare,” said David M. Jones, chief economist of Aubrey G. Lanston & Co. in New York.

Could such a nightmare influence the outcome of the election, now less than three weeks away?

If it does, the candidate likely to lose ground is Vice President Al Gore, who claims some of the credit for today’s prosperity.

Most pollsters and political commentators don’t expect that to happen unless the economy takes a shocking turn for the worse.

But others argued that the increasingly uncertain conditions that now make deep economic trouble conceivable have already taken their toll.

Republican pollster Bill McInturff said Wednesday that a just-completed survey of 800 likely voters found that last week’s triple whammy of tumbling stocks, new violence in the Middle East and a dramatic spike in oil prices barely registered with people. Asked the basic barometer question of whether the country is moving in the right direction or is on the wrong track, respondents split 50% right direction and 42% wrong track, or only slightly more pessimistically than they did in a similar poll two weeks ago.

But Democratic pollster Mark Mellman said recent signs of economic slowdown have already had an effect, especially on the prospects of Vice President Al Gore.

“People don’t look at the economy in absolute terms; they compare how they’re doing this year to last,” Mellman said. “There’s no question we’re growing slower. If the election was held last year, Al Gore would be doing a lot better.”

For a candidate who has sought to sell himself as a good economic steward, Mellman’s assessment has to be painful. So does that of other Democrats, who argue that if further turmoil like the recent stock drops work to either candidate’s advantage, it is Gore’s Republican rival, Texas Gov. George W. Bush.

“As a political matter, it’s very much in Gov. Bush’s interest for voters to feel unsettled with the status quo,” said Democratic pollster Geoff Garin.

Whether an economic slowdown affects the election, analysts said that it could well change the circumstances that the winner in November faces as he takes office. Indeed, the contrast could be particularly sharp this time around with a campaign devoted to talk of surplus and, at least potentially, a January inauguration day focused on gasoline and home heating oil shortages.

It could also be rather awkward, especially for Gore. Because even with the economic problems that analysts now see emerging, Washington is likely to collect an even bigger surplus next year than it forecast as recently as July. Congressional Budget Office analysts say that tax revenues are growing at an 11% pace over last year, substantially faster than the 9% rate the agency had predicted.

The prospect of both swelling tax coffers and energy shortages would almost certainly boost pressure for tax cuts even bigger than the vice president is now proposing.

“It could be quite a shock for people,” said Jones, the New York economist. “It would be quite a shock for whoever wins” too, he said.

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BUSH, GORE BACK ON TRAIL

Election rivals continue to press arguments and attacks made in Tuesday’s debate. A26

* DIZZY DAY ON WALL STREET

Stocks slid but regained most of the losses by day’s end. C1

* TECH EARNINGS

Blue-chip firms’ strong reports failed to lift the market. C1