Bush Aide Sees Slump Lasting Several Months

In the most pessimistic assessment made by any senior White House official in recent months, President Bush’s chief economic adviser said Tuesday that he expects the nation’s economy to continue to slump for several more months.

In a speech to federal agriculture officials, Michael J. Boskin, chairman of the White House Council of Economic Advisers, described an economy that is perched precariously between recovery and recession.

Boskin appeared to choose his words carefully, apparently mindful of the potential political fallout from his remarks. While hesitating to characterize current conditions as recessionary, he made it clear that the economy is essentially flat and is likely to remain so until next spring.

“I would say a simple description of the economy is . . . (that) the recovery has turned quite a bit more sluggish,” Boskin said.

Despite the bleak outlook, Boskin and other Administration officials said that Bush still plans to wait until his State of the Union address in late January to outline an economic growth package. The initiative is widely expected to include a capital gains tax cut for businesses and affluent individuals, as well as some tax breaks for the middle class.

Reflecting Boskin’s remarks, Bush sounded similarly downbeat about the economy as he toured the South on Tuesday. “We can’t sit back and hope for the best,” the President acknowledged. “We all know that too many people are having a tough time right now.”

In comments designed to show that he is not isolated from the country’s economic problems, Bush told workers at a Tropicana juice factory in Bradenton, Fla., that he reads some of the “hardship stories” in letters sent to the White House.

“I do understand,” he said. “And I am concerned. And I really want to help. And I know that for a person out of a job, for that person, the unemployment rate is a hurtful 100%.”

The remarks by Boskin and Bush call into question earlier Administration assertions that the nation already has begun recovering from the recession that began in late 1990. The new, more pessimistic assessments could increase pressure on the White House and Congress to propose tax cuts or other measures designed to stimulate the economy.

Boskin acknowledged that the Administration is in the process of downgrading its official economic forecast for the fourth quarter of 1991 and the first quarter of 1992 in response to recent signals that conditions are improving much more slowly than expected.

“There are those who are anxious about the economy and I share that concern,” Boskin said. “The overall economy has come only a very small way off the trough it experienced last spring, and I believe the economy will remain sluggish over the next few months.”

Another Administration official noted that the White House now believes there is a chance that the economy may contract again, threatening to bring on a “double-dip” recession in which an initial period of recovery is followed by a second severe slump.

Democratic leaders, now convinced that the economy will be the dominant issue in the 1992 presidential campaign, chided the White House for taking so long to admit that the economy is still in bad shape.

“Reality has finally penetrated the last bastion of denial in the country, the White House,” Senate Majority Leader George J. Mitchell (D-Me.) said in an interview after learning of Boskin’s assessment. “This is just a belated admission of what everyone in the country already knew to be the case. Their (earlier) statements had lost all credibility.”

In a speech in Meridian, Miss., Tuesday, Bush sounded a conciliatory note toward the Democrats, offering to work with congressional leaders in January to forge a bipartisan growth package designed to combat the lingering downturn.

Bush said that Democrats and Republicans should “come together now, as a country . . . and set aside briefly--and it can only be briefly because of the year, ‘92--set aside election-year politics at least long enough to enact a common sense set of economic reforms.”

Meanwhile, Boskin once again sounded the call for lower interest rates--a demand the White House has made repeatedly to the Federal Reserve Board when the Administration was unable to use tax and budget policy to help the slumping economy.

Boskin’s grim new tone appeared in part to be a response to outside critics who have charged that he has not been candid enough in telling the President just how bad the economic slump has really become. Although Boskin has insisted that his forecasts have been more realistic than those issued by the White House under former President Ronald Reagan, he also has been concerned about the growing public perception that Bush has been ill-served by overly optimistic economic advisers.

Boskin conceded that he has been surprised that the recovery that seemed on the way last spring has not fully materialized. He said that a continuing credit crunch, worsening consumer confidence and rising state and local taxes and budget cuts were responsible for delaying the recovery far longer than he had originally expected. He also acknowledged that there has been “surprisingly little response” by consumers and businesses to the sharp decline in interest rates over the last year. “Consumers are very nervous,” Boskin said.

In a related development, the government’s main economic forecasting measure rose a scant 0.1% in October, providing more evidence that the economy has stalled. Economists said that the latest index of leading indicators, designed to predict upcoming activity, confirmed that the economy may be poised for another decline. In fact, the government’s separate index of coincident indicators--selected to reflect current conditions--slumped 0.2% in October.

Staff writer Oswald Johnston contributed to this story.