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Skriven 2007-07-27 23:30:56 av Whitehouse Press (1:3634/12.0)
Ärende: Press Release (0707277) for Fri, 2007 Jul 27
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Press Briefing on the Economy by Senior Administration Officials
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For Immediate Release Office of the Press Secretary July 27, 2007

Press Briefing on the Economy by Senior Administration Officials Room 350
Dwight D. Eisenhower Executive Office Building

˙˙Press Briefings

˙˙˙˙˙ President Bush Discusses Economic Expansion and Gross Domestic
Product Growth ˙˙˙˙˙ In Focus: Economy

PARTICIPANTS: Chairman of the Council of Economic Advisors Ed Lazear
Secretary of Commerce Carlos Gutierrez Secretary of Treasury Hank Paulson
Director of the Office of Management and Budget Rob Portman

10:28 A.M. EDT

CHAIRMAN LAZEAR: Well, thanks for being here. I'm going to lead off. I'm Ed
Lazear, Chairman of the Council of Economic Advisers. Carlos Gutierrez,
Secretary of Commerce; Hank Paulson, Secretary of Treasury; Rob Portman,
Director of Office of Management and Budget are next to me. I will lead,
just talk for about two or three minutes. If you have any questions, please
ask me right then, because then I will be leaving, and then my colleagues
are going to take over from there.

Let me just start by saying that we believe that the economy is back on
track. The 3.4 percent GDP growth that we saw during the second quarter is
an encouraging sign. I would say it can be summarized as follows: We got
one point for consumption, we got one point from non-residential
construction and equipment and software, we got a point from exports, a
point from government spending, and we lost a half a point on housing. So a
very balanced picture this time. And I would say that that, to me, is
probably the most important story that we see in this number. Not only is
the number a good, strong number, suggesting that the economy is healthy,
but it also tells us that we have a somewhat different pattern than the one
that we had in the past.

If we look back over the past few quarters, the economy has been driven
primarily by consumption. That's not necessarily a bad thing, but when we
recognize that our saving rate is negative right now, that's probably not a
good long-term pattern. And we need to get back to a situation where we're
consuming at levels that are more consistent with kind of a long-run trend.

The negative aspect of that, of course, is that when consumption declines,
we take a hit in that quarter in terms of GDP growth and job growth. That
did not happen, and the reason it did not happen is because we've had
strong growth everywhere else. So even though consumption growth was not as
strong as it had been, we had a balanced picture elsewhere. That, to my
mind, creates a very robust economy and a very good picture as we move
forward.

We see that in a variety of other measures, as well. Employment is still
very strong. Every week, when we look at the initial claims for
unemployment, that's consistent with a strong and growing labor market; 4.5
percent unemployment, 40 out of 50 states right now have unemployment rates
that are below the average for the '80s and '90s. So we are looking at a
very strong and healthy labor market. Wages continue to grow -- real wages
continue to grow.

And finally I would say that the fact that profits are high and earnings
are high is also encouraging, because it means that this is not in any way
something that we have to fear as being indicative of false expectations.
The economy is based on real fundamentals, and it does seem to suggest that
as we move forward, we have a healthy picture.

So I'll just stop there, and again, if you have one or two questions, give
them to me now, and then I'm going to turn it over to my colleagues.

Q How would you respond to the contention that a weak dollar is a sign of a
weak economy?

CHAIRMAN LAZEAR: That's one that I'll turn over to Hank. Why don't you hold
off on the --

SECRETARY PAULSON: All the tough questions he's going to --

CHAIRMAN LAZEAR: Yes, all questions on -- usually I have to say I can't
answer it. This time I can say Hank is here, and he will answer it for you.
If there are no questions, I'll just --

SECRETARY GUTIERREZ: I've got a few sides that I'll show you on GDP growth,
and really breaking it down to the components of what contributed to growth
and what detracted from growth. Something the President said this morning,
when he talked about this quarter's GDP, which I think comes across loud
and clear as you see the economy, and maybe over a longer period of time,
is that this is a very resilient economy; it's a very diversified economy;
it's a very flexible economy; and in spite of the fact that it's the
largest economy in the world, because of our free enterprise system it has
a way of naturally self-correcting, and it shows a tremendous amount of
flexibility.

We've seen that, and that's the way we've been able to get through
situations like 9/11, a stock market crash, a recession, corporate
scandals, Katrina, you name it -- this economy has been able to withstand
it, and has been able to adjust.

The other thing that I want to point out, that you'll notice in the second
quarter numbers, which for us is a very important number, is the fact that
net exports are a positive contributor to GDP growth, which means that the
increase -- the absolute change of exports is greater than the absolute
change of imports. And that's something that we have not had for a long
time. And we know that we've had to get economies around the world growing
faster to be able to export more. The fact that we have more free trade
agreements, and they're now rolling up and we see more and more companies
exporting, and just the fact that we are the largest exporter in the world,
but we're growing our exports at a very fast pace, and I think that says a
lot about our economy, our businesses, our system. And that's a very
important contributor to this quarter's growth.

Compared the first quarter of 2007, you could see the impact from, on one
hand, housing -- we had a change in inventories, and we are also -- we had
a negative impact from that exports. This quarter the only thing that
actually dragged down the growth of GDP was residential housing. Everything
else contributed, including a very important contribution from that
exports.

And then, just looking over a longer period of time, the point of
flexibility and resiliency, and the fact that we are a diversified economy
-- you can see that over time. In 2002, for example, government spending
and consumer spending grew enough for offset, a very significant negative
contribution from business investment, as well as net exports. So we were
able to offset those two factors with consumer spending and government
spending.

If you look at 2005, what you see is very strong business investment and
consumer spending offsetting the decline in housing. And we've seen that
just about every quarter, the ability of this economy to continue to grow
because it is so diverse and because it is so strong.

Let me show you one more chart -- talked about exports, the fact that in
spite of our size we are becoming a major, major exporter. Look at those
first three years, real exports actually declined by almost 4 percent per
annum. After 2003, you see a growth. These are real growth numbers, 8.3
percent on average. So we're exporting more, economies around the world are
growing faster so they're able to buy more of our goods, and a very
important factor here is the President's policy on free trade -- opening up
markets, focused on exports, helping exporters access markets. That's all
paying off.

I'll stop there and I'll turn it over to Secretary Paulson.

SECRETARY PAULSON: Okay. Carlos, let me say I, too, see a healthy U.S.
economy, strong labor markets, great growth outside of the U.S. I've been
looking at the global economy for a long time and I can't think of any time
in my business career where I've seen such a strong global economy. And as
Carlos said, we're really benefitting from that in terms of exports.

That's why it is so important to get our trade agreements with Peru, with
Colombia, Panama, Korea done; why it's important to keep working -- and I
know how hard Sue Schwab is working to get something done on Doha, and how
much the President cares about that.

You know, we talk a lot about trade. We don't talk as much about being open
for investment. And on May 10th, the President put out a statement on the
open economy, open for trade and investment. Yesterday he signed the CFIUS
bill. I just want to emphasize how important it is to us, to our country,
direct foreign investment. This is key. We have 5 million jobs in this
country that are directly related to investment. We've got another 5
million that are indirectly related to that.

It's also keeping markets open outside of the U.S. for investment -- very,
very important. When a global company that's headquartered in the U.S.
makes an investment outside of our country, that outgoing investment also
is very beneficial to our country, because what the analysis shows is that
those global companies that make investments outside of the U.S. are
creating export platforms, and they make a disproportionate contribution to
our economic growth through exports, and that if they're not making those
investments, some other country is making those investments. And growth
outside of the U.S. leads to more growth in the U.S. And again, that's
something that we think is going to be -- has been important for a long
time, and we can't forget it.

Now, the last thing I would say about the economy is

-- and I've received a fair amount of questions about volatility, market
moves, those kinds of things, and I always start with looking at the
underlying economic strength in the global economy and a very, very healthy
U.S. economy. And when we have benign markets, strong markets, economic
growth for a period of time, there can be a tendency to have excesses, to
get a bit lax. Borrowers need to be disciplined; lenders need to be
disciplined.

And what we've seen with this recent adjustment has been -- and it's been a
repricing of risk, a reassessment of risk, and as we look at some of the
signs of excesses, there have been excesses, LBL loans, that have been done
without the traditional covenants. We've seen some of those same excesses
when it's come to sub-prime lending and so on. But again, that's a wake-up
call, and there's an adjustment and a repricing of risk.

On that, why don't I go to Rob.

DIRECTOR PORTMAN: Thanks, Hank. And Eddie, Carlos and Hanks have done a
good job talking about the economy and the importance of some of the
variables that you saw on the chart earlier, including, as Hank just did
very well, I thought, the both in-bound and export side of our economy,
which is critically important. As the global economy is increasingly
integrated, we need to engage, and we are, and we're succeeding in the
sense that our economy is stronger, jobs are improving, wages are up. So we
have a lot of good news to report today.

This strong, resilient, diversified economy that was talked about earlier
has also resulted in increased revenues to the federal treasury. And if you
look at what's happened, really over the last three years we have a record
level of revenue -- 37 percent increase in revenue since 2004. That has
resulted in, along with some better restraint on the spending side, a
decline in budget deficit.

This chart over here shows as a percent of the GDP, our debts are going
down. It's also going down in nominal terms, meaning that for the past
three years the deficit has actually gone down over $200 billion. Our
projections that this year the deficit will go down at least $43 billion.
We are now at about 1.5 percent of GDP -- our economy in terms of our
deficit -- which is, as you can see by this chart, is far below the average
of the last 40 years of 2.4 percent.

We continue to make progress on deficit reduction so long as two things
happen: One, we keep restraint on the spending side; and second, we be sure
that while our expenses are being restrained, our revenues continue to
grow. And that's why these numbers today are encouraging, and why it's so
important that as we look ahead we are going to be promoting and ensuring
that the tax relief stays in place, that we not have tax increases, which
would jeopardize this economic growth; therefore, revenues; therefore, the
good progress we've made on the budget deficit.

Second, we need to be sure that our expenses, again, stay restrained. And
what the President has offered this year in his budget resolution is an
increase in the spending, almost 7 percent -- 6.9 percent. Congress has
indicated that's not enough, we need to spend more than -- almost triple
our inflation. And what the President has said is, no, there's a top line
here and there is a number beyond which he cannot go. And that's the reason
for the red line or the top line veto threat on some of these spending
bills that are working their way through Congress now.

So this is important news today because it shows that a continuing strong
economy is good for American workers; 4.5 percent unemployment, over 8.3
million new jobs in the last three years. It's also important for revenues,
keeping the budget deficit going down. We need to be able to look forward
and see how we can continue that, and that is keeping the tax relief in
place, not jeopardizing this growth; and then on the expense side, being
sure that our government spending continues to be restrained and we
continue to prioritize our spending.

You will see this week and next week in the House and in the Senate
continued debate on this. The President will continue to hold firm to the
veto threat on individual appropriations bills that exceed the top line. He
will also continue to talk about the importance, as Secretary Paulson does
continually, of the mandatory or entitlement spending. And this relates to
the S-CHIP debate that is currently being debated in the halls of Congress,
that we want to be sure that while we're restraining the day-to-day and
annually-appropriated spending, we also don't allow the entitlement
spending to continue to grow at unsustainable levels.

So good news today and further evidence that a pro-growth economic policy
works, and we need to be sure we continue it.

SECRETARY PAULSON: Rob, you said one thing that I wanted to build on, which
is -- you had mentioned taxes. It's very important that Congress move to
fix the AMT. They've done it every year for the last six years. This is the
longest we've gone, and we need to fix that situation so there are not 21
million Americans paying an alternative minimum tax. That would surprise
people. That's an unintended tax. And so that's something that needs to be
patched or fixed.

Okay, let's have your questions.

Q As you know, this is the first estimate for GDP, and for the last three
years and for the first quarter of this year all of them were revised
downward. How worried are you that this is an artificially high first
estimate?

SECRETARY GUTIERREZ: Let me just say, because those numbers come out of
Census and are revised by BEA. We do a revision once every three years, and
we also have three revisions to every quarterly number. It happened to be
that these revisions were downward, but I think if you look at the shape of
the growth, it doesn't change the story; it doesn't dramatically, or it
doesn't really materially change the shape of our growth or the story of
our growth. As time goes on, we get more reliable information. And that's
just one of the realities of trying to add up a very complex set of data.

Q That was sort of the premise of my question, which is -- updated twice,
but in the past it seemed to have been a quite optimistic at the front end,
and then down. And I wondered how worried you are, looking forward.

SECRETARY GUTIERREZ: You're talking about projections?

Q Projections for the second estimate of the Q2, right.

SECRETARY GUTIERREZ: Well, we'll have to wait and see. But we're not
expecting something that would change the fundamental story of the quarter.
You may have -- we may have revisions up, we may have revisions down, as
we've had them in the past, but I'm not concerned that it would be a
different picture.

Q Secretary Paulson, can I start -- I think Secretary Gutierrez pointed out
that there was only a single drag in the report, which was the housing. But
consumer spending did weaken quite dramatically from the prior quarter. How
concerned are you about the American consumer?

SECRETARY PAULSON: Let me step back and say, to build off what Carlos said
about data -- I never place too much reliance on any month or any quarter.
The key thing is the trend and the overall picture. And we have a very
diverse, very flexible economy. And there are signs that business is
increasing its investment, and again, very strong growth outside of the
U.S. And in terms of the consumer spending number, it was lower this
quarter, but again I think we need to look at it over a period of time
here.

SECRETARY GUTIERREZ: Just to add to that, we've talked a lot about how our
growth rate is reliant on consumer spending, and how it would be a good
thing to diversify and have other sources of growth. The dilemma has always
been, if consumer spending contributes a smaller portion of the growth, how
do you offset the rest? The great thing about this quarter is that we saw
it -- we saw it through net exports, we saw it through government spending.
And I think it's a good reflection on the economy that we can take that
kind of a breather and still grow at 3.4 percent.

DIRECTOR PORTMAN: Also, because Ed is not here, I will mention what he
would mention, which is that it is good for the United States to have a
higher savings rate. And what you see in these consumption numbers is
slightly lower consumption projected for the second quarter, but will
result in, therefore, somewhat higher savings, which deals with what Hank
and Carlos have been talking about on the international side, as well, in
terms of rebalancing our current account. So there are some positives in
terms of -- from my perspective -- in terms of the improvement in terms of
the U.S. savings rate that comes from that.

SECRETARY PAULSON: But again, we need to look at it over a period of time.
You're going to get distortions and aberrations from one quarter to the
next.

Q Thank you all for doing this. This is very interesting. Ambassador
Portman, what's your sense of the outlook on the Hill for both the AMT fix
and also some of the broader changes to the tax code that Secretary Paulson
and your team have talked about?

DIRECTOR PORTMAN: I'd like Secretary Paulson to address that, as well. But
let me just say, briefly, I totally agree with his comment earlier about
the need to do the patch in the alternative minimum tax. As you recall, we
offered a balanced budget where we did provide for a patch, which has about
a $48 billion in our revenues in 2008, and yet we are able to show a
balanced budget, the biggest impact for the 2007 patch being in the 2008
tax year. Congress did not choose to do that in their budget resolution,
despite criticizing us for not fully covering all the AMT costs over time,
and that concerned me at the time, and we commented on that.

Now, I agree with Secretary Paulson, we're beginning to get concerned that
there be a plan in place to ensure taxpayers that there will, indeed, be a
patch, as there has been in previous years. The patch that we included in
our budget is the no net new filer patch, which is the most generous one
that Congress has used in the past several years. And we believe that's the
appropriate way to go.

So my concern is it hasn't been accomplished yet, also there doesn't seem
to be a clear plan in place to accomplish that. We provide for it in our
budget; Congress doesn't. We wish that they would move forward with that.

With regard to the prospects for it, I think they're generally good. I
don't think that Congress at the end of the day is going to find it viable
not to provide the patch, in the context of having trouble coming up with a
broader reform. Second thing I'll say about reform -- and again I want
Secretary Paulson to address this -- I am very encouraged by what Secretary
Paulson is doing, in terms of looking at our corporate tax structure. This
is an area ripe for reform, where, frankly, the code has not kept up with
the realities of the rapidly-changing, integrated global economy we talked
about earlier. The United States is falling behind, because our corporate
tax rate is now relatively high, which Secretary Paulson can talk about
with much more detail.

So there are lots of areas where reform is needed. One is certainly in
terms of international competitiveness, and being sure that America
continues to have a tax code that attracts new business investment.

SECRETARY PAULSON: Well, I don't have much to add to that. I had a
conference yesterday, and what struck me was that when we brought in a wide
range of experts, how clear everyone saw it that we had gone from having a
corporate income tax that in the '70s wasn't competitive, to one that in
the late '80s, with the '86 reform was relatively low, to now one which is
relatively high. But the way in which we're thinking about this is in terms
of competitiveness. And we're focused on it in terms of the benefits to the
average worker, prosperity to Americans and jobs, higher wages, and what it
takes to do that.

So for any given level of revenue, because any tax is a drag on the economy
-- the reason you have a tax is we need taxes, we need revenue. So the
question is, what's the best system to use to tax businesses so that we can
be competitive?

And the world is changing, and it's changing all the time. And one of the
real sources of growth for us right now for exports is Europe. The growth
rate in Europe has doubled. And it's extraordinary to see what a number of
these countries in Europe have done in terms of reducing their corporate
income taxes, and what they're doing right now. Right now the Germans have
another tax cut underway, through one house of the legislature; the French
and the British are talking about it. So again, I think that's going to be
something that's going to be very important that we all focus on.

Q Mr. Secretary, may I ask you, what does your intel, your conversations
with the Hill, suggest to you about the appetite for such a reform?

SECRETARY PAULSON: Well, I think we need to do more work, there's no doubt
about it. This is going to be something I'm going to have to work on very
hard for the 18 months I'm here. And we're going to have to -- first of
all, there's going to have to be greater understanding and recognition as
to how the world has changed. There's going to have to be greater
recognition that businesses are -- they come with different corporate
structures, that's a legal structure, but the taxes are paid by people. And
so we -- and then we're going to need to take a number of tangible steps.
So what we're going to do is we're going to sort of reassess where we are,
and you're going to see a number of actions and steps taken over the next
18 months on this.

Yes, in the back.

Q Secretary Paulson, are you worried that the reassessment of risk that you
see might end up hurting the economy in the next couple months?

SECRETARY PAULSON: Again, step back, because that when there are big
adjustments in markets based upon economic fundamentals, that's one thing;
but when you have economic fundamentals that are strong, that's a better
place to be.

Listen, I've been watching markets for a long time; it's my job to be
vigilant, so I'm watching these markets carefully. There is -- there has
been this adjustment, this reassessment of risk. I view it exactly as I
said to you. There were excesses in the system. This is a wake-up call. We
need to see more discipline in certain areas. And so -- but I take comfort
from the underlying economic strength. There are a number of hung bridge
loans in the high-yield market. Those aren't -- the underlying companies,
the underlying economy hasn't changed. Those were loans that were put in
place without traditional covenants. And again, lenders need to be very
aware of the risk, borrowers need to be aware of risk, and I would submit
that people are more aware of those risks and the need for discipline today
than maybe they were a month or two ago.

So again, let's keep our eye on the very strong underlying economy, which
puts us in a position of strength.

Q You're going to China tomorrow, I guess, and yesterday the Senate Finance
Committee passed -- a bill on currency. I'm wondering if you think that
that pressure will help you in your efforts to get the Chinese, or if it
will hurt you.

SECRETARY PAULSON: Well, very clearly, we share the same motives with
Congress. We would like to see the Chinese move and show more flexibility.
I believe very, very strongly that the right way to deal with a sovereign
nation is not through protectionist actions, but by making the case to
them, very directly, as to why it's in their best interest. And it is in
China's best interest and it's in our country's best interest that they
proceed with their reforms.

This is a complex economy, it's a big economy, it's integrated into the
global economy in terms of goods and services that -- we were talking about
this earlier today, Carlos and I -- that this is -- the fact that they're
growing so quickly is an opportunity which we want to capture. And those
that are concerned about China I think are worried about the wrong things,
because if China -- if their economy were to falter, if there would be some
economic shocks, that wouldn't be good for China, that wouldn't be good for
us. It's very important that they grow and grow stably, and to do so they
need to continue to reform. And I believe the right approach is the
approach we're pursuing, and it's not a legislative approach.

Thank you.

END 10:57 A.M. EDT
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