Oct. 9 (Bloomberg) -- Republicans heading into the 2008 election are burdened by an unpopular war, President George W. Bush's low approval ratings and a splintering base. The outlook could hardly be worse -- unless there's a recession.

As the deepest housing slump in 16 years and higher credit costs play out against a backdrop of a steep rise in oil prices, economists including former Federal Reserve Chairman Alan Greenspan and ex-Treasury Secretary Lawrence Summers are raising recession warnings.

Just a lingering slowdown would undercut one of the few topics Republican politicians can still boast about to voters -- an almost six-year economic expansion. That in turn might compound Republicans' electoral woes, turning a difficult election into a disastrous one.

The party should be ``extremely'' concerned about the possibility of a recession, said Tony Fabrizio, a pollster for Republican candidates. While ``a lot of Republicans like to believe that if we could just take the war off the table, we'd be OK,'' that isn't true, he said.

When the economy falters in an election year, it almost always hurts the party that holds the White House. With Republicans in the White House, Democrats racked up big congressional gains in 1958, just after a recession, and in 1982, just as one was ending. In presidential contests, Republican challenger Ronald Reagan in 1980 and Democratic challenger Bill Clinton in 1992 both benefited from recession backlashes.

A Sigh of Relief

Republican politicians heaved a sigh of relief last week when the Labor Department reported that payrolls rose by 110,000 in September, and that revised August figures showed that what had been initially deemed a decline was actually another increase.

``That's one economic statistic that most people understand,'' said David Carney, a Republican consultant who was political director for President George H.W. Bush.

Edward Lazear, the chairman of the president's Council of Economic Advisers, said recession fears are overblown. ``We do calls to people in industry on a periodic basis,'' he said. ``Everybody is telling us that business is good. They have a lot of cash; profits are still coming in; investment funds are available. So we're getting the sense that things are still strong.''

At the same time, many economists warn that the expansion is under stress and the threat of a recession or sluggish growth next year is very real. The economy slowed to a 2.4 percent annual growth pace in the third quarter, down from 3.8 percent in the second quarter, according to a September Bloomberg survey of 68 economists. Growth will fall further, to a 2.2 percent rate in the fourth quarter, according to the survey.

Greenspan's Caution

Americans ``ought to be cautious'' about the economy, Greenspan said in a Cable News Network interview aired on Oct. 7. He repeated his prediction that odds of a slump in the next six to nine months are between a third and a half.

And signs of distress are mounting. Manufacturing in September grew at the slowest pace in six months. Sales of existing homes in August fell to the lowest level in five years.

With so many forces weighing on the economy, the risk of a slump is considerable, said Martin Feldstein, president of the National Bureau of Economic Research, the arbiter of U.S. business cycles.

``If they all happen with the force that I'm afraid to say it looks like is coming along, it could easily push us into a serious downturn,'' Feldstein said Oct. 4.

Assuring Prosperity

Even before the housing swoon, Americans felt Democrats would be superior to Republicans at assuring prosperity. In a Sept. 14-16 Gallup poll, 54 percent said Democrats would do a better job, and 34 percent favored Republicans.

To ease financial-market turmoil, the Fed on Sept. 18 lowered its benchmark interest rate to 4.75 percent. Should the Fed's actions fail and the economy contract sharply, Democrats would pounce.

``We need the administration to spend more time putting the conditions in place for good-paying job creation and shoring up our battered housing market, and less time hyping lackluster news and downplaying real threats to our economy,'' New York Senator Charles Schumer said in a statement after the Oct. 5 jobs report.

Democrats would use a downturn to escalate attacks on Republican tax policy, saying cuts were skewed toward the rich when middle-class relief would have provided more stimulus. The Republicans' regulatory stance toward hedge funds and mortgage lenders would also be fair game after the subprime-mortgage crisis.

Relishing a Debate

Republicans say they would relish a debate on tax cuts. A slump ``would not be a good time for Democrats to talk about raising taxes,'' said Douglas Holtz-Eakin, economic adviser to Republican presidential candidate John McCain.

Lawrence Lindsey, a former Bush economic adviser, said, ``As the economy slows down, and I think it is and will, the real question is going to be: We're going to have change no matter what, and who is offering the better change?'' Lindsey is advising former Tennessee Senator Fred Thompson's presidential campaign.

Still, many Republicans say an election-year economic slowdown would create more baggage for their office-seekers. ``The incumbent party tends to get blamed for whatever happens on its watch,'' said John Mueller, former economic counsel to the House Republican Conference.

It may not take a recession to damage Republicans' prospects, said Mueller. ``If we're slowing down right now, voters will have about a year to think about it before the next election,'' he said.

To contact the reporter on this story: Catherine Dodge in Washington, at Cdodge1@bloomberg.net

Last Updated: October 9, 2007 00:08 EDT