For Immediate Release
Office of the Press Secretary
June 4, 2004
Mankiw, Friedman Participate in Roundtable Interview
Room 476, Eisenhower Executive Office Building
1:05 P.M. EDT
MR. FRIEDMAN: Thank you for coming. You've all seen the numbers.
This was a very positive report this morning, almost a quarter of a
million jobs. That means something like -- something in excess of 1.4
million jobs since last August. That's nine consecutive months.
We are pleased about the fact that the job growth was broadly based
across the board. It was very strongly in industries that pay well.
We're also quite pleased that this was the fourth straight month of
manufacturing job increases. That's up about 90,000 jobs. And so we
believe that the President's tax package passed in May of '03 has been
having real effect, along with the Federal Reserve's accommodative
monetary policy, and just the fundamental flexibility and resilience of
the American economy. We now feel that this is a robust and sustaining
economy at this point. There's absolutely no complacency, though,
here. There's still a lot to be done. And you've heard from us in the
past, and you'll continue to hear from us about trying to work on the
President's agenda and his six-point program.
So let me just turn it over to Greg and give you a little bit more
background on the report this morning.
DR. MANKIW: This report confirms what we've been seeing in many
other economic statistics, and that is that economy is enjoying a
robust recovery from a difficult few years. As Steve said, the
President's jobs and growth plan was signed into law in May. It
started being effective in June and July when the withholding was
adjusted.
And the labor market turned over this summer, as well. The
unemployment rate reached its peak in June of 6.3 percent. It has now
fallen down to 5.6 percent. August was the low point for employment,
and it has been growing consistently since then. Particularly rapidly
in the past three months -- over 1.4 million jobs since August; almost
a million jobs over the past three months -- a little over 300,000 per
month on average. So the economy is growing recovering robustly.
If you look at the other statistics that we look at, you can see
other confirmatory evidence. This week we saw two reports from ISM --
Institute for Supply Management -- one survey of manufacturing, another
survey of non-manufacturing. And both of them showed -- those are
called diffusion indices -- and both of these indices showed that both
sectors manufacturing and non-manufacturing are growing robustly, if
you look at them.
The best measure of incomes -- if you're interested in incomes
rather than jobs -- the best measure of incomes is disposable income,
which includes all earnings, dividends, interest minus taxes that
people pay -- real disposable income, as adjusted for inflation, is at
an all-time high. So all the data is really telling a very consistent
story now which is that the economy is heading quite robustly in the
right direction.
MR. FRIEDMAN: We'll stop and just open it up for questions that
you all have.
Q What's the disposable income number? You said it's an
all-time high, what is the number? And how does it compare --
DR. MANKIW: If you look at the real disposable -- I don't have the
exact number. You have to get it from the Bureau of Economic
Analysis. But if you look at the level of real disposable income, it's
growing and is at its historic peak.
MR. FRIEDMAN: I think real after-tax incomes are up by about 11
percent since December 2000, which actually is substantially better
than after the last recession.
Q Is that real income per household or per person?
DR. MANKIW: I was looking at real disposable income. It's usually
done per capita. That was always one way to do it.
Q You've seen a lot more people working. Obviously, there's a
lot more tax-collecting going on. How do you see this impacting the
deficit forecast that will be out in the mid session review?
DR. MANKIW: That's what we're in the process of working on right
now. The mid session review will come out in July, so I don't want to
prejudge what those numbers will be. But we're in the process right
now of updating the administration forecast. The last administration
forecast was put to bed in December. Then we forecast 4.0 percent
growth from the fourth quarter of 2003 to the fourth quarter of 2004.
Most of the private sector forecasts now are for GDP growth to be a
little bit above that.
And we'll be coming out with our own administration forecast
together with updated budget numbers in the middle of July.
Q Without giving me any specific numbers, can you give me some
general idea about whether this is -- how this is positive? To what
extent this might be affecting the deficit forecast?
DR. MANKIW: I don't want to prejudge what those numbers are going
to be because those are based on the economic side numbers, plus a
variety of other technical factors. So I think it's premature to,
first, even know ourselves exactly what those numbers are going to be.
But clearly, the economy is doing as well or better than we thought it
was back in December.
MR. FRIEDMAN: And over time a favorable economy will generate more
tax revenues.
Q But you can say in general that you expect it to be a brighter
picture, yes?
MR. FRIEDMAN: Why don't you give your directional --
DR. MANKIW: Well, other things equal, strong economic growth is
good for revenues, which is good for the budget deficit. The President
said many times he wants to reduce the budget deficit in half. And
there's two reasons -- there's two parts of that. One is to get the
economy growing, to bring in revenues; and other is holding a line on
spending -- with spending restraint being a very important part of the
program to cut the deficit in half.
But I'm not sure it's appropriate at this point to say what the
actual numbers will be until OMB announces them.
Q Well, what would be the factors that could make it worse?
MR. FRIEDMAN: Oh, I don't think there's any anticipation it will
be worse. It ought to be better. But I think Greg's hesitation is as
they go through the modeling, you can come up with some
counter-intuitive things that pop up in these things. So he's just
being cautious. But there will be no anticipation it will be worse.
There is anticipation it will be better. I believe the Congressional
Budget Office already had more favorable numbers.
Q Do you want to say anything about the energy prices, and the
outlook?
MR. FRIEDMAN: Yes. There's never been an economy where you don't
have tugs and pulls in different directions. And this one, as we've
said, is a strong and robust economy. But there are always some things
that are on the other side. And energy prices is clearly one of the
things on the negative side. The President has pointed out that he is
very conscious of the fact that this puts a crimp in the budgets of
working families, and it's clearly a negative.
But you have to put this into the context of all of the other
things that are going on in the economy. And so, while as a negative,
we have no remote sense that it's going to derail this recovery. But
we really do welcome OPEC's indications of an intention to pump more
oil, and it's something that this administration is vigilant in trying
to make sure that markets are working.
DR. MANKIW: The causation between oil prices in the economy goes
in both direction. Other things equal, higher oil prices are a head
wind in economic growth. Standard models suggest that a $10 increase
in oil prices, if sustained, would reduce economic growth by about a
third of a percent of GDP. On the other hand, a strong economy also
affects the oil market. To a large extent, that's what is going on
now. The U.S. economy is very strong; the world economy is very strong
-- in part, because China is growing rapidly and much of the world is
growing rapidly. It's like this is a very good year not only for U.S.
economic growth, but for world economic growth. And because of that,
that's bidding up the demand for oil. And that's partly what's driving
the prices. So to some extent, oil prices are reflections of the good
economic news. On the other hands, it's also a head wind. If other
things equal --
Q So if you took it to the next step, we could expect that -- if
that demand and growth continues worldwide, and the demand on oil
continues, and that we should expect prices to remain --
DR. MANKIW: Well, no, what's important -- what's important is as
the world economy grows, the demand for oil will grow. What's
important is that the supply grows, as well. And that's why, as Steve
said, it's welcome news that OPEC is expanding oil production. But
it's also important that we think about expanding production in the
United States.
The President has called for ANWR to be explored. And the
President said at the Cabinet meeting -- I think it was last week --
that if ANWR had been signed into law when it came to the previous
administration's desk 10 years ago, today, ANWR would be producing
about a million barrels --
MR. FRIEDMAN: Up to --
DR. MANKIW: Up to a million barrels per day, which would have a
significant impact on today's oil prices.
MR. FRIEDMAN: And as I say, we note the impact this has on
families. But as Greg points out, this is very much driven by an
increase in demand. And this is at -- sort of the early stages of a
recovery. So you have a robust recovery helping to push this up. And
it's -- as I say, it's a negative. But it is more than compensated for
at this point by the positives, including the very strong job growth.
Q Steve and Greg, I want to ask you to respond to kind of a new
level of argumentation about job numbers from the Kerry campaign.
Starting last month, they've started only counting private-sector jobs
created, not private-sector, public-sector jobs created -- essentially
adopting the position that public-sector jobs don't count in a recovery
because they are not attached to the "real economy." And in their
release today responding to the numbers, they said, well, the Bush
administration still lost 1.9 million private-sector jobs. I'd like
you to evaluate that from just an economic point of view. And also if
you have the numbers available, delineate between public and private
sector.
DR. MANKIW: Yes, in fact, I can give you some of the numbers. I
think I have some of those here. In this recent report, 248,000 was
the job gain in the most recent month -- is the total, the total
non-farm payroll employment, so that includes the government. The
private-sector one was up 275,000. This particular month, there
happened to be a small decline in government employment. So the
private-sector number was bigger.
Last month based on newly revised data -- last month the total gain
was 346,000; the private sector gain was 325,000. The previous month,
March -- the total gain was 353,000; the private sector gain was
339,000. So I don't think they tell a very different story.
Q Do you see any inflation signals that are worrying to you?
DR. MANKIW: A couple things -- obviously, we need to be vigilant
about inflation. But if you look at what's going on out there, there
are some signs of inflation picking up. But I think as a -- you can go
through all the signals together, it doesn't look that worrisome. The
worrisome signs are some commodity prices. Some people view commodity
prices as leading indicator of inflation. The other thing to keep in
mind is that commodities are much less of an important input for most
businesses than labor -- labor being the most important input.
If you look at unit-labor costs, unit-labor costs have not been
growing in a way that signals an ongoing inflation problem -- in part,
because productivity growth has been so strong. So for that reason,
I'm not overly worried about inflation, although it's something
certainly to keep an eye on.
The other thing to keep in mind is that in the long run, inflation
is primarily a monetary phenomenon. We have an extremely good team
over at the Fed -- Alan Greenspan, Ben Bernanke, Don Koln -- the
appointees of this administration, we've got some extremely good
economists. And they've established a lot of credibility as inflation
fighters. And that's a reason why -- the administration, the Fed needs
to keep an eye on inflation -- it is a reason to be optimistic in the
long-term.
Q With the strength of the job growth that we've seen these past
couple of months, why has the unemployment rate not fallen? And also
do you think that it's possible that job growth will continue at such a
pace that you'll eliminate the deficit in private-sector jobs by the
end of the year?
DR. MANKIW: The unemployment rate has fallen. It's fallen from a
peak of 6.3 percent back in June, to 5.6 percent. So the trend has
been downward. If you look at the consensus of private-sector
forecasters, they're expecting it to continue downward.
There's enough noise in the data, there are imperfections in
measurement that you shouldn't give too much weight sort of
month-to-month.
MR. FRIEDMAN: And more people have been coming to the labor
force.
DR. MANKIW: And more people have been coming to the labor force.
If you look at the gain in employment -- judged by the household
survey, it's also been significant. I don't have that number, but I
think it's in the same ballpark as the payroll survey. So the
unemployment rate doesn't tell a fundamentally different picture.
And your other question -- oh, I'm not going to predict a
particular month's data. But what is clear is that we're heading in
the right direction. Most of the private-sector forecasts, as well as
our, suggest we're going to continue heading in the right direction.
Q Do you still foresee the creation of 2.6 million jobs this
year?
DR. MANKIW: We don't have an official administration forecast. We
don't do that. We're not a forecasting firm, so we don't put out -- a
forecasting firm will update their forecast twice a week. We don't do
that. We only do it as part of the budget process. We don't have an
official administration forecast since the last one we put to bed in
December.
Q Why was that put in the presidential report then if it's not
an official forecast?
DR. MANKIW: No, it was. No, that was. But if you look -- it was
in the Economic Report to the President. If you look in the footnote
of that, at the table, it says, based on data as of December 2nd. That
was the official administration forecast put to bed in December, and
then it was put in as part of the economic report, which happens to
come out in February. But it's the same forecast coming out of the
budget. And the forecast in May is part of the budget process in order
to do budget numbers.
Q So do you see that number as being initiated this year?
DR. MANKIW: We don't have a new administration forecast since
then.
Q But you can say with the current trend of the months left,
that it's achievable, yes?
DR. MANKIW: I don't do the forecast. What's clear is we're
heading in the right direction. We're making significant progress. I
don't have a specific forecast to give you beyond that.
Q Are either of you concerned that an increase in rates, which
is widely forecast at the next FOMC meeting, will put a damper or crimp
on this robust recovery?
MR. FRIEDMAN: Well, I'll give you a reaction. First of all, as
far as concern, we're paid to be concerned about a lot of things. But
the -- we have been at exceptionally low -- historically low rates for
quite some time. And the markets have, I think, very thoroughly
discounted and anticipated Fed action. We don't predict Fed action.
We leave that to the Chairman and his people. But the markets are
every day going through their own analysis. And the markets have come
to consensus and discounted it. And you can already see some of the
impacts in it. And so what that leads me to believe is that this
economy has absorbed the prediction of future rate increases and is
operating in a very robust, forward-moving pattern. So we see nothing
from that, that should derail this recovery.
Q Not only the stock market, but also it could have effects on
-- refinancing, home-buying that sort of thing.
MR. FRIEDMAN: Yes, I'm not talking about the stock market. I'm
talking about the fundamental economy. In other words, we see nothing
that should make one feel that that's likely to be derailed.
DR. MANKIW: Can I add one thing to that? In our last
administration forecast, we do forecast market interest rates. And if
you look in the Economic Report to the President, our forecast table
includes the administration forecast on market interest rates, because
interest rates are important to the budget process. We forecast
interest rates would rise as the economy recovered, so that was fully
expected. In fact, that's a normal, cyclical development -- as an
economy recovers, the demand for credit rises because businesses are
borrowing to expand, and interest rates rise. So it's really a normal
cyclical development.
MR. FRIEDMAN: And the way markets work, they price in their
expectations. And so you've started to see in longer rates, already
priced in. And you've started to see it in mortgage rates. But
mortgage rates are still historically low.
Q Tell me, if you would, one or two things that Congress might
do this year that could positively impact the economy; and one or two
things that it may be considering that might negatively impact the
economy?
MR. FRIEDMAN: Well, I'll stick with the former question. I think
it's very, very important that we have litigation reform. It's an
important priority for the President. You can't talk to a business
group -- and I'm talking about them as the job-creators -- without
realizing what an impediment it is to have an overly litigious
society. And so if class-action reform is the one that's got the best
chance of getting passed, that would be an extremely constructive thing
to get done, as well as asbestos reform, medical malpractice reform.
On the other side of it, Greg can take his comments, I think that
Congress working with the President to make sure that we maintain
spending discipline would be a very, very constructive thing.
DR. MANKIW: I agree. And there's also a variety of free-trade
agreements that have been signed, and they'll need to go through
Congress at some point. And I think that would be --
MR. FRIEDMAN: At some point.
DR. MANKIW: -- that would be positive in the event that happened.
Q Let me just ask you on the other side of that, there seems to
be some possibility that Congress may not extend some of the tax cuts
-- the middle class, child tax credit -- would that really have much of
an effect?
MR. FRIEDMAN: Permanence of the President's tax cuts is a very,
very important thing, and I'm glad you focused on that. You have to
let American families and American businesses have the ability to plan
ahead. And, plus, the last thing you want to do in a recovery period
like this is hit people with what would, in effect, be tax cuts, or the
perception of tax cuts -- tax increases. I'm sorry -- tax increases or
the perception of them in the future. So making the President's tax
cuts permanent is one of his -- a key part of his six-point plan, and
is very, very important.
Another constructive thing would be passing an energy bill, which
he has been calling for, for the last three years so we don't lurch
from crisis to crisis.
Q But specifically, if these tax cuts are not renewed for next
year -- there are some that are going to expire next year, will that
have an adverse impact on the economy?
MR. FRIEDMAN: I think any failure to make the cuts permanent is,
in effect, an increase in taxes. And that has a negative effect, yes.
Q Gentlemen, despite this improving job picture, there's still
weakness in some key battleground states -- Pennsylvania, Ohio -- do
you forecast, or foresee any meaningful job growth there between now
and the election?
MR. FRIEDMAN: Well, we don't -- we don't think of it in terms of
battleground states or otherwise. We think of it in terms of economic
terms. And the two states you talked about are very strongly
manufacturing-oriented states. And so the turn in manufacturing jobs
should benefit workers in both those states.
We're now in a situation where something like 47 of the 50 states
have had reductions in their rate of unemployment over the last year.
And this should get increasingly widespread, and should work in states
that -- with a heavy manufacturing base.
Q And you mentioned the tugs on the economy, oil prices being
one of them, is that how you all explain the fact that despite the
improving job pictures, consumer confidence continues to drop, or it
did drop in the second half of last month?
DR. MANKIW: I think the public's perception of the economy can lag
the economists' perception of the economy. The economists follow the
data very closely. The general public waits for people like me to
report on that data. And that's why we're here, so you guys can report
the very good news that we've been seeing in the data.
But I think over time, as people start feeling it in their lives,
as they see jobs are easier to find, as they see that their neighbors
are getting jobs again, as they're getting jobs again, consumer
confidence will reflect that. But I think you're right one of the
negatives has been oil prices.
MR. FRIEDMAN: There is clearly a lag in -- consumers are going
about their lives. They're worrying about their jobs and their
families, as Greg says, not studying the data. And there tends to be a
lag in their perception of the turn. And I think probably areas in
which the job picture turned earlier are ones where you can start to
see the reflection of that, the understanding of that.
There's another factor: The tremendous amount of news coming out
of Iraq has been a distraction to some extent for the consumers from
really realizing just how much stronger this economy is.
Q What's a traditional lag time? Is there any set period of
time? Or historically has there been?
DR. MANKIW: I've not seen studies of that.
MR. FRIEDMAN: You're dealing with something with a lot of
variables. It's interesting -- there's one distinguished economist
between the two of us, and it ain't me. But one of the things that was
fascinating to me last year was to see how low business confidence
was. And if you started to think in terms of what it would take to
pick it up. At that time, it seemed to us that business confidence was
actually going to lag the real turn-up also. Well, that's really
happened. And if you look at the business roundtable survey that came
out yesterday, you saw business confidence is extremely high.
Now, business confidence, these are the folks who create the jobs.
And that should -- the same factors that are making them much more
confident should start to make Mr./Mrs. American Householder start
feeling better.
Q What have you seen in the IT sector? And there are things
about the new economy that allow not only productivity to continue, but
allow the U.S. economy to absorb higher oil prices in ways that say,
it couldn't have in the '70s.
DR. MANKIW: What is absolutely true is that the amount of oil
consumed per dollar production of GDP is much lower today -- I think
half is the number -- the last one I've seen -- than it was in the
1970s. And that's, in part, because the nature of the economy is
changed. We're more technology based. We're more service based. And
that's one reason why some economists believe that oil price changes
may have a smaller impact on the macro-economy today than was true a
generation ago.
Q What do you see in the IT sector, in general?
MR. FRIEDMAN: My impression is that it is doing quite well. But
going back to your question, which I'll broaden to efficiency in the
economy, talking this morning to a manufacturers' group, and then just
talking afterwards with one of the members, the phenomenon that we were
discussing, during a slow-down period, which is what we've had, coupled
with the much greater advanced use of software and information
technology, business has just got a large inventory of
efficiency-enhancing steps they can take, and that they have started to
put into place. And so I believe they are -- I believe they are using
their resources much more efficiently than they did some years ago,
even in the industries have traditionally been energy intensive.
Q There's almost a million jobs that have been created in the
last three months. Do you see that trend continuing over the remainder
of the year? Do you see a natural slowdown in that pace?
DR. MANKIW: I think you'll see good job-creating going forward.
You may well see fits and starts. One thing to keep in mind is that
all economic data is noisy -- just measuring precisely. The revision
between the preliminary data and the final data is huge, as we saw
today. We saw quarter revisions of I think 74,000 to the previous two
months data. And probably the month of May, there will be more
revisions going forward. So given the nature of the economic data
being inherently imprecise, don't be surprised if you have particularly
good months, or particularly bad months. But the overall trend is
clearly -- is clearly positive, and we expect it to continue.
Q There's a new analysis today -- it's coming from the AFL-CIO,
so you know where they're coming from, but the suggestion is that the
increased outsourcing of knowledge-based jobs means that the new jobs
being created in the United States are going to be lower quality jobs,
less high skilled, high wage jobs, and that recent BLS data backs up
this assertion. Comment on that?
DR. MANKIW: Well, I haven't seen it. I haven't seen that study,
so I can't comment on the specific study. On a general -- I see jobs
being created across the economy -- manufacturing jobs, construction
jobs, service-sector jobs, in services -- many different sub sectors of
services. So what we see is a very broad-based jobs recovery. So I
have not seen any evidence to back that.
MR. FRIEDMAN: I think the latest month's data indicate that almost
three-quarters of the jobs, about 74 percent of the jobs, were created
in industries where wages are at or above the median. And that
includes heavy manufacturing and mining and utilities and information
services. So I don't know -- I haven't read their study either, but I
don't know what evidence they're drawing from.
Plus, information services from everything I read, business-types I
speak to, is an American comparative advantage and highly likely to
stay that way.
Q Did you all have any communication with the President today on
all these numbers, and if so, what was his reaction?
DR. MANKIW: I'm not -- I'll often talk to him when he's in town --
because as you know, he's overseas --
Q Right.
DR. MANKIW: -- we faxed him the memo. But I haven't talked to
him.
Q Is there a way to express to what extent the increased
government spending, especially in the defense sector, has contributed
to the better job numbers or increased economic growth?
DR. MANKIW: When you look at real GDP, you can look at the
contribution of growth and the difference of components of GDP. And
one sub component of GDP is government spending, and one component of
government spending is defense spending.
And so, in certain quarters that has had a significant effect. But
if you look at the overall patterns of the past year, a lot of the
specific growth is coming from a recovery in investment; businesses are
sort of coming back.
So while it might drive a particular quarter's numbers, it's not
the overall driver of this recovery. The overall driver of this
recovery is whether business is coming back.
If you look at this business cycle, by the way, this was a business
cycle that was particularly hard on business investment, and that's, in
part, why the manufacturing sector was hit so hard, because the
manufacturing sector produces a lot of business investment, equipment
investment. And now that's coming back. Because equipment investment
is coming back, and that's partly why manufacturing is coming back.
Q One reason manufacturing was hit was the one Greg said.
Another reason is that we had slow growth overseas and manufacturing is
more export-oriented. And the President's tax stimulus package was
designed to do a number of things in stages. One was to keep the
consumer in the game because he'll go back to the end of 2002, the
beginning of 2003, the consumer was -- interest rates -- was really
very, very important and clearly, the economy needed to be
kick-started. And so the first thing was consumers. The second stage
was to get business confidence up so you'd start to see business
capital spending up. And that has happened. And the third stage,
which you've been seeing for the last three or four months, was job
growth to make it a self-sustaining recovery. So there is a sense that
-- without being remotely complacent, there is a sense that those three
stages have taken effect as had been hoped for.
Q I'm not sure I understood your answer about defense jobs. To
what extent does the defense industry represent the number of jobs
created over the past couple of months?
DR. MANKIW: I haven't looked specifically in the last couple of
months. But if you look -- I haven't looked specifically at defense
job in the past two months, so I shouldn't -- what I'm saying is if you
look at the recovery over the past year, a lot of the -- the recovery
is not merely being driven primarily by increases in defense spending;
it's being driven by the fact that business investment is coming back.
MR. FRIEDMAN: I think he was talking about defense spending, not
defense jobs.
DR. MANKIW: Yes, yes. I have not looked in detail at defense
jobs.
Q How much of it over that time would be defense spending?
DR. MANKIW: I don't have a specific number for you. But the
driving thing behind the improving jobs market is the fact that
economic growth is coming back, as measured by GDP. And the driving
thing for GDP has been business investment coming back, the consumer
continuing to be strong, the housing sector continuing to be strong.
Certain quarters have shown a big impact on defense, but not the
overall pattern that we had last year.
MR. FRIEDMAN: Pretty much done it? Okay, well, thanks so much for
coming.
END 1:38 P.M. EDT
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