THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY THE VICE PRESIDENT AND ALICIA MUNNELL OF THE COUNCIL OF ECONOMIC ADVISORS
The Briefing Room
10:40 A.M. EST
THE VICE PRESIDENT: Good morning.
Q You're smiling.
THE VICE PRESIDENT: How perceptive you are. (Laughter.) Today I am pleased to report further evidence that the American economy is growing at a strong and steady pace, with inflation remaining at historic low levels. Gross Domestic Product, GDP, climbed a robust 4.7 percent in the fourth quarter of 1996. Over the full year, from the fourth quarter of '95 to the fourth quarter of '96, the economy grew at a very impressive rate of 3.4 percent, well ahead of expectations.
This is very good news for America's workers, entrepreneurs and families; another resounding affirmation of President Clinton's economic strategy. The American economy is growing, and a land of new promise is emerging.
Today our economy is the healthiest it has been in a generation. Under President Clinton's leadership, America now has the lowest combined rate of unemployment and inflation since the administration of President Lyndon Johnson. We've got the highest homeownership rate in 15 years, and the biggest increase in that rate of any administration in the history of this country; the best rate of business investment since the administration of President John Kennedy. Wages are on the rise. The gap between rich and poor, which widened for almost 20 years up until last year, is continuing it recent trend of narrowing again. The specter of inflation remains for now under control. And, indeed, the technical measures included in this report show again a slight decline.
Well today, on the day when the Star Wars Trilogy is reopening in America's movie theaters, there is indeed a galaxy of good news. (Laughter.) We thought you would like that. And you thought these economic statistics were dry. (Laughter.) In the American economy today, the force is with us. (Laughter.) Solid, sustainable growth achieved without special effects. (Laughter.)
Q Who's writing your material these days? (Laughter.)
THE VICE PRESIDENT: Now, groans to the contrary, notwithstanding, now the challenge to President Clinton and the economic team is to keep growth going by balancing the budget and keeping long-term interest rates low; by equipping all Americans with the education and job training they need to prosper in the new economy; by investing in research to push back scientific frontiers and bring new technologies to all our people; by moving another one million people from welfare to work and moving more Americans into the middle class; by protecting our environment in order to sustain our progress. This is not a time to rest on our laurels; this is a time to act, a time to deepen the progress we have forged.
And now for further explanation of these numbers, here is Alicia Munnell.
Q Can you take a few questions?
THE VICE PRESIDENT: She's going to take them.
Q Can you just tell us whether this is going to change any of your budget or economic presentations this week? Why not?
THE VICE PRESIDENT: No, because the course is steady as she goes. The President's economic policy is working spectacularly well. This is, again, strong growth, increasing wages, a narrowing of the gap between rich and poor and low, historically low inflation. Business investment continues to increase.
What it shows, in sum, is that the economic policies the President put in place four years ago that are continued in the budget that will shortly be presented to the Congress are working extremely well. And those policies should be and will be continued. And Alicia is going to elaborate on that.
Q Do you agree with Alan Greenspan that the cost of living index should be refigured?
THE VICE PRESIDENT: I will let Alicia field that question.
Q Is this the start of campaign 2000 -- "far, far away, in a galaxy" -- (laughter.)
THE VICE PRESIDENT: Darth Vader. (Laughter.)
Q You got that right. (Laughter.)
MS. MUNNELL: Good morning, everyone. There's a very hard act to follow. Let me say a few words about today's numbers, and then I'd be happy to take your questions.
You don't really need a two-handed economist to discuss today's release, it's unambiguously good. As you know, and as the Vice President said, real GDP grew at 4.7 percent in the fourth quarter of 1996. That's significantly faster than most forecasters were expecting, and it was significantly faster than how GDP grew in the third quarter.
Early in the quarter most forecasters -- and I have to admit that included us -- had not really expected much in the fourth quarter. We were worried about disruptions caused by the Canadian olive strike, about all the negotiations, and whether we really could keep up the pace of inventory investment that we had seen in the past. But beginning in December, virtually every piece of data that we saw came in better than we had anticipated.
The keys to the success in the fourth quarter were really two components, however: consumption spending and exports. Consumption rebounded from the third quarter doldrums and posted a really strong gain. That's not very surprising when you consider the level of employment growth, the level of income growth, the high levels of wealth and the strong consumer confidence that we have seen in all the consumer surveys.
The other main contributor was more surprising, and that was a formidable and unexpected jump in exports. In fact, export growth was the single largest contributor to the fourth quarter number. Some of the surge in exports can probably be explained by improved growth in our trading partners. But some of it really is a one-shot affair with big, lumpy purchases for items such as airplanes.
Now that we have the fourth quarter numbers we can look back over the year as a whole; and, as you know, you can look back and measure these performances in two ways -- you can do it year over year, or fourth quarter over fourth quarter. If you do it on a year over year basis, we see that 1996 grew at 2.5 percent. That's compared to 2.0 percent for 1995. The improvement in 1996 over 1995 is housing; there was much more investment in housing.
If you do it on a fourth quarter to fourth quarter basis, you get a really remarkable 3.4 percent growth for 1996. Regardless of which measure you take, these numbers are much higher than we had put in our forecast last year, confirming once again that we tended to use relatively -- or very conservative forecast assumptions for our budget projections.
Further good news that the Vice President alluded to for the long run is that inflation remains stable. There are few reports of bottlenecks. As measured by the price index for GDP was written, included in this report, inflation fell from 2.5 in 1995 to 2.1 in 1996. But this decline in inflation mirrors what you see in the core CPI, what you see in the Producer Price Index. So you do see this continuous downward trend in inflation.
In short, this report confirms the picture of an economy that's on track. We have solid growth, we have good employment gains, we have good income gains, and we have inflation under control -- Darth Vader or not.
So I'd be happy to answer any questions that you might have.
Q What about that question about the CPI and Greenspan's statements yesterday?
MS. MUNNELL: I mean, Chairman Greenspan and the people who participate in the Boskin Commission raise an important issue. It's an issue that has originally been raised by the BLS itself, and that is the extent to which the Consumer Price Index, which is based on the fixed market basket of goods, accurately reflects changes in the cost of living.
I think most economists think that there is some overstatement there. But this is a very important index. It's not just a number that you use to deflate wages or GDP. This is also something that affects the benefits of every Social Security recipient. It affects every single taxpayer. So the thing that we care about most is not that it makes the budget bigger or smaller, but we have to have an accurate number. We have taken in the Boskin Commission report. We are looking at that. We've been looking at these issues ourselves. This is something --
Q So the administration still hasn't taken a formal position?
MS. MUNNELL: We have not taken a formal position.
Q What is your position on Greenspan's suggestion that a separate economic group look at this while the BLS is working on it?
MS. MUNNELL: As you know -- the important thing to emphasize is that the BLS has been the source for identifying most of the problems that we know about in the Consumer Price Index. So that I think he is right in sort of saying that they are going to be moving forward and trying to improve it. We haven't taken a position on exactly what process we want to do, but we care very much that the process produces a nonpoliticized, accurate outcome.
Q Do you expect growth to continue at this pace? And if it does, isn't there some danger of overheating and leading to inflation and higher rates and so forth?
MS. MUNNELL: No respectable economist is going to say anything based on a single quarter's performance. As I told you, we were surprised by the 4.7 percent, but if you look at the growth in the last year, over the last four years, we are growing at a pace that is more or less consistent with capacity. It has not produced any increase in inflation. It has produced very strong growth in employment and there is no reason why the longer-term trends can't continue into the future.
Q Who are you?
MS. MUNNELL: Who am I? (Laughter.) The Vice President's running mate. (Laughter.)
Q Darth Vader's running mate? (Laughter.)
MS. MUNNELL: I'm Alicia Munnell. I'm a member of the Council of Economic Advisors. Joe Stiglitz is in Europe or he would be here.
Q Is he in Davos?
MS. MUNNELL: Yes, he is in Davos.
Q He hasn't moved to the World Bank yet?
MS. MUNNELL: No. (Laughter.)
Q You're happy today? You really think that this is what the future holds in terms of the statistics?
MS. MUNNELL: I'm not happy just because this quarter is good and we have a high number, I'm pleased with the economic performance because we've had good numbers over a long period of time and that is a situation that can continue into the future.
Q You said that some of the trade gap, the export improvement was one shot. Why is that?
MS. MUNNELL: They were big items. They were airplanes and other sort of lumpy things that probably made the fourth quarter export growth higher than you could expect on a steady basis.
Q Are you concerned that, besides those lumpy purchases and so forth, that looking forward, not only those who will be absent, but perhaps the dramatic rise of the dollar over the past 18 months might have a diminishing effect on the trade category of GDP growth this year?
MS. MUNNELL: As I look forward, I mean, that is one question that we ask ourselves, where is the source of strength going to be in the first quarter and the rest of 1997. For that, we really look to the consumer. The consumer is in remarkably good shape, and we expect the consumer to be a major source of strength throughout the 1997 period.
Q On what basis do you think the narrowing of the gap between the rich and poor will continue?
MS. MUNNELL: There is nothing that helps that better than having a strong economy. The Vice President was referring to the recent -- or, a few months ago, released by the Census Bureau -- that did show a break in the trend towards increasing inequality that we have seen over such a long period of time. And we saw income growth in the lowest quintile, something we haven't seen for a very long time. So those are very heartening trends.
Q You don't think the impact of the welfare reform law will have any effect on this narrowing, in terms of finding jobs for people being thrown off the welfare rolls?
MS. MUNNELL: The thrust behind the welfare bill is to move people from welfare into work. To the extent that that occurs, it will improve things over the long run.
Q Is this the best performance in 1996 of any country of the G-7?
MS. MUNNELL: I have to look to -- I'm going to say yes -- yes. But we can check on that, so we're not spreading this information.
If you don't have any other questions, thank you very much.
Q Do you have any political ambitions? (Laughter.)
ASSISTANT SECRETARY MUNNELL: I think I'll stop here. Thanks.
THE PRESS: Thank you.
END 10:55 A.M. EST