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Office of the Press Secretary

For Immediate Release May 1, 1996
                             PRESS BRIEFING
               DEPUTY SECRETARY OF TREASURY LARRY SUMMERS                    

The Briefing Room

10:07 A.M. EDT

MR. MCCURRY: Good morning, everybody. You all know that a short while ago the Commerce Department announced that the GDP increased at an annual rate of 2.8 percent in the first quarter of 1996, a very solid performance by our economy that reinforces the Clinton administration's belief that we can stand by a forecast of steady growth and moderate inflation for the balance of 1996.

Good news. So, of course, we're taking the opportunity to talk at great length about good news. (Laughter.)

Q Always subtle.

MR. MCCURRY: I'd like to have Dr. Laura Tyson, the President's Economic Advisor and Chair of the National Economic Council, speak to this for a brief bit, along with Secretary of Commerce Mickey Kantor. Also representing other parts of the National Economic Council, Alicia Munnell, from the Council of Economic Advisors is with us, and also Dr. Larry Summers, the Deputy Secretary of the Treasury.

It's a great pleasure to welcome you all here. Take it away.

DR. TYSON: Good morning. I'm glad I got my voice back for this. We did get the advance report today from the Commerce Department on the growth of output in the first quarter of this year. Economists often do, on the one hand-on the other hand kind of reports. This is not that kind of report. This is plain and simple good news for the American economy and more evidence that the President's economic strategy is paying off.

Growth was reported in at 2.8 percent on the new chain-weighted basis. Growth would have been stronger in the first quarter of this year if there had not been a strike in the automobile industry and, of course, that blizzard which all of us probably remember.

A second point about this report is it shows that we are still enjoying an investment-led expansion. We're particularly encouraged about this because investment not only adds to demand now, but it adds to supply capability in the future. Investment was up 14.5 percent in this first quarter at an annual rate, and 11 percent since the administration took office. This is the best record in terms of an investment growth rate since President Kennedy's administration.

Consumption was also up in the first quarter. Consumers were on the rebound -- we saw a consumption growth in at 3.5 percent, so that both consumption and investment were strong indicating dynamism in the private sector and confidence in households and in the business sector.

In fact, private sector growth is really what this expansion has been about. This is the second longest economic expansion since the end of World War II for a peacetime expansion, and it has been led by the private sector. If we look at the private sector growth rate for the first quarter of this year, it was at a 3.0 percent annual rate, and that rate has been 3.2 percent for the administration's entire economic record. The federal government has been downsizing. The federal government has been declining as a factor in demand. and the private sector has been picking up the slack.

Finally, on the inflation front, we have emphasized all along that we are after a sustained expansion, a sound expansion. An expansion will be sustained and sound if the inflation rate remains moderate. This index, the number we look at here, is the chain-weighted GDP price index. It came in at 2.5 percent for the first quarter. That's about the same as the increase in that indicator for the four quarters in 1995. So if you look at that measure as an overall measure of inflation coming out of the GDP accounts, we see no sign of acceleration in that number over the average of 1995.

Now, finally, let me just end by saying that this report is only the latest in a series of very good reports on the economy that we have had this week. Consumer confidence, according to the Conference Board, reached its highest level in six years in April. Manufacturing, the National Association of Purchasing Managers Index went over 50, indicating an expanding manufacturing sector in April. We got the employment cost index report this week, which showed that wages grew at their highest rate in nearly five years.

If you look at the unemployment claims this morning, if you look at auto production schedules, there are signs that the momentum we have seen in the first quarter will be sustained in the second quarter and, indeed, may even be stronger in the second quarter because those special events of the strike and the blizzard are behind us.

So, altogether not "one hand on the other," but a good report for the American economy.

Secretary Kantor.

Q Gas prices.

SECRETARY KANTOR: Thank you. (Laughter.) I filled my tank this morning, Helen. (Laughter.)

Just to add a couple of points. A strong and balanced growth has translated into more jobs, which is, of course, critical. Employment increased more than 600,000 this quarter alone - 8.7 million for the administration - 93 percent in the private economy. That is the highest percentage of jobs created in the private economy since Warren Harding was President of the United States. (Laughter.) And I am the only one here old enough to remember that.

And there's also reason to be optimist about these jobs -- the CEA Department of Labor Study showed, I think, two-thirds, --is that right, Mr. Sperling -- of the job growth under this administration has been in high-wage jobs. So these numbers are important. There's no "one hand, on the other hand" as Laura has correctly pointed out. More important, it means jobs for Americans at higher wages. This economy is improving. It's improving for the entire country, and that's what's important about it.

Thank you very much.

DR. TYSON: Well, we're here as a team to answer your questions.

Q What about gas prices? Have you any projections on how the current spike in gas prices might affect those longer-term inflation rates?

DR. TYSON: Well, if you've been following gas -- oil prices over the last few days, actually over the past about week, there's already some sign that they are beginning to come down. They've come down from about $24 a barrel to under $21 a barrel. All of the futures markets suggest that prices of oil will be coming down later this year. There are some temporary factors that were at play here. Once again, the weather and the longer winter did play a role here. So we anticipate, as the market does, that oil prices will be coming down.

Now, the President was concerned about this and he did take the action to order -- or to request that there be an immediate process for the orderly sales of those 12 million barrels of oil. And we will continue to watch these numbers with concern, but we're gratified to see the oil prices beginning to come down.

Q If I could follow up, did the President have your projection or prediction that oil prices would come down again when he made this decision to sell the 12 million in reserves?

DR. TYSON: Yes, he had an analysis which showed what the futures markets were saying, and he had an analysis of all the various factors that analysts have identified for why there has been a run-up in prices.

Now, we don't understand everything about the run-up in prices which is why he asked the Secretary of Energy to report back in 45 days on all factors that could be identified. But he certainly did know that the futures markets were predicting that crude oil prices would come down.

Q So why did you take that step then?

Q So you're against the 4.3 -- repeal of the 4.3 you're against?

DR. TYSON: Let me do the --

Q Wasn't this a symbolic steps, in other words?

DR. TYSON: No, it was an appropriate step at the time. I mean, the point is that the Congress had essentially required by its omnibus appropriations bill that these 12 million barrels, approximately 12 million barrels, would be sold. It seemed like at a perfectly appropriate time to sell them at a time when the price per barrel was high.

Q Dr. Tyson, when you consider the action that the President took on oil and on beef this week could you refresh us on what the administration's philosophy is on free markets these days?

DR. TYSON: The administration has not changed its philosophy. This is a market economy and supply and demand and private decisions determine what happens in this economy. However, as you know, the federal government does take actions. The actions the federal government took in both of these cases were within the confines of existing policies. There's really nothing new here.

We were requested to sell those barrels of oil, and the question as only one of timing. They needed to be sold by the end of Fiscal Year 1996. What better time to sell them, what more appropriate time to sell them than at a time when oil prices were at a high.

As far as the cattle price situation is concerned, again let's realize the federal government does purchase meat for schools; it does purchase meat for the Department of Defense; it does influence acreage through the CRP program. Making adjustments in the timing of the meet purchases to buy low, to buy when the price is low is perfectly appropriate. And making adjustments in the CRP because of a situation of drought in many parts of the country and very high feed grain prices as a consequence seems a perfectly sensible thing to do.

These are not new policies. These are adjustments in existing policies.

Q So how do you feel now about repeal of the 4.3?

DR. TYSON: Our position on taxes is the following: We are in favor of real tax cuts for middle-class working Americans. We have made proposals for real tax cuts that go into the pockets of working Americans. The tax cuts we have proposed are the education, tax deduction, the IRA expansion and the child credit.

If the Republicans want to come to the negotiating table to talk about balancing the budget in that context, if they want to bring a cut in the gas tax, they should bring it to the table. But that's a budgetary item and should be brought to the full budget talks on trade-offs in the budget.

Q Dr. Tyson, would you say that, as an economist, that the sale of the 12 million barrels had any effect at all on the lowering of gas prices?

DR. TYSON: The sale of the 12 million barrels, which is something that is in process, all right, is something which adds in a marginal way to the supply of oil at a certain period of time, and that, as any factor, would have some effect on the price of oil. We never estimated for the President, nor would we estimate for you, what the size of that effect is. But, clearly, it's an incremental addition to supply at a certain period of time in the marketplace.

Q So you wouldn't take any credit for the lowering that you've seen over the last couple of days?

DR. TYSON: All I would say is it's an appropriate action to take and if -- there has been some statements in the marketplace that this had an effect. This market has been subject to a fair amount of speculative behavior. And in a speculative environment, adding even a marginal addition to supply at a certain point in time when perhaps the market was going to, for speculative reasons, begin to move down anyway, can be a helpful factor.

Q On the GDP numbers, what had you expected for it for GDP, considering the blizzard and the GM strike? And why do you think it came out at 2.8?

DR. TYSON: Well, we don't do quarterly predictions, and, therefore, I would only say that we predict for the year, our year's growth rate prediction is 2.2 percent for GDP for 1996. And we don't do quarter to quarter. This number, everything in this report would not lead us to revise our estimate for the year.

And one thing that I do want to emphasize here is that this is an advance report. That is, this number can be and usually is revised. There are certain assumptions here about inventories and certain assumptions about trade which will be adjusted going forward. So right now we're looking at a number which has come in at 2.8 and we're trying to sort of analyze that number in terms of strength, say, of private demand.

Q How much confidence do you have in this number that it won't be revised dramatically when it comes out?

DR. TYSON: There's no reason -- I think what's important about this number is if you look at the individual components of final demand, look at the growth of final demand, which is 3.3, substantially up from the first quarter, every major component of domestic final demand -- excuse me, investment in all of its subcategories and consumption and its subcategories, show considerable strength over the last quarter of last year. So it certainly can be revised, but I still think it paints a picture of sound growth.

Q Would you be disappointed if the market sees this as less than good news?

DR. TYSON: I think that this is good news. I mean, when you -- if you think about what is economic policy meant to achieve, it's meant to achieve sustained economic growth that's balanced, that's led by the private sector, that keeps -- that is growth accompanied by modest inflation. Everything you would look at here in terms of soundness of economic growth shows up in these numbers.

Q Can you convince voters of that? Up to now the analysis has been that, yes,the economy is pretty good, but they don't get it. They think it's terrible. Republicans can talk about the Clinton crunch. Can that still happen?

DR. TYSON: I think I would say the following: This is a good report. Part of the reality of our economy is that there is good news in our economy. Does that mean the job is over? No. Does that mean there's not more to be done? No. So there's no simple bumper sticker that describes the U.S. economy at this point. This is a sound economy, it's a healthy economy, it's an economy that is growing with low inflation. But it is the case that many Americans for a long period of time have been disappointed in the growth of their living standards.

So we want to see continued expansion. We want to do what we can do through education and training, pension portability, health care portability, a number of other things, to make sure that Americans feel more secure about their jobs and to make sure their incomes rise in the jobs that they are currently in. That is why the CEA report was so important. It shows us that we are getting improving quality in jobs. It also shows up, for example, this week in the ECI, where we can actually see the fastest increase in the wage and salary component in the private sector that we have seen in five years. Finally, real wages are beginning to respond at least according to the ECI, which is a very good indicator of what is happening to wages in the economy.

Q Dr. Tyson, do you take the rise in consumption as a sign that economic anxieties among the American people are being lowered?

DR. TYSON: Again, I would go back to the fact that economic reality is complicated. It is not unidimensional. I mean, consumer confidence is very high and it has been consistently high for a quite a long period of time. And, as I mentioned, the conference board is a the highest level in six years. Consumer spending in terms of its growth rate was up sharply in this report over the fourth quarter of last year. So clearly, consumers are feeling better, they are feeling more confident, they are showing that in their spending patterns. That doesn't mean they may not be insecure about are they going to be able to maintain the current job they have.

Q What about trade? To what extent did net exports have an impact on GDP in the first quarter, and what is your forecast for the rest of the year?

DR. TYSON: Well, we -- in the first quarter, export growth was down and import growth was up, so that if you look at it from that point of view, this was -- export growth was contributing less to our overall growth and import growth was removing some growth. That was more than offset by the growth of final demand by domestic purchasers, both investment purchasers and consumers.

As far as our predictions for the rest of the year, do we happen to know what they are for -- we don't project them. That was my recollection.

SECRETARY KANTOR: Just one sentence. This is an easy sentence. The trend of exports continuing to grow at a faster rate than imports as a rate off different bases I understand will continue. That trend has been going on now since late '94 and will continue. We don't see any change in that.

Q But what about inflation of interest rates? What concerns do you have that this growth rate will have a negative impact on interest rates? Or do you think there's room for interest rates to come down further?

DR. TYSON: Well, as far as inflation is concerned, if you look at a variety of indicators on inflation, you would have to say that the inflation outlook still looks very good. We don't -- we have right now in our forecast a GDP deflator estimate of 2.8 percent inflation for the year, and a CPI estimate of 3.1. And certainly the numbers we're seeing wouldn't suggest that we change that.

If you look at certain parts of the Producer Price Index, for example, intermediate materials prices have been falling, the core PPI in terms of its three-month rate is lower than last year's rate. So if you look at a series of price indicators including the compensation indicators, you conclude that a forecast of continued moderate inflation is the right forecast.

As far as interest rates are concerned, I would have to say -- and again, I think I would turn to Alicia or Larry here -- when I go back to the administration's forecasting record, we have been on target or we have under-predicted economic growth; we have been on target or we have over-predicted inflation. So we've done very well on the growth and inflation side.

On interest rates, we have frequently gotten them wrong because the economy sometimes grows more than we think, and that changes the interest rate environment somewhat. And remember, interest rates are determined by the state of the economy. This is a sound economy, and we believe a sound economy is the right fundamental for a sound interest rate environment. But I will leave my colleagues to say --

Q Well, what does that mean? Does that mean you expect interest rates to go up then because of economic growth?

MS. MUNNELL: As Laura just said, interest rates in part respond to the strength of the economy, and if you have a stronger economy, you may well see higher interest rates. We're more concerned with the economic outcome itself rather than with the financial factors that go into that outcome. And as Laura indicated, we see strong continued economic growth for the remainder of this year and next year.

Q Will we see you tomorrow if employment is soft? (Laughter.)


DR. TYSON: I will be out of town, but that's not -- (laughter) -- I didn't plan it that way. And by the way, Joe Stiglitz would have been with you today but he's out of town at the OECD meetings sharing with the rest of the advanced industrial countries just how sound our economic performance really is.

THE PRESS: Thank you.

END 10:28 A.M. EDT