The White House
President George W. Bush
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For Immediate Release
Office of the Press Secretary
December 1, 2005

Press Briefing with Matt Slaughter, Council of Economic Advisers
Via Conference Call

2:06 P.M. EST

MR. DUFFY: Thanks, everyone, for joining us. As Scott mentioned a few moments ago, this is to announce the administration's economic forecast for the next year for construction of the budget. It's an on-the-record conference call, and this is Matt Slaughter, a member of the Council of Economic Advisers. And I'll turn it over to Matt.

MR. SLAUGHTER: Great, thank you very much, Trent. Before we move to questions, there's a few major points I'd like to make about the forecast.

First is just to point out that the Chairman of the CEA, Ben Bernanke, has not been involved in this forecast. Ben has recused himself from this process, given his pending nomination to the Federal Reserve Board.

Second point I'll make is that this forecast -- we're releasing it now. This is an input that is used for the President's fiscal year 2007 budget. This forecast, along with a lot of other material that OMB uses, is used to put together the budget forecast which will be out in February. And we're releasing this economic forecast today because the numbers are fresh and we'd like to share them with everyone.

I will also point out that the numbers that you all have in the release, our forecast is quite similar to the consensus of a lot of professional economic forecasters, and quite similar to the administration's recent forecast. And I guess, I'd take just one more minute and highlight a few key numbers in the forecast in terms of GDP, employment performance, and price inflation.

First on GDP, for calendar year 2005, the forecast is for real GDP growth of 3.5 percent, which was revised up one-tenth of a percentage point for the mid-session projection that we had six months ago, in June.

Looking ahead to 2006, real GDP growth is expected to be quite similar at 3.4 percent. In terms of a labor force performance, the forecast for right now for 2005 employment growth is payroll jobs growth rate of about 160,000 per month. That's revised down slightly from the mid-session estimate of 178,000 per month. And that revision down is largely because of the September disruptions because of hurricanes Katrina and Rita.

Going forward, payroll employment growth into 2006 is expected to pick back up to 176,000 per month, which is basically unchanged from the previous forecast. The unemployment rate, which has been falling throughout 2005, is projected to remain at 5 percent going forward. And in terms of price inflation, as we know, price inflation every three months has been higher than our previous forecast largely due to volatile energy prices. But excluding energy and also food, the core CPI growth has been 2.1 percent during the past 12 months, which is essentially unchanged from the year earlier rate. So going forward into 2006, the forecast for price growth both in terms of the CPI index and the GDP price index are much closer to the previous trends.

And with that, I'd be happy to take any questions you may have.

Q Hi, I have a question on the job figure. I see that the non-farm payroll employment, the level for 2005 is 133.6 million, the annual average, which was the same as in the June forecast -- 133.6 million. So when we have the monthly average, the jobs figure being revised from 160,000 -- revised to 160,000 from I think it was 178,000 in the mid-session review -- I guess my question is, the net, is that meaning -- if the level is the same, would that mean that you're still expecting jobs to average 133.6 million in 2005, which would be up from the previous year, or are you expecting overall less job growth in this year?

MR. SLAUGHTER: Sure. Thanks for that. I think if I could help with that, the non-farm payroll employment numbers that you see in levels, that level of 133.6 million, that is an annual average -- so over the 12 months, over the calendar year. And so the implication of that is the one-month or two-month hit regarding the hurricanes has a much -- has a very small impact on the 12-month average. Where you see more of the impact of the hurricanes is in the rate of job growth over the entire year, which, again, is 160,000 right now -- a bit lower than the previous forecast. But as BLF had estimated, about 230,000 jobs were lost in those growth numbers because of the hurricane, and so the differential of 160,000 now, relative to 178,000 a month before, is basically accounted for by the hurricane.

Q Well, what's the net, then? How many jobs will be created -- are you expecting would be created in 2005 from last year?

MR. SLAUGHTER: So the net job growth for the year would be the 160,000 times 12 months, which would be a little under 2 million jobs created over the full 2005.

Q I've got two questions, which are actually not very related. One is, your GDP forecast for '06 is 3.44 percent. How does that -- this may be in here somewhere, but how is that comparing to what you put out in June? And then I'd like to ask a question about consumer spending.

MR. SLAUGHTER: The 2006 number currently is a projection of 3.4 percent, and our previous projected for 2006 was also 3.4 percent, so that's unchanged.

Q The question about consumer spending is very straightforward. I mean, just talk about what the outlook is generally for consumer spending, particularly in light of the hit that has been produced by higher energy prices. And if you can, do you have any kind of outlook for the holiday spending season?

MR. SLAUGHTER: Sure. Just a comment, in general, on consumption spending -- the revised third quarter GDP numbers that came out just yesterday, actually, showed third quarter consumption spending growth of 4.2 percent in real terms. So consumption spending remains one of the key drivers of U.S. economic growth. Going forward, we expect that to be the case. There's some private sector forecasts about retail sales for the holiday season that I don't have offhand.

Q Can you tell me what the productivity growth assumptions are for this year into next year?

MR. SLAUGHTER: I don't have those. They're not in the release. I know that productivity growth in recent years has been very strong. I believe during the administration, labor productivity growth rates have averaged over 3 percent per year. Going forward, I know our forecast, consistent with forecasts of the blue chip and other private sector forecasters, is for productivity growth to continue to be strong, but to decelerate a bit going forward.

Q And then from what to what?

MR. SLAUGHTER: Again, I don't have those numbers right here.

Q I'm trying to get a sense of, on oil prices, one of the factors going forward, the strong demand -- strong economy in the U.S. next year and China and India looking strong, it seems like the same problems we faced this year could be the problems we face next year in terms of demand-supply crunch. Have you taken that into account any? And anything you can say to how that might affect growth, looking at next year?

MR. SLAUGHTER: Sure. I think it's fair to say high energy prices is one possible risk for the economy going forward, when you think about the impact of higher energy costs on households, household budgets, in terms of heating, transportation, and also the impact on a lot of American companies, in terms of higher energy costs, as an input for them. In general, energy is one of the many few hundred variables that are part of the model that underlays this forecast. So the high energy prices that we've seen running up in recent times we have going forward. And the price -- the actual price data that we have in there is data drawn off futures markets. So it's kind of -- the oil prices that we have built into the model are consistent with the estimates of futures markets.

Q Is there a price that you're estimating -- an actuarial price?

MR. SLAUGHTER: I don't have that off the top of my head right here, no.

Q Is it possible to get that as a follow-up from the White House?

MR. SLAUGHTER: Maybe. I'm not 100 percent sure on that. We need to check.

Q Okay, I'll check back with Trent.

MR. SLAUGHTER: Great, thanks.

Q I wonder if you're seeing any gap between the economic numbers that we're seeing, particularly the ones this week, that show a lot of positive news, and the public's perception of their own financial situation? There was a poll the other day that showed that almost half of Americans think the economy is in recession. And I wonder, does that matter at all? And if so, what do you think the reasons are for that?

MR. SLAUGHTER: I think two broad comments on that. One is, consumer attitudes, a lot of it, the most recent data are showing strong rebounding in consumer sentiments, from the University of Michigan index, the Conference Board index. The daily Rasmussen index is now at pre-Katrina levels. And I think a second broader comment is, it's important to -- most importantly, to look at how consumers are acting, rather than just the data that's in the surveys. And from my earlier comment, consumption growth in the U.S. economy remains quite strong, and the third quarter numbers that you referred to, coming out yesterday, again, 4.2 percent growth in consumer spending.

Q Hi, yes, I was just curious, do you have deficit figures, revised deficit figures to go along with this forecast?

MR. SLAUGHTER: I don't. Again, this forecast is the economic forecast that's sort of the foundation that's used to help build the budget forecast going forward. So that's a process that's underway at this point. And I believe kind of early into 2006, there will be budget forecast numbers that go along with this.

Q Thanks.

MR. SLAUGHTER: Great. Thank you.

Q Hi, Mr. Slaughter. How would you characterize the growth? I mean, is it -- it seems that it's down one-tenth of a percent, the projection for 2006. Does that show a flagging of growth? Does it show a continuum of growth? How would you characterize it beyond the numbers?

MR. SLAUGHTER: Beyond the numbers -- thanks for that. I'd characterize it as continued strong growth for the U.S. economy overall. These are growth rates that exceed a lot of the basic averages, if you go back in recent decades. And to the extent that we continue to have very strong productivity growth in the U.S. economy like we've been enjoying in recent years, the hope is that we'll continue to see that in strong GDP growth going forward, also.

Q Okay, thanks.

MR. SLAUGHTER: Great. Thank you.

Q Hi, a couple of other questions. The European Central Bank yesterday raised -- today, rather -- raised interest rates and got a lot of flack as to whether it's going to kill off the economy. Can you talk a little bit about the global factors that go behind this strong growth projection for next year, what the global drivers outside the U.S. might be holding this up?

MR. SLAUGHTER: Thanks for that. Again, the model is based on a framework that has literally kind of hundreds of variables into that, part of which is economic relations with the rest of the world. I don't think there's any kind of particular inputs to speak on there. And the other related comment I would make is, in case it enters anyone's thoughts, is in terms of the interest rate forecast that we have that are built into our economic forecast here. The interest rate forecasts are based off of -- are consistent with markets for financial futures. So in terms of U.S.-Fed behavior, for example, or ECB behavior, it's what the market expects is what's built into our forecast.

Q Okay. Then do you want to talk a little bit about the global trend? Clearly, China and India are projected to grow very strong next year. How much does that pull us along, as well?

MR. SLAUGHTER: Sure, yes, I think that raises a general issue which I think is very important, which is a stronger economic growth abroad is a strength for the U.S. economy, that there is demand for our exports, which is good, and we know that the current account of balance that we have in the United States right now is driven by a lot of forces, several of which reflect the strength of the U.S. economy. And a prominent one has been that our growth rates in the U.S. economy in recent years has been much faster than that of a lot of our major trading partners, like Japan and Germany. So faster growth abroad, related to ECB activities or what have you, in many ways will benefit the U.S. economy.

Q Just following up on Brendan's question -- do you think high energy prices are one reason that the attitudes that Americans have about the economy don't necessarily square with the data? And, also, how do you reconcile the reports from the Michigan Consumer Confidence and Conference Board with the broader polls, such as the one Brendan mentioned about a lot of Americans seeing -- many Americans believing the economy is in a recession?

MR. SLAUGHTER: Again, I think I'll come back to some of the broad issues we talked about with that. One issue, again, is that I think that consumer attitudes do move around with movements in energy prices. That's something that households definitely see when they go to the gas station, or their energy bills show up at the house. And, again, a lot of those have rebounded. And more generally, I think, looking at sentiments that are stated by households about the state of the economy, again, I think it's important to keep a focus on how individual households and consumers are acting, much more than kind of what's going on in the polling survey data. And the ongoing strong economic growth and the ongoing strong consumer demand being a big driver of that I think is informative about kind of how households are actually feeling and acting.

Q On a separate issue, I noticed you've revised your 91-day T-bill interest rate forecast, and you've revised it sharply higher, and I'm wondering what lies behind that. Is that based on market futures?

MR. SLAUGHTER: Yes, the interest rate forecast that we have is designed to be consistent with markets for financial futures. So to the extent that the market now anticipates higher interest rates, that's reflected in our forecast.

Q If the rates in the 91-day T-bills are that much higher, wouldn't one expect that to be noticed throughout the forecast? Yet it seems to have changed practically nothing else.

MR. SLAUGHTER: I think it definitely has been built into the forecast. The interest rate forecast that we have both for 91-day Treasury bills and the longer-term 10-year Treasury notes are built off of information in financial markets. More generally, those interest rates numbers, again, which are designed to be consistent with information from futures markets, that's just part of the many ingredients that get built into the model for how overall economic performance is going to be.

MR. DUFFY: Well, again, thank you. Thank you, Matt.

END 2:24 P.M. EST

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