Between a rocky economy and a hard recession

'It's the Economy, Stupid' helped Bill Clinton win the presidency, writes Rupert Cornwell from Washington. But those heady days have gone
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If there is one thing worse than the ''L-word'' for a Democratic President seeking a second term, it's the ''R-word''. Republicans will seek to hang the albatross of liberalism around President Bill Clinton's neck. But another and greater threat has broken into view - a possible recession at the moment his re-election campaign begins in earnest.

Since the start of 1995, US growth has been cooling down after two vibrant years, the inevitable response to seven successive rate increases by the Federal Reserve over the past 16 months. But a clutch of statistics at the weekend suggests the economic "soft landing" which the central bank had been hoping to engineer will be at best bumpy, at worst a full- scale crash.

A net loss of 101,000 jobs in May was the worst monthly performance since April 1991, the official end of the last recession, whose protracted after- taste helped Mr Clinton defeat George Bush the following year. More ominous still, the Commerce Department's closely watched measure of leading indicators dropped in April for the third successive month, the traditional measure of looming recession. Every one of the nine recessions since 1945 has been predicted by the index.

If so, the timing for Democrats could not be worse. Thus far the business cycle has been kind, handing Mr Clinton a solid recovery which had become visible too late to save Mr Bush. But after barrelling along at over 4 per cent since late 1993, the economy may be about to die on Mr Clinton.

As a rule, sitting presidents are not re-elected if the economy is faltering, and Mr Clinton, for whom the economy has been a steady bright spot in a rocky presidency, looks especially vulnerable. Three years ago, the famous slogan of his Little Rock war-room, "It's the Economy, Stupid," helped him win. Now the phrase looks like an invitation to his challengers.

Nor is there much that Mr Clinton can do about it himself. Inevitably, economists and the White House are looking for salvation to the Federal Reserve and its chairman, Alan Greenspan, the master of US interest-rate policy. Every sign is that the central bank's next move on interest rates will be downward.

Mr Greenspan may not relish the prospect: a cut in rates could undermine the dollar, which hovers uneasily just above its recent record lows against the mark and the yen. Thus far the dollar's plight has left US markets unmoved, as stocks and bonds have continued to soar. But if that changes, a big tumble on Wall Street would only increase the likelihood of a recession.