White House Cea 3.1 Percent Best Forecast Ever

CEA Chairman Edward Lazear Discusses the Assistants'due south Latest Economic Forecast

Administration Economical Forecast - November 2006 (21.8K)

November 21, 2006

MS. PERINO: Hi, tin can everyone hear me? I hope so. This is Dana Perino, and I am the deputy press secretary at the White House. I accept Chairman Edward Lazear, Chairman of the White House Council of Economic Advisers. And he'due south going to provide an updated economic forecast, and so we'll take some questions before he has his next meeting. Then I'll turn information technology over to Dr. Lazear now.

CHAIRMAN LAZEAR: Thanks a lot. I appreciate you all joining us on this call. Today nosotros're releasing the administration'south economic forecast that will exist used for the President's fiscal yr 2008 budget.

These forecasts are adult semi-annually past the Council of Economical Advisers, the Treasury Section, and the Office of Management and Budget. And nosotros practise these together.

The updated forecast is similar to private sector forecasts, and it's likewise similar to the administration's past forecast. I should point out that this is a routine process. As I mentioned earlier, information technology's done twice a year, and it is done past a professional staff. These are career employees who tend to be long-term individuals, who have been in the government for a while, and they are not specific to whatsoever one or the other administration.

Let me give you some of the details that are associated with this detail forecast. We are projecting real GDP to abound at 3.i percent in 2006, and that's on a Q4, quarter four to quarter four basis. And nosotros're projecting ii.nine percent for 2007. These growth rates are similar to the U.S. historic average. And they are also similar to the ones that the market is giving us in terms of the blue chip forecast.

It is also true that these rates would make the United States the fastest growing major industrialized state in the globe. Our predictions are somewhat lower than the forecast in June, and that'due south primarily a reflection of the housing market, which as most of you know, has been a fleck slower than expected. Merely the good function of that is that the slowness has not affected other parts of the economy. Consumer spending is still strong. Retail spending is stiff. And we expect that what we've seen in this terminal quarter in terms of the refuse in Gross domestic product growth relative to the previous quarters is really a temporary phenomenon, and it is not a tendency. In fact, we're expecting things to pick up in the fourth quarter and as we go forward into 2007.

The labor market has been very stiff. Last month the unemployment charge per unit dropped to its lowest rate in over five years. It currently stands at 4.4 percent. This lower than expected unemployment charge per unit is practiced news. It means that the market is tight. And that's being reflected not only in increased jobs just as well in wage growth.

What we've seen over the past year is that real wages for non-supervisory and production workers have increased by 2.viii percentage. And that -- when we're talking about production workers, hourly wages of product workers, this excludes the xx percent of supervisory workers who tend to earn more. So when nosotros're talking about ii.8 percent, we're talking about mainstream American workers.

This, by the way, is consistent with our forecast going forward in terms of job growth, which is going to exist about 129,000 jobs per month. And the other thing I'll say is that the wage growth, which is particularly encouraging because it's something that nosotros've been predicting for a long fourth dimension given past increases in productivity, that wage growth has finally started to happen, and nosotros're -- every bit I said, we're very happy virtually it. It ways a significant increase in earning power for the typical American family.

Those numbers translate into about $1,600, a little more than $one,600 for the typical family of four. And merely to put that in perspective, I recently saw a report that the average family spends about $800 on their Christmas presents, then this means that they tin become their Christmas presents and so some extra also equally a result of the wage growth that nosotros've seen in the past twelvemonth.

Finally, at that place are other signs that the economy is strong. Obviously energy prices have fallen and fallen precipitously over the past couple of months. Consumer sentiment is positive. The stock market has been very potent. And the other thing that I await at is the unemployment insurance claims, the new claims that nosotros see coming out each calendar week. The reason we look at those is because they requite usa a sense of what's happening in the economy right now. And those accept been in the depression 300s actually throughout this year.

So once more, all the signs are for connected strong growth, and I look frontwards to your questions.

MS. PERINO: Can we go to questions, delight?

Q I'g guessing that'southward me from the FT. Mr. Lazear, I just wanted to ask yous about the wage trends. You've plainly -- you draw attention to the 2.viii percent real terms proceeds, so it's a significant one. But it'southward partly the result of the -- equally you say -- the precipitous decline in energy prices in the last few months.

What sort of real wage gains would y'all wait to encounter over the course of adjacent year?

CHAIRMAN LAZEAR: Hullo, proficient to talk with y'all. That's a good question. The trouble that we had in the past was not that nominal wages weren't growing; information technology was actually that real wages weren't growing considering prices were rising so rapidly. So nominal wage growth has actually been upward at about four percent since the commencement of the twelvemonth. But as you know, the big trouble in the first half of the twelvemonth was that the energy price rise was so meaning that it was really killing off any real increment in wages during the first one-half of the year.

With the decline in energy prices, we've seen a reversion. And that means that now real wages are upwards. So what that means, of grade, going forward is that as long as the nominal wage growth continues to hold at near iv pct, and inflation rates stay low, we are going to see real wage growth going forward. And I would forecast that we are going to see that for a couple of reasons.

Kickoff of all, I remember the inflation numbers accept been good. They've been strong numbers in terms of not only the headline numbers that touch on -- that are affected past energy prices, but also the cadre numbers expect good, also, both at the consumer and producer level. And there's no indication at all that in that location'due south any failure to have increased demands in the labor market. That seems to be quite strong, and and so I would conceptualize that that volition keep nominal wage growth loftier.

Q Then will you lot exist looking for a like level of hourly existent wage growth, 2.viii per centum?

CHAIRMAN LAZEAR: I don't know that I'd desire to give you an exact number, but I would conceptualize that we volition have positive and strongly positive wage growth, real wage growth into next twelvemonth, through next year.

Q Thanks.

CHAIRMAN LAZEAR: Thanks.

Q Yes, I'm from CCH. You were speaking a moment ago about existent wage growth looking even ameliorate next twelvemonth. And for this year for the typical family of four, y'all gave an example of an increment. But what I'm wondering about is for the minimum wage earner. I'm certain you saw a Wall Street Periodical article today saying the income gap is actually growing, and that the CPI has grown like 25 percentage since the minimum wage was final set at $5.xv an hour, nine years ago. So I'm only wondering what your annotate is for the prospects for increasing the minimum wage? As you lot know, there have been some calls for that in Congress.

CHAIRMAN LAZEAR: Okay, thanks very much. Every bit y'all may accept heard the President say on this issue, he is not opposed to any increase in the minimum wage that volition non cost jobs and non affect economic growth. So, yes, of course, we take heard calls by Congress for increases in the minimum wage, and my sense is that this is not necessarily inconsistent with the President's view on this, and that there is some room for usa to work on something together going forwards.

Q You wouldn't back up a clean bill that doesn't have anything in it that would requite breaks to pocket-sized business?

CHAIRMAN LAZEAR: Well, that'south for the President to decide. Evidently, we need to make certain that small business concern is protected considering they are an important engine of economic growth. Nosotros also want to make sure that big business also has the appropriate incentive. It's not specific to modest business. We're worried about keeping the economy growing at its rapid pace, and making sure that standard of living rises for all workers, including minimum wage workers. And all of those are of import components. And then I wouldn't desire to say what the President is willing nor unwilling to do at this indicate. But, as I said, he has not been negative on this outcome, and I call back this is an expanse where we can work together.

Q Could I also ask you something related to PAYGO and revenue offsets? Because Congress -- at least the Democrats -- are looking at re-instituting or re-proposing PAYGO, only of grade information technology would be a little differently defined, than you, in that it would propose revenue offsets by both spending cuts and tax increases. Would the administration be willing to support that blazon of Pay Go?

CHAIRMAN LAZEAR: Well, we oasis't seen a specific proposal at this betoken, and manifestly the President volition have to consider anything that Congress passes on to him or decides to discuss with him. Only again, we'd take to come across the specifics earlier we could comment on what we'd be willing to recall almost.

Q I know. But your definition has only been for spending cuts to make upward for the offsets, so regardless of looking at their proposal, what is your view of a PAYGO that'southward defined as offsetting through spending cuts every bit well as revenue enhancement increase?

CHAIRMAN LAZEAR: Well, again, as far as I know, there are no specific proposals on the tabular array, so I don't want to speculate on what a proposal might be and then comment on it. I call up nosotros'd rather expect and see what the proposal is and then comment on it at the appropriate time.

Q Thank you.

CHAIRMAN LAZEAR: Give thanks y'all.

Q Thanks. I was wondering if you could talk more well-nigh your outlook for the housing market. Practise you lot wait at that place to be -- information technology to bottom in 2007? And is the worst behind united states in your stance? And what are the risks, in your listen, of a recession?

CHAIRMAN LAZEAR: The housing market, as you know, it has been hit, I recall, harder than near of usa had expected. Most forecasters were expecting a slower reject. What that probably signals is that the future volition non exist every bit negative every bit information technology otherwise would have been because we've probably had much of the decline that we're expecting to have.

That said, in that location are -- you know, there are a number of indications that things are notwithstanding not every bit strong every bit they were last year in the housing marketplace. You know, do I see that equally a problem for the economy? Patently, we don't like to encounter whatsoever i industry become hit and hitting difficult. That affects people's jobs. The skilful side of that, of form, has been that non-residential construction has taken upward much of the slack in that industry. And so we haven't seen construction jobs fall off dramatically as a result of the housing decline.

And I would say that every bit nosotros go forward what we'd be concerned near is employment in that industry and looking to see how it transmits to the residue of the economy. I don't believe that it is going to transmit to the rest of the economy. There's been no indication that information technology has. Other sectors remain stiff. And that would be the primary danger that I would see from the housing market, whether it's bottomed out now or whether it will take another quarter or then to bottom out I think is still upwards for grabs, and I wouldn't want to speculate on information technology.

Just I would exist willing to tell y'all that I don't remember that this signifies any kind of weakness throughout the economy, in fact the reverse. The task numbers I retrieve are probably the all-time indicator that the economy is very strong and in actually good shape.

Q And the risk of recession, do you lot accept a --

CHAIRMAN LAZEAR: Well, again the economic system is growing. I don't fifty-fifty retrieve we should be talking about going in the other management at this bespeak. The economic system is growing. The economic system is strong. The labor market is stiff. Yous know, you see -- when you encounter jobs added at this rate, when you see unemployment at 4.4 percent, information technology's pretty hard to be thinking almost things going in the other direction. I mean obviously at some time in the future things can change, but right now, as long as we go on our policies consequent with economic growth, which ways keep taxes depression, make sure that nosotros don't put impediments, stiff impediments to trade and business concern in there, I think nosotros're on track for a strong economy.

Q Cheers, sir.

CHAIRMAN LAZEAR: Thank you lot.

Q Yeah, Mr. Lazear, the inflation forecast to two.half dozen pct in '07 from 2.3 this year, will that give the Fed any heartburn? And too what does that increase reflect?

CHAIRMAN LAZEAR: I would say that the inflation -- the alter in the inflation, equally I come across it, is not peculiarly significant. We don't usually look that nosotros can get those numbers down within .ii of a per centum bespeak.

I would say this number -- I translate this number every bit essentially existence consequent and almost equivalent to where we were final fourth dimension, so I wouldn't want to read much into information technology. I certainly wouldn't desire to give my colleagues at the Fed heartburn, specially my predecessors and some of my friends over there. So I don't think that we accept to exist particularly worried about information technology at this point.

That said, evidently, it'south the Fed's job to go on runway of inflation and make certain that everything is going well. Again, I think the thing I would point to are the numbers that we saw most recently with the producer cost index, and consumer toll index numbers both beingness very adept. I think the Fed remarked on that, as well. So again, going forrard, I remember things look pretty practiced. I'm actually encouraged. The energy prize situation seems to take stabilized, and we look to be in good shape on toll front.

Q Thank y'all.

CHAIRMAN LAZEAR: Thank you.

Q Really, both of my questions about the housing market and aggrandizement were answered, so I'll actually give you another question. On the jobs front, you pretty much see the unemployment rate -- you see a slight comeback in the unemployment rate, fifty-fifty with the economy -- even with economical growth slowing a bit. Why is that? Where do yous see growth coming from, if you can elaborate on the improvement that you're expecting on jobs at the same time that economic growth from your previous forecasts take been a trivial bit lower?

CHAIRMAN LAZEAR: Well, the unemployment rate beingness at 4.4 percent right now was not in our forecast, and we weren't expecting a number quite that low. Plainly, we're pleased to have a number that low, merely it means that going forrad, it will affect the forecast of unemployment next year, as well.

Now, nosotros're expecting -- we do expect that there may be some move back toward the celebrated average, just we're certainly not troubled by that considering we're yet talking near very low unemployment rates. Even if things were to go back to where they were, you'd yet be talking about 4.half dozen percentage, which we yet think of as full employment or even better than full employment by some economists' definitions.

The other thing I would point out is the chore growth at 130,000 or and then is a very practiced number, very positive number, particularly when you're at a position where you're basically at full employment. So over again, I call up that this is a very tight labor market. It's being reflected non only in terms of jobs. It's being reflected in layoff rates, which are at an best low since we've been collecting the data. It's being reflected in wage growth. And so all of this seems to signify a very strong and tight labor market.

Q Oh, hi, thanks for taking my phone call. The Democrats obviously have a lot of things that they want to do, and I know yous talked a little bit about PAYGO. Some folks think that some of their proposals are going to require a tax increase, and when you're looking at sort of the long-term structural deficits, there'south plainly a lot of costs down the road. Bob Rubin recently said that if you lot raise taxes at present information technology would accept cypher impact on the economy. And I wonder, given how strong you say the economic system is, whether you lot call back it could handle any kind of a tax increase?

CHAIRMAN LAZEAR: The President has come out very strongly opposed to whatever taxation increase considering he thinks it will damage the economic system. That's consistent with my view as well. I remember a tax increase at this point is both unnecessary and undesirable. I don't think it would be good for our long-term fiscal situation. In fact, the long-term fiscal state of affairs is driven non so much by the tax side -- right now we're at a tax level that's higher than our historic average in terms of a percentage of GDP that nosotros're taxing, so we're not under-taxing ourselves right now.

The large problem as we go forward is the growth in entitlement spending, and I call up everybody understands that that'south the effect; everybody recognizes that that's the large problem and one that needs to be addressed.

The President has, I retrieve, been courageous in putting those problems out there, taking a stand up that others have been unwilling to take, and that's something that we've simply got to bargain with, and that'southward going to be the way to take care of these problems.

So I don't remember the revenue enhancement side is the right manner to get. I think it'southward very risky. We don't want to endanger the kind of economic growth that we've had over the past couple of years, particularly in the labor market place again, which to my mind is the most of import attribute of the economy. When we look at what really affects the typical American, nosotros're worried near jobs and nosotros're worried about wages, and those are both on the correct track right at present, and I certainly wouldn't risk information technology by having a tax increase.

Q All right. Give thanks you.

CHAIRMAN LAZEAR: Thanks.

MS. PERINO: We have fourth dimension for one more question.

Q Hi, yep. Thanks for taking my question. I noticed at the beginning of your remarks yous said the downturn that the economy took -- the striking the economy took from housing y'all expected to be temporary and rebound in the electric current quarter. Later, when y'all were asked more specifically almost housing, you said you weren't certain whether the bottom was at present or could be -- we could be reaching it later. So I'm wondering -- I know you don't do quarterly forecasts, only are yous saying basically you do the think the fourth quarter is going to be stronger than what nosotros saw in the 3rd?

CHAIRMAN LAZEAR: I'yard distressing. I may take misspoken, but I don't think I did. I don't call up that I said that housing specifically was going to be college in the fourth quarter than information technology is right now. Nosotros don't result a specific forecast on that. What I said was that I thought the level of Gross domestic product that we had in the tertiary quarter was abnormally low considering of housing. But that doesn't mean that housing would have to rebound in order for us to have a amend 4th quarter. The quaternary quarter could be good because other factors offset it or because housing comes back. Either of those would be sufficient to brand the fourth quarter better than the tertiary quarter.

What I was trying to bespeak out was that the fourth quarter is expected to exist better because nosotros call up that the third quarter was a temporary aberration, that it wasn't a reflection of a trend, simply rather was something that was a short-term departure from what we think of as a very positive growth path. And so hopefully that clarifies information technology.

Q Okay.

CHAIRMAN LAZEAR: Thank you very much.

MS. PERINO: Thank you anybody. We'll release a transcript as soon as information technology's available.

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Source: https://georgewbush-whitehouse.archives.gov/cea/lazear20061121.html

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