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For Immediate Release
Office of the Press Secretary
October 31, 2007
Press Briefing by Senior Administration Officials on the GDP Numbers
James S. Brady Briefing Room
Carlos Gutierrez, Commerce Secretary
and Edward Lazear, Council of Economic Advisers Chairman
10:04 A.M. EDT
MR. FRATTO: Good morning. Thanks for coming this morning. As you saw, the new GDP numbers for the third quarter were released this morning, and we've asked our Secretary of Commerce, Carlos Gutierrez, and the President's Chairman of the Council of Economic Advisers, Ed Lazear, to give you a briefing, a little bit of context on those numbers and how the U.S. economy is doing right now.
So we're going to ask Secretary Gutierrez to lead off, and then he'll turn it to Chairman Ed Lazear, and then we will be happy to take your questions. Thank you.
SECRETARY GUTIERREZ: Thank you. Good morning. Thanks for coming, and I'm here with my colleague, Dr. Ed Lazear, Chairman of the Council of Economic Advisers.
Today, the Department of Commerce announced that third quarter GDP growth was a robust 3.9 percent, making this the 24th consecutive quarter of economic growth. This growth is coupled with a record-breaking 49 consecutive months of job growth and historically low unemployment. The President's policies have helped foster broad-based economic growth.
This third quarter was fueled by consumer spending, business investment, rising net exports and non-residential construction. Housing remains a concern, but its impact is being offset by growth in other sectors of the economy.
Once again, we see just how diverse and how resilient our economy is. Very importantly, exports generated 45 percent of this quarter's GDP growth. Last year we had a record $1.4 trillion in exports, that's up 12.7 percent. If we continue on our current path of opening overseas markets and expanding exports, this year should be even better with another very strong growth rate.
We have four free trade agreements pending before Congress with Peru, Colombia, Panama and Korea. These agreements will help create access by reducing trade barriers and creating new opportunities for America's farmers, workers and businesses. This is not the time to hesitate regarding free trade agreements. This is the time to add momentum to our export growth, and the way to do that is to pass the four free trade agreements as soon as possible.
We're pleased with today's GDP report. As always, we are never satisfied. We will continue to work to create an environment that encourages investment, the creation of new businesses, continued growth of exports and even more jobs for the American people.
CHAIRMAN LAZEAR: Thanks very much. Well, I would start by emphasizing a couple of the points that Carlos emphasized, as well.
I think the main theme that I would want to leave you with is that this is an extremely resilient economy. It is really quite remarkable that during a quarter when we had housing market issues, when we had a credit situation in the beginning of August, despite that, we still ended up with nearly 4 percent growth following another quarter where we had nearly 4 percent growth. So that, really, I think is quite an impressive statistic, and it's certainly encouraging to us.
The second point I would make is that the growth was very balanced. So we see this coming from a variety of sectors -- consumption contributed 2 percent to growth, investment, government and net exports each contributed 1 percent; and we did lose 1 percent from the housing market. So the housing market is clearly the weak sector of the economy right now, and has been for the past year-and-a-half.
Despite that, housing does not seem to be leaking into other parts of the economy. One of the big concerns that we had was that the decline in the housing market might affect other parts of the economy, in particular, consumption. We have not seen any evidence of that. In fact, quite the contrary, consumption was strong during the second quarter, and that's an encouraging sign as we go -- sorry, during the third quarter, and that's an encouraging sign as we go into the fourth quarter.
So why don't I stop there, and we'll take your questions.
Q To what extent is the low value of the dollar in comparison to other currencies a contributor to this export growth you were talking about, and is that a concern?
SECRETARY GUTIERREZ: I won't get into comments on the dollar. I will say this, that exports in 2006, full year 2006 grew 12.7 percent over 2005. This year they're up almost 12 percent. So we have been seeing strong growth in exports for over a year-and-a-half now. We think a big part of that is a function of small businesses, medium-size businesses getting behind free trade agreements. We've opened up more markets through free trade agreements. We've opened up more markets around the world. Businesses are getting behind exports, and we are becoming a major, major exporter. We've got to keep that going.
CHAIRMAN LAZEAR: The other thing I would just add to that is this is not a zero-sum game. We do well when our trading partners do well. So our exports increase when other economies grow, because when other economies grow, that means that their demand for all goods -- some of which are domestic to them, but some of which come from us -- also grow. And so a significant fraction of the export growth that we have seen has been a result of growing economies around the world, and that's a good sign.
Q To follow on that, can you talk about the inflation risks of the weaker dollar?
CHAIRMAN LAZEAR: There are always inflation risks in any economy. The one thing that we do know is that inflation has come down from a year ago. So if we look at the numbers that -- most of the numbers that we look at are the same numbers that the Fed looks at. The one that we tend to favor is the core PCE deflator, and that number is at about 1.9 percent. So 1.9 percent inflation is below the Fed's target range of 2 percent; obviously, it's not a lot below that number, but it is below and that's a good number, I think, in terms of inflationary pressure.
It's quite surprising, to be honest with you, because we have seen a number of factors increasing in this economy. The oil prices that we've seen eventually play out into core prices as well, and despite that we've been able to hold down inflation rates. And I think in large part that's a function of productivity growth increases and a very fluid labor market that has supplied jobs to individuals and supplied labor to the production sector that we need in order to keep prices low.
Q Do you see a disconnect between the feelings of the typical American who's concerned about the value of their home, ability to get a mortgage, concern about the price of oil going up and when that will eventually hit the pump, and the kind of statistics that you're sharing with us today?
CHAIRMAN LAZEAR: There is a disconnect. It's somewhat surprising, because if you look at the polls that ask individuals how they feel about their own personal situation, most people will tell you that they're feeling pretty good about their personal financial situation; depending on the poll, anywhere from two-thirds to three-quarters people will tell you their own financial situation is better today than it was a few years ago. Despite that, when you ask them about the general economy, for some reason they don't seem to be looking at the numbers because they seem to think that the general economy is not doing as well, and that is a bit of a frustration.
The one thing I will say, though, is that what we tend to rely on more is behavior, rather than what people are saying. And probably the best indicator of behavior is consumption expenditure and investment expenditure -- consumption obviously on the side of the household, the individuals. Consumption expenditures were up, they looked pretty strong, so it looks like people believe in the economy. And then on the investment side, that was actually quite encouraging this last quarter because investment grew at 6 percent. That's the highest growth we've seen in about a year-and-a-half. So again, it looks like people are acting as if they believe in this economy.
Q Mr. Lazear, about the dollar, do you agree with the IMF opinion that the dollar has still some room for downward correction? And in general, what your projections mean for the value of the dollar?
CHAIRMAN LAZEAR: Well, you know our rule, unfortunately, at the White House, is that we defer to the Treasury Secretary and to the President on issues of the dollar. And so I'll have to pass on that question; I apologize.
Q Sir, how long do you think the economy is going to be able to withstand the pressures of these growing -- of these increasing oil prices that we're hearing so much about this week?
CHAIRMAN LAZEAR: The way I think of it is that we have already felt the pressures of the oil prices. They are reflected in the current numbers. That is, we could always say, but for growing oil prices, what would our growth rate have been? And it probably would have been higher.
The point is that the American economy is resilient and it's able to shrug off higher oil prices primarily through gains in productivity growth and through expansions into other sectors. So for example, the service sector is not quite as sensitive to oil prices as is construction manufacturing. We have a very strong service sector -- service sector continues to grow -- and that's one way that the economy adapts to it. But there are a variety of ways, even within manufacturing and construction; we simply see that high productivity growth offsets the costs of oil prices. If we have lower oil prices, you know, things would probably have grown even faster.
Q Secretary Gutierrez, you just said that --
SECRETARY GUTIERREZ: Let me just remind you -- just to go back to your question because I -- just to remind you, this is the 24th consecutive quarter of economic growth. We've had 49 consecutive months of employment growth. And think about what we have been through: We had a recession in 2000, we went through 9/11, we went through stock market -- the crash, we went through corporate scandals, we went through 2005, which was the worst year of hurricanes in our history. You know, this economy has proven again and again that it is resilient and it can get through this.
Q As you said in your opening statement, that these numbers have been fueled by consumer spending. The consumers are going to have a lot less to spend when their oil -- heating oil bills go up, when the gasoline bills go up as much as -- if this bubble continues. So do you think that that's going to be sustained in consumer spending in that area?
SECRETARY GUTIERREZ: Well, again, we didn't -- you know, last year we saw a steep rise in oil prices going into winter, and there were the same predictions. And what we saw is a very active consumer. What you've got to remember is, real wages are up; take-home pay, in real terms, per capita, is up over 12 percent since the President took office. So, yes, there are some impacts, but the consumer has been very active. The fact that our unemployment is low also helps.
So again, we have seen that our economy can get through these bumps in the road. Nobody is saying that these oil prices are acceptable, and we're as concerned as everyone else. But we will get through it. And consumers remain active. And very importantly, businesses will continue to invest, we believe.
Q There was a -- about this idea of alternative fuels, there was a call for a freeze on using food stuffs for fuel for five years because people -- many people at the U.N. believe that this is simply too wasteful for poor countries. Would the White House -- what's the position of the White House on that?
CHAIRMAN LAZEAR: Well, the President's policy is that thinking about alternative fuels is extremely important both for our energy security and for the issues that you were just discussing -- the impact on the American consumer. Obviously, if oil prices continue to rise, and oil is our only source or our primary source of energy, that places pressures on the household, and we worry about that. So we have to think about ways to get around that.
Obviously, we are concerned about the effect of ethanol demand on corn prices and so forth. It has effects on other sectors of the economy. And it is for that reason that the President has put forth a number of proposals to think about alternative ways to do this. Cellulosic is the obvious alternative. That's not online yet in a major way, but we expect to get there within the next few years, and we're funding research into that and development into that at a strong level so that we can move in that direction.
SECRETARY GUTIERREZ: The market has a way of dealing with that, and we don't need regulations to tell us how we need to produce things. There is investment, venture capital already going into non-foodstuff-based fuels, and that will continue to grow, because that makes sense from a market standpoint. So the important thing is, based on the President's direction, people are investing in new sources of energy. And that's what's going to make the future different and that's what's going to get us away from our dependence on oil.
Q Could you talk in any specific way about how you think some concerns by consumers, especially with all the product safety issues that have come up, how that might impact this upcoming holiday shopping season?
SECRETARY GUTIERREZ: Well, as you know, this is something the President addressed a couple months ago. He set up a product safety task force, led by Secretary Leavitt. This is a very important priority. We are working not just internally, and looking thoughtfully and strategically at how best to tackle this, working very closely with our import partners; working very closely with companies, because every company works with a manufacturer overseas that may be manufacturing a product for them. So do we have the right certification standards? Are we communicating those standards effectively? Do we have the right inspection system? Do we have the right number of inspectors? Do we have the right recall system?
So we are all over this. This is very high on our agenda with the government of China, when we have our meetings in December, and it's being discussed as we speak. So, you know, this is something that we have taken extremely, extremely serious, starting from the President on down. And there is an awareness among consumers. And I believe, if anything, that awareness has made us all better consumers and better shoppers and better manufacturers.
Q Should people buy toys from China during this holiday season?
SECRETARY GUTIERREZ: Consumers will make the right choices. And again, there is a tremendous amount of awareness among retailers, among importers, among manufacturers, and consumers should know that we are working actively to ensure that we continue to have the safest supply chain in the world. And that is our goal, that is our objective, and I would say that that's -- every retailer in the nation has that goal, and every importer has that goal. And if anything, the fact that we caught these problems a couple of months ago I think is a testament to the fact that the system is surfacing these problems. And the fact that we caught them I think is important heading into the retail shopping season at Christmastime. The fact that we caught them before then, I think, will be extremely helpful.
Q Do you feel that given all of the plans and discussions that you just outlined, people will be shopping now? Do you feel confident that the products that will be available, that are already in the supply line to stores, et cetera, et cetera, are safe? When you say consumers will make the right choices, do they have enough --
SECRETARY GUTIERREZ: Well, I can tell you I'll be shopping. And, look, the bulk -- and you're talking about the great majority of the products in our country are safe, and they have been safe. And what we caught was a slight percentage of that. And we will continue to work with retailers, with manufacturers, with importers to ensure that consumers have the safest product supply in the world. And that is our goal, and that's our focus, and it starts with the President.
Q Along those lines, how does the holiday shopping season look to be shaping up? What's your prediction for how this will be --
SECRETARY GUTIERREZ: Well, I'm not going to make predictions. The important thing is that this quarter -- the second quarter -- just to go back a little -- the second quarter
consumer spending was on the low side and there was some concern that perhaps the consumer was slowing down; I think it was 1.4 percent growth. We still grew 3.8 percent, which is the amazing thing, because of exports. This third quarter, consumer spending is back up to 3 percent.
So I would say, you know, to Eddie Lazear's point: Watch behavior; watch what consumers do. And what they're doing is shopping and they're out there being active and they're spending and they're showing confidence. And there's no reason why that confidence shouldn't continue as we head into the fourth quarter and the shopping season.
Q Is there going to be some sort of more aggressive, for lack of a better word, effort to communicate to consumers that it is okay to go out and shop, because there obviously are some major concerns about product safety?
SECRETARY GUTIERREZ: Sure. Well, again, this is a very broad marketplace. There are a lot of retailers who have a stake in this. There are a lot of manufacturers who have a stake in this. We obviously have a stake in this, and we're working with the Product Safety Commission and the Congress, but there will be a lot of communication, I'm sure, heading into the -- heading into the shopping season. And very importantly, there will be such a focus on this.
So, yes, there will be communication and there will be a focus on it. How much communication -- you know, you'll have to go out and see what the retailers do and manufacturers do and so many others who are out there ensuring that we've got a safe product supply.
Q What is your projection for the GDP growth in the first quarter and in 2008? And will the U.S. economy continue to achieve the 3 percent growth annually?
CHAIRMAN LAZEAR: We have a forecast. We don't do our forecasts quarter-by-quarter. The blue chip forecasts, as you know, are a little lower for fourth quarter of this year. But if you look into 2008, most forecasts, the administration forecasts and the blue chip forecasts have economic activity picking up. We expect to see a strong year in 2008, somewhere in the neighborhood of the high twos or low threes, and that's our projection for 2008.
And I think that the most recent numbers that we've seen -- the second quarter and the third quarter -- add some credibility to that because, again, we were concerned that those quarters would be weak, particularly given what was going on in housing and credit. And despite what went on in housing and credit, we had such strong quarters that it suggests that, in fact, the fourth quarter is likely to be better than we expected it to be, as well -- but we'll have to see. We don't like to predict the future, especially on a week-by-week basis, but we are expecting a good year in 2008.
MR. FRATTO: Thank you.
END 10:26 A.M. EDT