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Ärende: Press Release (0606088) for Thu, 2006 Jun 8
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Press Briefing on the Administration's Updated Economic Forecast by CEA
Chairman, Dr. Edward Lazear
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For Immediate Release
Office of the Press Secretary
June 8, 2006

Press Briefing on the Administration's Updated Economic Forecast by CEA
Chairman, Dr. Edward Lazear
Via Teleconference


˙˙˙˙˙ In Focus: Jobs _

2:13 P.M. EDT

MR. LISAIUS: Good afternoon, everyone. It's Ken Lisaius with the White
House Press Office. Welcome to our on-the-record conference call briefing
on the administration's updated economic forecast. Today's numbers reflect
a joint effort on the part of the Council of Economic Advisers, the Office
of Management and Budget, and the Department of Treasury.

At this point I'm going to turn the call over to the Chairman of the
President's Council of Economic Advisers, Dr. Edward Lazear.

DR. LAZEAR: Thanks very much. Today we're releasing an update of the
administration's economic forecast. We produce an economic forecast twice a
year. This version will be an input into the mid-session review of the
budget, but the economic forecast doesn't include any revenue or budget
numbers. Those numbers will be released in the mid-session review in July.

The forecast includes the key economic indicators needed for an
understanding of the nation's economic outlook and for forming the federal
budget, such as GDP and the unemployment rate. Today's forecast looks much
like the one released six months ago. The economy grew at an impressive 5.3
percent annualized rate in the first quarter of this year. It also appears
that the economic strength is broadening, with stronger growth in business
investment and exports.

The economy has added nearly 2 million jobs in the past year, and more than
5.3 million jobs since August of 2003. Today's updated forecast reflects
faster-than-expected economic growth in the beginning of 2006, with the
growth projected to moderate somewhat in the future, and then remain at a
robust pace. We're forecasting for 2006 3.6 percent real GDP growth, which
is above the historic average, about 156,000 more payroll jobs per month,
which is about the historic average, and a low unemployment rate of 4.7
percent, which is below the historic average.

This economic growth is largely due to the hard work of the American
people, coupled with the President's low tax and pro-growth policies.
Thanks very much, and I'd be happy to take your questions.

Q I just was wondering how concerned you are about the slide that we're
seeing today in the stock market, which, as you know, comes on the heels of
some declines earlier in the week? The markets seem particularly jittery
lately, and I'm just wondering if you're concerned about the volatility?

DR. LAZEAR: Well, as you point out, the market has been volatile in the
last couple of weeks. But the volatility is not unusual in the stock
market, and if we look at the numbers in the market, we are up considerably
since last year. We're up about 4.5 percent from a year ago today, in terms
of the S_

Q I wondered if you could comment or characterize your level of concern
about inflation in the economy and how that -- you know, it looks like you
revised up your numbers from six months ago. And particularly what kind of
a drag are oil prices going to have and a slowing housing market?

DR. LAZEAR: Okay, thanks. Sure, yes, we did revise up our inflation figure.
That revision does reflect in large part the increases in energy prices
that took place during the first half of this year. I guess I'd make two
comments on that.

The first one is that we don't expect that high increase that we saw in the
first part of the year to cascade into future periods. If you look at our
forecast, what you'll see is that the inflation rate is expected to decline
to about 2.5 percent. That's consistent with market expectations, as well.
And I think the reason that we believe that, as well as the market believes
that, is that the oil prices are -- at least as we see it right now -- a
one-time increase that's already been played out. So we don't expect that
that's going to project into the future.

The second thing I would say on that is that despite the fact that we had
pretty significantly rising energy prices during the first quarter, during
the past few months, we also had at that same time 5.3 percent growth in
GDP, annualized. So we're seeing really extraordinary growth during this
period during which we had high inflation. I think the reason for that can
be attributed to the very high levels of productivity growth that
associated with it.

So while high energy prices are not something that we welcome, the fact
that the American economy has been so dynamic and so rapidly growing in
terms of productivity has been a factor that's been able to offset the
increase in energy prices. So I think that we're still on a very good
track. We are very optimistic and very enthusiastic about the future, and
don't anticipate that energy prices will be a significant damper at the
macro economic level.

That said, I'm also well aware that higher energy prices have affected
individuals and have affected them in significant ways in terms of their
cost of transportation, cost of heating their homes, and so forth. And we
don't ignore those issues, but we do think that they're going to moderate
into the future.

Q Thanks, very much. I was wondering if you saw -- I was wondering if you
saw any signs that inflation expectations out in the economy are rising at
a concerning rate?

DR. LAZEAR: No, in fact, I think it's quite the opposite. Again, if you
look at the best indicators of inflation that the market has are things
like the TIPS data, or if you look at the yield curve. That gives you an
indication of how the market is viewing inflation. And all of those
indications are consistent with the kinds of forecast that we're giving
you, which is right around 2.5 percent, and two-and-a-half percent kind of
steady out into the distant future.

So our forecast and the market forecast are very much consistent right now.
So we're not seeing any significant increase in the future.

Q Thank you. Your scenario looks very much like a sort of the -- the
proverbial soft landing where the growth slows to trend and there's no
takeoff in inflation, and the economy continues to generate jobs, and so
forth. At the moment, of course, there's a lot of concern in the markets
that in dealing with the inflation risk -- the Fed and, indeed, other
central banks -- financially raise rates to the point where they tip the
economy into at least a growth recession, or indeed, even an outright
recession. How confident are you in the scenario that you paint? Do you
have a high level of confidence in the soft landing scenario? And what
makes you confident that the tightening of interest rates won't, indeed,
lead to the economy undershooting?

DR. LAZEAR: Yes, that's a good question. The way I see it is that all of
the indications that we've seen are that we are moving to a soft landing.
And the best indicator I guess would be to look at the housing market,
which is the one area where people have significant concern. We always look
at that; it's a very important part of the economy. And what we've seen in
the housing market is that new housing starts have declined, and declined
pretty significantly over the past few months, but at the same time, prices
in the housing market are still going up, and they're not going up at the
kind of astronomical rates that we saw over the past couple of years, but
they're going up at much more moderate rates.

So the decline in the housing starts, to levels, by the way, that I should
mention, are still well, well above the historic average -- we're still at
very high rates in the housing market. It's just that we're coming down
from kind of an extremely high rate. But that is consistent with the soft
landing scenario.

The same thing is true in the aggregate numbers. What we're seeing is a
broadening of the investment pattern and consumption pattern. Initially you
were seeing investment in residential construction; now you're seeing it in
commercial construction, in all kinds of business investment. And at the
same time, we're seeing export growth, as well. So all of those are
consistent with this deepening and broadening pattern, which we feel is
commensurate and consistent with having a strong economic growth, but also
kind of a soft slowdown to what we think of as a long-term trend.

Q Do you have an implicit or an explicit estimate as to what productivity
will be over this forecast period?

DR. LAZEAR: Well, Bob, we do -- we have a large number of variables that
are associated with our estimates that go behind the numbers that we
released today. But we don't actually release numbers on productivity.
That's not to say that we don't have that as part of the model; they
certainly are part of our model and there are a large number of variables
that are part of our model. But we think of these nine variables as being
the main focus of this activity. And the reason for that is that the
primary motivation behind this activity is the budget process, and these
are the numbers that are crucial for the budget process.

So the productivity number, which obviously is of relevance in terms of
thinking about the future economy, is not of relevance for this particular
process. Things like GDP growth, interest rates, CPI, those are all much
more closely related to the budget process, itself, and that's the purpose
of this exercise.

Q Hi, Dr. Lazear. This is just a small, technical question. I was
wondering, the unemployment figures are an annual average?

DR. LAZEAR: The unemployment figures -- yes, the unemployment figures are
the annual average; that's correct.

Q Okay, great. Thank you.

Q Dr. Lazear, you mentioned the business investment and you said export
growth, as well. And I was wondering, can you just elaborate on the export
growth part. I mean, is it sufficient -- do negatives run into deficit? And
why do you see export growth; what are the factors playing into that?

DR. LAZEAR: The export growth that we've seen -- we have seen export growth
for a few months now; we're still in the early stages of it. Last month the
current account deficit actually started to decline and, you know, we're
always keeping our eye on that; that's obviously an issue and a concern.

It was mentioned earlier that we wanted a soft landing -- this is another
area in which soft landings are particularly important, because if all of a
sudden the current account were to simply reverse and go to zero, what that
would also mean is that the capital inflow would go to zero -- and the
capital inflow has been a very important factor in keeping our growth rates
high.

So what we see in terms of export growth and import declines, we think is
kind of -- is not only in the right direction, but really at the right
pace, as well. A good bit of this depends not only on our economy, but some
of it depends, as well, on the economies with which we trade -- as they
start to grow, as their economic situations become better, their demand for
our goods goes up, and that's another reason to expect that our export
growth will be positive and pretty significant over the next few months, so
-- the next couple of years, actually. So we're pretty hopeful on that and
reasonably confident that that's what's going to occur.

Q Hey, Dr. Lazear. One follow up. If the economy is so strong, why is the
dollar so weak?

DR. LAZEAR: Well, the economy is very strong right now, and we know that
movements and currency markets depend on a variety of market factors. We
believe that the market factors are the appropriate ones for determining
currency movements. And we think that the market is telling us basically
what it should be telling us. We see no reason to be alarmed by anything
that's happening out there.

Q Thank you. Dr. Lazear, you're -- you have a rather modest inflation
forecast. The inflation hawks are pointing a lot at commodity prices and,
to some degree, as with the previous question, foreign exchange rates. Your
model seems to be giving more weight to the yield curve and interest rates.
Why -- why do you give that weight to interest rates as opposed to what
some of the inflation hawks are giving weight to, namely commodities?

DR. LAZEAR: The reason that we look at that is, again, that we think that
our methodology is not only consistent with what we believe just kind of in
the abstract, but also what we think that the market is saying. And my view
has always been that we want to use all the information that's out there,
and the market uses all the information that's out there. Most of the
information we use -- all of the information, in fact, that we use in terms
of constructing our forecast is public information. So it's not that we're
using anything that's secret. We're processing it pretty much in the same
way that the market is processing it. So our inflation rate and the market
inflation rate look pretty much the same; the blue chip inflation rates are
the same. We're all basically right on. So I don't think that there's any
big puzzle there.

MR. LISAIUS: All right, that's going to have to wrap us up for today,
operator. I thank everyone on the call. If you have additional questions,
you can always call the Press Office at the White House and we will try to
help you out. Thank you very much.

END 2:30 P.M. EDT

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