THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY GENE SPERLING, DIRECTOR OF NATIONAL ECONOMIC COUNCIL, AND JANET YELLEN, CHAIR OF COUNCIL OF ECONOMIC ADVISORS
The Briefing Room
1:10 P.M. EST
MR. TOIV: Good afternoon, and thank you all for coming. Today, as you know, there's very good economic news. We've had very good budget news recently, as well. And here to brief on both of those are Janet Yellen, who is the Chair of the Council of Economic Advisors, and Gene Sperling, who is the Director of the National Economic Council.
MS. YELLEN: Today we received more good news about the performance of our economy and about the confidence Americans have that our economy will remain healthy and that jobs will continue to be available for those who are looking for work.
The Labor Department reported the Consumer Price Index, which is the measure of inflation at the retail level, was unchanged in January. And the core CPI, which excludes the volatile food and energy components, rose just .2 of a percent. These numbers suggest that inflation is still clearly contained.
Over the past year we've experienced a remarkable period of price stability and low unemployment. Over the 12 months ending in January, the CPI rose just 1.6 percent, down from its 3 percent year earlier increase. And the core CPI increased just 2.2 percent, down from the 2.5 percent year earlier rate. At the same time, the unemployment rate has remained at or below 5 percent for the past 10 months. This combination has helped to boost living standards for all Americans.
We also learned today that consumer confidence remains near record high levels. For February, the Conference Board's Index of Consumer Confidence jumped by 10 index points, to a 30-year high. And another interesting point in the survey, consumers' views on the strength of the labor market have shown a marked improvement. For instance, only 12.9 percent of respondents reported that they feel the jobs are hard to get. That's down from 16.4 percent in January. And this is only the second time in history that this series has dropped below the 13 percent level.
Let me conclude by saying that today's numbers indicate that our economy is still going strong. Growth is robust, businesses are investing in new and better equipment, unemployment remains low at 4.7 percent, workers are enjoying real wage gains, inflation is in check and consumer confidence is high.
Q Anything else? (Laughter.)
MS. YELLEN: Yes. The administration's strategy for raising American living standards and enhancing the economy's long-run growth rate is working. The economy is the strongest it's been in a generation. And even with the financial turmoil in East Asia, the economy is likely to continue in coming months on a path of solid growth with continued job creation, low unemployment and inflation in check.
MR. SPERLING: Yesterday, we also got more positive budget news, which was that over the first four months of this fiscal year, the deficit has been $31 billion better than the similar four years, four months in the previous year. So in Fiscal Year 1997, the deficit was $22.6 billion.
The fact that we are now running $31 billion better than that in the first four months shows that it is certainly a possibility that we could reach a balanced budget if not a surplus in Fiscal Year '98. Over that last 12 months, indeed, there has been a fiscal surplus of $9.6 billion.
I should caution that -- and I do want to stress -- that the relevant number is what happens at the end of the fiscal year. And so these are good signs, but the ultimate test will be in October of this year when we know whether we do, in fact, have a fiscal surplus and a balanced budget. But these do show that the economy is continuing to benefit from fiscal discipline that has helped keep interest rates at a very low rate -- near 5.8 percent, even in the face of tremendously strong growth and strong job growth, and it shows why it makes so much sense for our economy and for American people, for us to stay on this path of fiscal discipline.
As you know, the President in his State of the Union, made clear that we should reserve all of the surplus until we know how much is needed for a long-term Social Security fix. I think that statement transformed the fiscal policy debate in this town from one which was perhaps a race to a feeding frenzy on who could spend the surplus first for either their favorite tax cut or favorite spending program to a debate which has largely, I think, centered around agreement with the President's statement, and there has been a remarkable amount of consensus on the notion that surpluses should be reserved until we fix Social Security.
I think there has been a lot of positive statement from Republican leaders to go along with the Social Security First strategy. I think the governors have shown their support for Social Security First strategy, and the preliminary indications from the Senate budget is that they would also stay true to a Social Security First strategy by reserving the surplus until Social Security was fixed, and by committing to only have tax cuts that were paid for within the existing budget rules.
There are now reports that members of the Republican Party in the Senate are talking about backing away from that and perhaps having unpaid for tax cuts or breaking the budget rules prior to fixing Social Security.
Let me state, I do not think that receiving praise -- let me say that I do not think that when one's budget receives praise for showing fiscal discipline that that should be a kiss of death for that budget. And I do not think that the fact that people have noted that the Senate Republican principles honored the Social Security First principle, honored the principle of pay as you go, that if you have a dollar in new initiatives, you pay for it, and a dollar in offsetting receipts or spending cuts, that that is a strong fiscal discipline policy. We can disagree on the priorities. We would like to see much more for child care, for education, for health care, for expanding Medicare, but those principles we should stay with. And my suggestion is that Republicans should not even think about defined Social Security First principle, breaking the budget rules or going back to unpaid-for tax cuts priorities until we have made sure that Social Security is on a strong course and path for the 21st century.
Q Or else what? They should not even think about it, or else what?
MR. SPERLING: I think that they will be making a very unwise policy and political decision. Because I think policy-wise, for the reasons we've stated, I think that particularly at this time in the world economy where the United States has seen as the bulwark of prosperity and fiscal discipline, it would be a mistake for any major party at this time to suggest that they were going to move away from that fiscal discipline. So I think it would be unwise policy-wise.
Politically, I think after there has been so much consensus for the idea of reserving the surplus until we fix Social Security and after so many Republicans have suggested that this could be a bipartisan consensus, I think for some to now back off that and suggest that that money could be drained for priorities before we know what we will need for Social Security, put us on a sustainable path, will be a political error as well.
Q Did you say that for the first third of the current fiscal year, the government has been operating with a surplus?
MR. SPERLING: What we're saying is that it's doing $31 billion better than we did compared to the four months of the previous year. So that's one measure. So since the deficit was $22.6 billion in Fiscal Year '97 and since in our first four months we're doing $31 billion better than that, that suggests that if you are able to stay on the existing path, you could be in surplus by the end of this year.
I should caution that the big months in any fiscal year are, as you can imagine, March, April, the months that people are filing their taxes and we also have an Asian financial crisis that could have some impact on our economy as various other things could. So I'm trying to say these are good signs, but the true test, whether you're a school board or the federal budget, the real test is how you do over one single fiscal year. That's what you have a budget -- that's what your budget planning is for. I'm saying if you look at these four months, it's a very good sign.
If you look at the last 12 months, which does mix two fiscal budget periods, but if you look at the last 12 months, we've actually been in surplus by $9.6 billion for that 12-month period.
Q Do you know yet how much this latest buildup against Iraq is costing and, whether you know it or not, do you know where the money is going to come from to pay for it?
MR. SPERLING: I do not know specifically, and if I did, I wouldn't feel at liberty to obviously talk about it. But in terms of the budget, the current budget rules, as they have for years, obviously allow for emergencies for both domestic --
Q Is there a contingency of some sort? Because the military budget is pretty tight, as I understand it, already.
MR. SPERLING: Right. No, and that's why the budget rules -- I mean, two things. One, that's why the budget rules have always allowed for emergencies in the middle of an existing fiscal year. Because obviously, in the middle of an existing fiscal year where your only options would be rescissions on existing outlays, that would be disruptive.
Secondly, that's why you use conservative budget
numbers. You use conservative budget assumptions because you take
into account over a long period of time that there could be within
the existing budget rules emergencies both on a national security or
a domestic front, and you lean on the conservative side so that
you're taking those into account, and that over a long period of
if there is a foreign policy emergency or something happens in the economy, that you've been conservative enough in your budget estimates that you will at least meet your targets. And I think we have a pretty good record on this. For five years in a row, growth has been greater than we have projected, and the deficit has been lower than we've projected by an average of $50 billion to $100 billion a year.
Q Are you saying that whatever the figure is, some people have estimated it as $1.5 billion, for instance, you think you can absorb that within your target range so that the overall projection for a balanced budget would not be disturbed?
MR. SPERLING: I think that right now, that considering everything happening in the economy and everything we would foresee even in terms of emergencies, it would still look like we are going to do significantly better than we have projected for this year, which was about a $10-billion deficit.
Q You mentioned the Asian crisis as impacting the final number before the end of the year. How much of an impact can that have on our budget, on our deficit?
Q Fair weather reporter.
MR. SPERLING: I think people should take comfort in the fact that not just us, but if you look at the blue chip, which is the 50 forecasters, not a single one of them projected growth below 2 percent for this year. So I think while people think there will be some impact, we don't think it will be substantial. But the reason why this is such an important focus, the reason why the international community has been working through the IMF to try to get countries to take the steps that would restore fiscal and financial confidence in their countries is because you want to prevent an acceleration of that crisis that could have more significant harm to the economies of the world.
Right now, while we don't think any country will be completely unaffected, and certainly we think it will have a negative impact on our trade deficit, we still feel right now that we don't see anything out there that would make us think there would be any substantial negative impact to the American economy. Things still are projected to be quite strong.
Q Yesterday, McCurry said that the administration would be preparing a supplemental budget request to pay for the operations in the Persian Gulf.
MR. SPERLING: I think there will be a supplemental this year.
Q Do you know when that would be put forward?
MR. SPERLING: I really don't feel at the moment that I can go into the details of that.
Q Let me ask you this question. The Pentagon has a $250-billion a year budget, or whatever it is. Do they never assume they actually have to spend any of that money for real operations?
MR. SPERLING: It's not clear that if you were doing a budget that what you would want is for every department to ask for more than they think is necessary every year on the thought that there might be an emergency for that year. One could make an argument that it is actually better for long-term fiscal policy to require people to ask only for what they clearly will need and then when there actually is an emergency that happens in that year, to have them make a specific request for that.
So I think that it is perhaps better in the long run. My feeling just from being involved in the budgets here for five or six years is that making people only ask for what they absolutely know they need probably leads to tighter budgets overall. We did, for our Fiscal Year '99 budget, put in a reserve of $3.25 billion as something that, based on what we know now, could be needed in Fiscal Year '99, but that's with the ability to plan from what we know right now.
But still, an emergency is what it is -- it's an emergency. And to plan for -- and that's why it's -- no one can totally foresee what emergencies could be out there, both on a natural disasters at home or on national security issues.
Q Can we ask Ms. Yellen a question?
MR. TOIV: I was just going to say, she needs to get going, so if you have --
Q Well, I do. The President, in his speech this morning at the Hyatt Regency said -- and I think I'm quoting him almost exactly -- these good times -- economic times -- will not last forever. Now, was he just speaking in generalities, or are you projecting down the road that in fact, there is something called the business cycle and it will, in fact, kick in?
MS. YELLEN: Well, on the one hand, I believe the business cycle is not dead, and it's safe to predict that sometime in the future, but not a time that we can for any reason foresee that there will be --
Q After the Clinton-Gore administration is over?
MS. YELLEN: Well, having said the business cycle is not dead, I'd also add that expansions do not die of old age. And I think it is an old wive's tale and false to think that simply because we are long into an expansion that that raises the probability that it will end.
Q He said it. I just wondered whether he was speaking just sort of rhetorically --
MS. YELLEN: I think he was probably speaking rhetorically in the sense that the odds are very high that sometime in the future there will be another recession. But there's not the slightest reason to believe that it is in the foreseeable future. And one of the things -- we published the economic report of the President last week, and one of the things we did was to try to look at things that are often harbingers of a down-turn. And I would list there three things particularly -- an inventory overhang, some evident sign of financial imbalance, or alternatively, brewing increasing in inflation either because of overheating of the economy or because of an external shock. And none of those signs are in any way present in our economy. And those are the things that typically we see before the end of an expansion. So we don't see anything in sight anytime soon.
Q Do you agree with the idea that the current Asia crisis is only going to have a minimal effect on all this good economic news?
MS. YELLEN: I think it's important to put it into context. As Gene mentioned, we continue to forecast solid growth for next year. The administration's forecast is for 2 percent real growth next year, and that is substantially lower than the utterly exceptional, extraordinary almost 4 percent growth we've had over the last 4 quarters. Why do we do that? It is consistent with the Asian crisis having some impact on our economy, but more importantly, the reason we do it is that after the economy hits what is clearly a home run in terms of growth over the last year, it would be unwise to forecast performance at that utterly exceptional level to continue.
Our forecast has been for continued solid growth with low inflation, continued job creation, where in the mainstream of forecasters, they are not overly optimistic. So, yes, I think the Asian crisis will take a toll on our net exports, on our trade flows. We expect the trade balance to increase, as Gene said. But remember, we are starting from a point in which there is huge strength and tremendous momentum in the economy on the domestic side, and it's only in offset to that huge momentum.
The other point I would make about it is that it's not fair to look at the impact of the Asian crisis assuming everything else is equal or the same because of it. And since we've seen a deepening of the Asian crisis, we've also seen long-term interest rates come down significantly. That's the natural mechanism the market has to offset and relieve part of that burden, that long-term interest rates should come down. And that has an offsetting, favorable impact on all of the interest-sensitive sectors of our economy, including housing, investment spent in consumer durables, and so there are offsets at work there.
Q What kind of toll are we talking about -- in jobs or selling or buying U.S. goods in Asia or --
MS. YELLEN: Well, the weakness will see two sources of impact of Asia on our economy -- one comes through the mechanism of slower growth in the affected Asia economies that will impact our exports. And further, the fact that the currencies of many of those countries have depreciated relative to ours will tend to impact our imports from those countries.
At the end of the day, those countries find themselves unable to continue borrowing at the levels that they have in the past in world capital markets and they really have no choice but to contract their trade deficits or to run even larger surpluses because they're unable to gain the financing, and slower growth and movements in their exchange rates are the mechanisms through which that will occur.
Q Administration officials have called on Japan to play an especially crucial role in helping Asia get out of its crisis. But the steps they've taken today have been described by Charlene Barshefsky and others as woefully inadequate. Should Japan not take the necessary steps to stimulate its economy to help the Asian economies recover will that exacerbate the impact on the U.S. economy?
MS. YELLEN: Well, certainly our economy is linked to the Japanese economy as well as to the Asian economies, and one source of a rising trade deficit or slower drag from our export situation comes through Japan as well as Asia. But most importantly, we see Asia as one of the critical engines of growth in the world economy and Asia's own growth I think plays a disproportionate role in enabling those Asian economies to recover. So Japan's growth is important not just to our own forecast, but also to that of Asia as a whole.
Q Can you just define what you mean by reserving this budget surplus for Social Security? It's my understanding that Social Security is already running a surplus. How do you do that within a budget, reserve something for future usage?
MR. SPERLING: Well, first of all, in its simplest form, when you have a unified budget surplus, it's one of the simplest concepts -- as Greenspan said -- from an economic point of view. That's the thing that lets you know is the government taking in more than they're spending out, or whether the government is a net borrower or not. And the basic question is when you have a unified surplus, when the government is taking in more, are we going to simply give it back in tax cuts or spending, or is it going to be saved in some form? And what we've said is that it should certainly not be drained for tax cuts or new spending initiatives until you know how much of that would be needed for Social Security, for a long-term Social Security fix.
I think there are several ways, and I think people will come up with more ways that the surpluses could be part of an overall Social Security package. I think that different people propose different ways. One way would simply be to essentially reduce the debt but essentially transfer the savings from reducing the debt to the Social Security trust fund and essentially put that in a stronger balance, that way. I think that Bob Reischauer has suggested actually taking the surpluses and investing them in equities or corporate debt and allocating that for Social Security. That would be a rather new, novel issue, but certainly serious people like Bob Reischauer at least writing about that.
I think others who have proposals currently for creating individual accounts will probably talk about the surplus being used in some way to fund a transition to that. So I think, depending on the different proposals people ultimately support, people will have different ways of thinking about how the surplus could be used.
But I do want to say, from the nation's economic growth perspective, any of those solutions save the money and increase national savings. And so all of them would have the same basic impact on increasing our savings rate.
Q Going back to what you just mentioned, do you favorably view Mr. Reischauer idea that the federal government would invest in the equity market?
MR. SPERLING: At this point we're trying to elevate this debate, get it going, try to bring together bipartisan consensus solutions, so I think we're at a point where we're not going to be in the business of ruling in or out particular proposals, but trying to elevate the debate -- and be open-minded ourselves.
Q Gene, the governors got a very negative report from two senators on the prospects for tobacco legislation, and of course, you've predicated a lot of spending on the assumption that it will pass. And also, a lot of the offsets that you have proposed for other spending, certain loopholes are under attack. What's your view now with tobacco legislation looking increasingly in peril? You and others have said you're going to find other ways to get this money for this spending. What's your thinking about it now?
MR. SPERLING: I completely disagree with your premise. I think that tobacco legislation will happen this year. I think that, first of all, you've seen not only Senator Dorgan, but I think there are, as you know, several at least quiet bipartisan discussions going up on the Senate and I think that there is, from what we see, serious momentum.
Secondly, I think the disclosures coming out are very disturbing to the public. And third, I just don't think that when this debate becomes more elevated, when people realize the degree that we're letting there be this type of health risk to children, that we're essentially allowing every day thousands of children to start smoking when we know one out of three will die prematurely because of it, I just don't believe members of Congress will want to go back to their voters and say that they were an obstacle to tobacco -- comprehensive tobacco legislation.
And I certainly think that we want to work in a bipartisan way to get this done, but we certainly will want to make it as difficult as possible for anybody to think they can go home and stand for reelection having been an obstacle to comprehensive tobacco legislation that is designed to prevent teen smoking and is designed to reduce the premature deaths of children who are starting to smoke under our watch while we sit around and fail to take the efforts we should.
THE PRESS: Thank you.
END 1:40 P.M. EST