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Skriven 2004-12-17 23:32:58 av Whitehouse Press (1:3634/12.0)
Ärende: Press Release (0412178) for Fri, 2004 Dec 17
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Press Briefing by Telephone Conference Call with Dr. Greg Mankiw, Chairman
of the Council of Economic Advisors
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For Immediate Release
Office of the Press Secretary
December 17, 2004

Press Briefing by Telephone Conference Call with Dr. Greg Mankiw, Chairman
of the Council of Economic Advisors



12:10 P.M. EST

MS. BUCHAN: Hi, everybody. It's Claire Buchan. I just wanted to welcome you
all. This is on the record with Dr. Greg Mankiw, who is Chairman of the
Council of Economic Advisers, who is going to highlight for you the
administration's forecast for 2005, and then will be happy to take some
questions.

Greg.

DR. MANKIW: Thank you very much. This is Greg Mankiw. I hope all of you
have in front of you the press release that includes that table of the new
administration forecast. What you can see in the table is that economy is
in very solid shape. When I was a professor of economics, I told my
students to keep an eye on three indicators of economic performance -- GDP,
inflation, and the unemployment rate. And by all three measures, the
economy looks like it's very sound. GDP growth in our forecast for 2005 is
at 3.5 percent from the fourth quarter to the fourth quarter of 2005.
Inflation is running at about 2 percent, and the unemployment rate is
expected to be 5.3, which is slightly under what it has been most recently
-- 5.3 is the average for 2005.

The forecast, if you compare it to other forecasts, is very similar to a
consensus of private sector forecasters. When you talk to private
forecasters, you'll get a range of different forecasts. And if you look at
the range, you'll see we're pretty much in the middle of that bell curve.
It's also very similar, I should note, to our mid-session review forecast
that came out six months. So there's not any significant changes in how we
see the economy than how we saw it last time we took a snapshot and looked
ahead for the budget process.

Finally, let me just sort of note as to why we do this exercise. The
administration comes out with a forecast twice a year. It's part of the
budget process, and the reason we would -- we do the forecast so that the
numbers can then go over to OMB and Treasury, and they can generate revenue
and spending numbers in order to take a snapshot of the budget. And the
macroeconomic forecast is an input into that process.

The most important macroeconomic data for that process is probably GDP
growth, because GDP, that determines revenues, and therefore the budget
projections. And the GDP growth that we see is for, like I said, 3.5
percent in 2005, and for 3.4 percent in 2006.

And with that introduction, I will take some questions.

Q Hello, there. Thanks for doing this. I know that you need to get a
certain amount of growth just to keep up with growth in the labor force.
You're projecting 175,000 jobs per month over 2005. How much above the
growth of the population is that?

DR. MANKIW: Well, you're right that part of the forecast you see keeping up
with growth in the labor force. I don't have an exact number for you on
that, but since the unemployment rate is declining in the forecast, that
the 175,000 per month is more than enough to keep up with growth in the
labor force as reflected in the fact the unemployment rate is expected to
decline to 5.3 percent in 2005, 5.2 percent in 2006, and then down to 5.1
percent in 2007. So we're expecting employment growth sufficiently above
population growth in order -- labor force growth in order to get the
unemployment rate down gradually over time.

Q Don't you need, what, about 3.25 to stay up with the growth in the labor
force?

DR. MANKIW: 3.25 --

Q GDP.

DR. MANKIW: Oh, real GDP. Well, it depends -- that depends on the
productivity assumptions, as well. And you can see we have real GDP growing
at about 3.5. So, again, that's a little more than potential, and that's
why we have the unemployment rate declining. Growth in real GDP above
potential is another reflection of declining unemployment.

Q Just one last thing for you, if I may, on this point. Obviously, the job
growth has not been as much as you would have hoped because of productivity
and any a number of other things. What is it that is keeping job growth
from being any higher than you're projecting it?

DR. MANKIW: Well, the link between growth in GDP and growth in the number
of jobs as measured by the payroll survey is largely productivity, as you
pointed out. The productivity growth has been exceptionally strong the past
few years. That's, of course, good news for the economy in the long run,
because it's high productivity that leads to higher real wages and higher
living standards. But it has meant that we've needed even higher real wage
growth to get jobs growing again. And what we've done in this forecast is
take into account the new productivity assumptions. But the economy has
created 2 million jobs in the past year, and is expected to continue to
create jobs at a healthy clip.

Q Greg, I was wondering if you have -- can give us an idea of what this
growth means to the budget deficit?

DR. MANKIW: The budget -- this is the beginning of the process. We always
sort of put the administration forecasts to bed in early December, that's
always been the case. This, then, gets shipped over to OMB and Treasury.
And they're in the process of using it to come out with budget numbers. But
they don't -- we don't have budget numbers yet, and that's something that
OMB will release as part of the budget.

What I will say, though, is that this forecast is not materially different
from the mid-session review forecast. So from a macro perspective, there's
not going to be major changes in the budget coming from the forecast,
because that budget forecast has not changed significantly in the past six
months.

Q I want to talk about the Social Security problem right now. You guys say
that you want the private sector to be very much a part of this. How are
you going to go about educating the public, especially minorities, on what
to do with, what you're recommending, that they take out of their, what,
checks or what they would put into Social Security? Also, what's the
structure for that? Would they have something like, A, they want it to go
into growth funds, B, they want it to go here or go there? Is there going
to be any structure to that?

MS. BUCHAN: This is Claire Buchan. Let me just answer your question,
because this is really a call on the economic forecast for 2005. I'll just
say that the administration does plan, and the President has already begun
an education campaign with regard to Social Security, and we expect that
we'll reach all aspects of the American community. The President believes
this is an important priority going forward, and you can expect that we'll
have a very active education to minorities and all sectors of the American
community.

And with that, we'll take the next question. If you have separate questions
on this, you can call back, but this is really about the economic forecast.

Q Okay, this is on economics. What I want to ask, how does outsourcing fit
into the forecast, with jobs going overseas?

DR. MANKIW: Well, when we put the forecast together we look at lots of
factors, including trade patterns, oil prices, growth among our trading
partners, which, in turn, affects demand for our exports. So the forecast
is really a team effort from the Office of Management and Budget, Treasury,
and the CEA, but they look at all facets of the economy and try to figure
out how all the different trends going on in the economy are going to
produce macroeconomic outcomes.

Q I wanted to know if the forecast included as a factor the transition
costs for Social Security retirement accounts?

DR. MANKIW: Well, the forecast is a short-term forecast; it goes out to
2010. The Social Security policies that the President is developing and
will announce are much longer-term. They're really only -- it's a
generational -- and that's why when the Social Security Administration does
their projections, they go out 75 years, and many people go out even
farther, really, sometimes forever, in order to see what these long-term
generational issues comprise. That issue will not -- it's not going to have
a material effect on what the macro-economy is going to do over the next
few years.

Q Well, I guess, as a follow-up, though, in the report that came out back
in February, your economic report, you mention with respect to Social
Security that reforms would lead to larger budget deficits in the
near-term, although you anticipate small adjustments in the long-term. So
in the short-term then, what is your projection of budget deficits
attributable to Social Security reform?

DR. MANKIW: I don't have a number for you because the President has not
announced a specific plan, which, of course, you need in order to come up
with a specific number. But the President has reiterated his commitment to
reduce the budget deficit in half over five years, and the forecast that we
have is consistent with that commitment.

Q Well, in terms of that goal as far as meeting and cutting the deficit in
half over five years, does that include any costs, whatsoever, in this
proposal? Or is that going to be something that you're going to do
off-budget?

DR. MANKIW: That's really a question for the budget, not for the economic
forecast. That's something that really should be -- wait until the
President's budget comes out.

Q In the forecast for overall inflation, you show it dropping rather
dramatically in '05, from a 3.4 rate to 2.0. Is that an assumption that oil
prices, energy costs won't be as high? And what are you assuming for oil
prices next year?

DR. MANKIW: We don't make a public prediction about oil prices. I believe
the Energy Information Agency does that, but we don't do that, the
administration. But you're right that the drop in the CPI inflation from
3.4 down to 2.0 is -- which is a bigger drop than you see in the GDP
deflator index -- just look at a table in front of you -- is largely a
reflection of the fact that oil prices -- oil price inflation is going to
come down, and has already come down. We've already seen oil prices well
off their highs, and that will be reflected in the Consumer Price Index, as
well.

Q Has there been any change in your long-term productivity growth forecast?

DR. MANKIW: Very little. Our long-term forecasts are pretty much the same.
And if you look at the out-years you sort of see that -- so the growth,
3.1, is pretty much the same as you saw in the last forecast.

Q Because if you have lower employment growth this year than you had
previously seen, that implies higher productivity growth than you
previously would have seen.

DR. MANKIW: I'm sorry, are you talking about in the near-term -- I was
talking about the long-term.

Q I guess I'm trying to see whether those near-term assumptions --

DR. MANKIW: That's right, our near-term productivity assumption has gone up
a little bit, which, in turn, was reflected in the employment forecast.

Q Actually, I had a question about inflation, but I guess Marty already
asked it. Can you just explain, I guess, a little bit about why -- in very
simple terms -- your job growth predictions are the way they are?

DR. MANKIW: The job growth predictions are part of a broader forecast that
includes GDP and productivity. And those sort of three pieces go together
-- what's happening to the overall economy is measured by GDP, what's
happening to output per hour of work, and what's happening to the number of
people working.

And one of the patterns we've seen over the past few years has been the
high productivity growth. And that's one of the things that's very hard to
forecast going forward. But what we do expect is productivity growth to
remain strong, perhaps not as strong as we've seen over the past few years,
but strong productivity growth, and employment growth to continue as we've
seen in the past year.

Q I wanted to follow up on what you said about job growth. You've talked a
lot about productivity being a factor in job growth, not coming out quite
as strong as you had expected. And I'm wondering if also there is some
lingering caution on the part of employers, and if there is, what would you
attribute that to?

DR. MANKIW: Well, I think the labor market is very much headed in the right
direction. We've seen, in the past year, 2 million jobs created. The
unemployment rate has come down from its peak of 6.3 percent in the summer
of 2003, down to 5.4 percent. We expect the unemployment rate to continue
declining. But there's also no question that there are things we can do to
make the labor market and the overall economy stronger. And the President
laid out, for the past two days at his economic conference, the very
ambitious agenda he has to do that -- things like reducing the budget
deficit through spending restraint, reforming the tort system so that the
threat of frivolous lawsuits doesn't impede business expansion and job
creation. So there are still -- there are things we can do, and there's an
ambitious agenda in place precisely to ensure that the economy continues to
expand and jobs continue to be created.

Q Back to the productivity question. Productivity growth has slowed in the
last quarter or so, significantly, and there are certainly some analysts
who believe that it may be sub-par next year, after that extended period
where it was just off the charts on the upside. If that's the case,
wouldn't your inflation forecast be a bit over-optimistic?

DR. MANKIW: Well, I think if you look at our inflation forecast, and you
compare it to the sort of the consensus of the private sector forecasters,
I think you'll find that it is very close. Indeed, I think if you look at
any of these variables that are in front of you, you'll see they're all
very close to the consensus of the private sector variables.

There's no question that the -- that things like productivity are very hard
to predict. And there will be a range of opinion among the private sector
economists. I think we find ourselves very much in sort of the middle of
that bell curve in most of these variables.

Q I was wondering why you've decided to release all these budget
assumptions now? In the past you've waited until the budget comes out.
What's the drive to release them? Is it related to the economic conference
we had yesterday and the day before?

DR. MANKIW: The timing of coming up with the forecast is the same as it's
always been. The forecast is always at the beginning of the budget process
for us because it's the starting point for the budget numbers. And so the
forecast is always put to bed internally in December.

Last year there was some confusion because when the forecast was released
as part of the budget and the Economic Report of the President, people were
sort of comparing apples and oranges by looking at the forecast that really
had been put to bed in early December based on November data. And we
thought it would be useful for the world to see the forecast as soon as it
was put to bed, and to be able to -- it was completed just recently. We
thought, therefore, it would minimize the sort of confusion we saw last
year in order to -- by -- it would minimize the confusion we saw last year
by releasing it today rather than waiting until February.

Q Hi, Alex actually asked what I was going to ask, but I have a follow-up
to it, as well. I'm just wondering, in deciding to release it earlier and
give us a fresher forecast, has there been any thought to doing more
updates throughout the year of your forecasts so that they stay more
current?

DR. MANKIW: Well, we follow forecasts, so we look at the -- we're
monitoring the economy on a very, very frequent basis, obviously on a daily
basis. But the administration forecast is really part of the budget
process, and the reason we have a forecast at all is to put out a budget.
That's why we do it twice a year. There's the forecast you see in front of
you which is part of the budget, and then there's the mid-session review
forecast as part of the mid-session review budget that comes out in the
summer.

But since there's no sort of budget documents produced between those
intervals, there's no motivation for having an official public
administration forecast. But, of course, they're always monitoring the
economy and updating the President on how the economy is doing. It's just
that we don't -- we don't sort of convene the troika process that involves
-- the troika that involves Treasury, OMB and CEA -- in order to come up
with an unofficial consensus forecast.

Q Hi, it's a follow-up to Alex's question. Would it be incorrect to read
into it that you wanted to get this done before leaving, before February?

DR. MANKIW: Yes, that would be incorrect.

Q So you'll be here through February?

DR. MANKIW: I serve at the pleasure of the President.

Q Greg, follow-up to the last question. Is that at the pleasure of the
President of the United States, or the president of Harvard? (Laughter.)
You don't have to answer that one.

My question was, what do you expect from net exports next year? Trade, of
course, has been a significant drag on GDP for the last year or two. Do you
expect -- do you see that changing in the coming year?

DR. MANKIW: I don't think we put out an official forecast for the trade
deficit.

Q But if you could just provide some texture or context about what you see
on the international side.

DR. MANKIW: I think one of the big questions is to what extent countries
abroad start growing their economies. One of the reasons we have a trade
deficit is that the United States has been growing much more rapidly than
the rest of the world. And if the rest of the world started growing more
rapidly, the demand for our exports would pick up. That's one of the
reasons why it's so important to sort of -- to open markets abroad for our
products.

Q Can you just say yes or no whether you expect net exports to be a net
contributor or a detractor from growth next year?

DR. MANKIW: No, I'm not going to answer that question.

Q Okay, thanks.

Q Just to clarify, the President's economic proposals that we've known
about in years past, such as making the tax cuts permanent, are those
factored into your GDP estimates where there's sort of macroeconomic
feedback from the tax cuts that you're hoping to enact?

DR. MANKIW: The President's economic forecast is part of his budget, and
the President's budget assumes the President's policies. And the
President's policies include making the tax cuts permanent, so I suppose
the answer to your question is yes.

Q And do you see positive feedback from making tax cuts permanent, for
example, and so the GDP is higher as a result of that?

DR. MANKIW: Well, the GDP forecast is predicated on the President's
policies, which include making the tax cuts permanent. And I do believe
that making the tax cuts permanent is good for the economy.

Q Thank you.

MS. BUCHAN: Okay, thank you all, appreciate you joining us. And if you have
any concluding remarks, Greg.

DR. MANKIW: Thank you very much. I appreciate your taking the time to
listen.

END 12:32 P.M. EST
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