Before the 1992 presidential election, I visited the town of Royersford in eastern Pennsylvania to find out why so many voters in the United States were turning against President George Bush senior, despite his enormous popularity after winning Gulf War 1.

The reasons boiled down to this. After a brief recession, people in the town were competing for fewer jobs at less pay. Massive corporate debt piled up during the 1980s had resulted in companies like Royersford's famous glass factory being taken over, cannabalised for its assets and shut down.

It was the realisation that Americans like the inhabitants of Royersford were deeply unhappy about falling living standards that prompted the slogan on the wall of the Clinton campaign headquarters in Little Rock in 1992: "It's the economy stupid!" It reminded everyone of the main issues facing electors as the euphoria of Desert Storm died away, jobs and hope for the future.

Revelling in post-war approval ratings that peaked at 91 per cent, Mr Bush senior neglected to show sufficient concern for those unable to live out the American dream. He appeared disengaged, nailing his coffin down with such remarks as "I don't think I get it" in reply to a black woman who asked in a pre-election debate how the national debt affected him personally.

Now that Gulf War II has resulted in another great US victory, President George W. Bush is determined not to make the same mistake as his father. As soon as the statue of Saddam Hussein in central Baghdad was pulled down last week, Mr Bush went on the offensive to convert the momentum from war into energy for his domestic campaign, and to prove to Americans that he was totally focused on their economic concerns.

"Too many of our fellow Americans are looking for a job and it bothers me," he told workers at a Boeing plant in St Louis on Wednesday. He was reducing taxes, he said, "to give you more of your money in your pocket". No matter how popular he is today - and his approval rating is above 70 per cent - by November 2004 Mr Bush will face judgment on his economic performance, just like his father. And, if he looks around a bleak economic landscape, he can see Royersford writ large in cities like New York.

The collapse of the tech bubble and the aftermath of 9/11 have left New York on the ropes. The media and communications sector has been cut back by 15 per cent, Wall Street by 18 per cent, advertising by 25 per cent and telecommunications by 27 per cent. The once mighty computer industry in New York has shed 41 per cent of jobs, leaving 21,000 computer industry professionals looking for work. Executives who earned $300,000 (€275,000) a year are taking sales jobs in department stores.

Nationwide jobs are harder to find than at any time since 1984, with laid-off people needing an average of 4.2 months to find work after the loss of more than two million jobs since the end of 2000. Most of the 50 states are in fiscal crisis because of the economic stagnation. While the Bush administration cuts taxes, states everywhere are being forced to raise them, directly or on sales or tolls, in a desperate attempt to maintain basic services.

This week for example New York Republican Mayor Michael Bloomberg announced a budget that will mean firing 4,500 city workers, the most since 1991, the closure of a dozen city clinics and cuts in services from fire-fighting to garbage collection. And he said he would have to introduce a "devastating" second budget if his plan to raise taxes on commuters is blocked.

The states' woes are so bad that they may offset any short-term stimulus from Mr Bush's tax-cutting and impede a national recovery. In any event, his big tax cut has been "decapitated" by rebels in his own party combining with Democrats as too great a luxury, with its windfalls for the rich in a time of expensive war.

The Republican-run Congress is so worried about the deficit, which is projected to reach $385 billion by 2004. that it refused to pass the $726 billion tax-cut he wanted, forcing Mr Bush to lower his target on Tuesday to $550 million and the final figure is more likely to be $350 billion.

However, Mr Bush has several things going for him that his father did not have. The success of the war, assuming things do not go badly wrong in Iraq, is a greater electoral asset in seeking support from a more patriotic-minded post 9/11 electorate than Desert Storm, as it is tied into the larger story of the war on terrorism. He also has more time to see things turn around before election day.

There are signs that as the war winds down, the economy may start winding up and pent-up business demand will be released. Oil prices are rapidly coming down and the market is struggling back up. Now that pre-war fears have not been realised, such as chemical attacks in Iraq or terrorist attacks in the US, consumers and executives alike may be more confident about opening their cheque books. Jobs may have been cut as far as possible, though the Business Roundtable last week said more employers are planning pay-offs than new hiring.

Instead of a double dip, US economists today say they expect growth to rise to 3-4 per cent later this year. Alan Greenspan no longer moves markets with his exuberance or lack of it, but the Federal Reserve chairman is upbeat after a long mournful period: he forecast last week that the US economy was more prone to long-term growth than stagnation. Mr Greenspan has kept interest rates at their lowest since the Kennedy era, allowing homeowners to raise case without raising their monthly repayments.

But the lagging stock market and the unemployment rate are unlikely to pick up dramatically enough to make for a pre-election boom. And the tax cuts, according to the Congressional Budget Office, will have a negligible effect on growth, despite White House claims.

But perception is what counts. Paradoxically if he doesn't get his tax cuts, Mr Bush can blame the opposition for blocking a recovery. Presidents in fact can rarely do much about the economy. What is important in White House domestic strategy is that voters are made to see that it is not all Mr Bush's fault, that he is trying, and that he cares.