THE WHITE HOUSE
Office of the Press Secretary
PRESS BRIEFING BY SECRETARY OF COMMERCE RON BROWN AND CHAIR OF THE COUNCIL OF ECONOMIC ADVISORS LAURA TYSON The Briefing Room
10:00 A.M. EDT
DR. TYSON. What should we do, Ron? They want us to make it more exciting. Good news should be exciting.
The GDP numbers that are released today indicate that the U.S. economy continues to turn in a fine performance. In the second quarter real GDP increased at an annual rate of 3.7 percent. The economy created over a million new jobs. Over the past six quarters the economy has averaged an annual growth rate of 3.2 percent, more than twice the average growth rate of the previous four years.
Now, to the future, if you look to the future, the fundamentals look sound. The deficit continues to decline faster than expected. Consumer confidence remains high. The industrial sector is enjoying steady growth in orders, and inflation remains subdued. So far, everything we've seen in 1994 confirms our forecast of a sustainable investment-led expansion with low inflation.
So that's the good news. And Secretary Brown will continue.
SECRETARY BROWN: Thank you. This is clearly a good news day. It's good news for the American economy, good news for the American people. And I want to assure you it has not happened by accident. It's happened because of the courageous decisions that President Clinton made early in the administration. It happened because of the leadership that he has shown in giving our economy some direction and in creating an environment for sustained economic growth and the creation of high-wage, high-quality jobs for the American people.
As Chairman Tyson said, today's GDP release shows that the United States' economy continues to perform well, growing at 3.7 percent in the second quarter. Our economic policies have, in fact, energized the private sector and have led to the investment-led and productivity-driven economic expansion that these data describe.
There are three things that should be emphasized about this announcement, about this release. First, business investment, particularly in equipment, continues to grow rapidly. Business purchases of plant and equipment increased at an annual rate of 10 percent in the second quarter -- the sixth consecutive quarter of double-digit growth.
I think what we have to focus on, that that means that in every quarter since President Clinton's election, we have had double-digit growth in this area. And also, the fact is that in those six quarters, investment is up 14 percent. Whereas in the previous four years, investment was up 0 percent -- no growth in investment.
The fact is also that this has contributed to high productivity, particularly in a period of rapid technological change. Since the beginning of 1993, output per hour in the nonfarm business sector has increased at an average annual rate of 2.6 percent, compared to an average annual increase of 0.9 percent over the previous four years.
The strong performance of investment reflects the tough choices that President Clinton has made. This administration has, in fact, created that environment in which American business is focused on building new wealth, rather than rearranging old wealth. Deficit reduction has been, obviously, a key factor. Both spending cuts and making the tax burden more fair contributed to lower interest rates and made more funds available for private investment. It is also interesting to point out that the public sector has shrunk over these 18 months, where the public sector actually increased in the previous four years.
We believe trade initiatives are a very important factor in this regard -- our success with the NAFTA, the work that we've done through the Trade Promotion Coordinating Committee and the kind of advocacy efforts which we have perused standing shoulder to shoulder with American business and industry as they attempt to compete and to win in this highly competitive global economic environment. All those have created a new environment, a new atmosphere, a new partnership between the public and private sector, between this administration and the American business community. Exports, in fact, grew at a rate of 11.1 percent last quarter.
Further, the administration's technology policies have accelerated investment in cutting-edge technologies. That certainly bodes will for the future. The results of that kind of investment will be seen in the quarters and, in fact, in the years ahead.
The second thing that is worth noticing is the fact that inflation remains extremely low. A variety of measures show that overall inflation increased at an annual rate of about 3 percent in the second quarter. Over the last year, prices of domestic purchases have increased only 2.5 percent. This is the best performance in the last 10 years. This continued low level of inflation shows that American businesses are, in fact, building capacity and improving productivity fast enough to accommodate growing demand. It is evidence of remarkable balance in this expansion.
Finally, exports have continued to grow, as I indicated a moment ago. This 11.1 percent growth in the second quarter is particularly noteworthy because it took place at a time when there was a slow growth in our major trading partners. Over the long run, we must eliminate trade barriers. We believe that if goods, products and services from other countries have free access to the American marketplace, then clearly our goods, products and services must have access all over the world. And that's why we're working so hard to remove remaining trade barriers. And that is why it is so important that the Congress ratify the GATT, the results of the Uruguay Round of negotiations, and that they do so with the appropriate implementing legislation.
In summary, the private sector is responding to President Clinton's policies and is producing the growth and employment that the President promised the American people.
Dr. Tyson and I will be pleased to respond to your questions.
Q Mr. Secretary, there's a new poll today, NBC-Wall Street Journal, that says that Americans, by 29 percent to 18 percent, think Republicans would do a better job at handling the economy than Democrats. And Peter Hart, one of the pollsters that did the survey, said he thinks the White House is not doing a good job in getting the word out about the good economy. Do you agree with Mr. Hart?
SECRETARY BROWN: Well, hopefully, we're getting the good word out today. I can't speak to the poll -- there are different poll numbers every day. Anybody who looks at the data would have to conclude, by any objective analysis, that this administration has done a very good job on the economy. All the data indicates that. We'd be glad to look at a comparison between the four years of President Bush and the 18 months of President Clinton.
In fact, there is no comparison. The economy is performing well; it's growing at appropriate levels. Interest rates are low; consumer confidence is up; business confidence is up; investment in plant and equipment and research and development is up, which bodes will for the future. We're very pleased with the state of the economy, and President Clinton has to get high marks for his leadership.
Q Is there a perception problem in the country, though, do you think?
SECRETARY BROWN: Well, if that poll is accurate, there certainly is a perception problem. I don't think that this administration has gotten the credit that it should be getting for the way we have led on economic matters, the kind of tough decisions that the President has made, the kind of courage he has shown, and the kind of vision he has shown. We're not interested in just shortterm economic recovery. We're interested in sustained economic growth and the creation of high-wage, high-quality jobs.
Q Can you take a question on GATT?
Q On the economy still, when Clinton came to office, he had said that he was against the Fed raising interest rates and did not want to choke off the economy. But as we look at the data today we see that inflation is being contained. So in hindsight would you say that it looks like the Fed has indeed been on an accurate path of restraining inflation with its preemptive strike, and that perhaps they have been on the better course than what the administration might have been advocating?
SECRETARY BROWN: Well, I think the answer is that we're pleased with the state of the economy and pleased with the level of growth as this announcement indicates today. So I don't think there's any need to second-guess anyone. The economy is in good shape. It's growing at the rate that we predicted, and inflation remains low. So at a time of good news second-guessing doesn't seem to me to be appropriate.
Q Mr. Greenspan did, in recent testimony to Congress, indicate that there will probably be a tightening come the August 16 meeting of FIC --
SECRETARY BROWN: He also indicated that he was pleased with the state of the economy, too, and he thought we were on the right track. I did hear and read his statement; his statement was a very positive statement which basically supports what we're saying here this morning.
Q So you see the Fed is on the right track as well?
SECRETARY BROWN: The Fed is an independent agency. They're going to make their own judgments and decisions. The fact is that the President has done a good job. The economy is in good shape and we're pleased with that result.
Q Dr. Tyson, where are we with excess capacity utilization and inventory accumulation? Are those areas that are beginning to worry you in terms of the heat being taken off of this economy in a quarter --
DR. TYSON: I think that if you look at the inventory number, obviously, it was an important contribution to growth in the second quarter. The inventory number, as you know, is a volatile number and it's also a series which is subject to a lot of revision.
Having said all that, one should start with saying that there's no way to know for sure how much of inventory accumulation in a given quarter is planned and how much is unplanned or unintended. But we believe there are many indicators in the economy that suggest that the dominant share of the inventory accumulation we've seen in the second quarter is, in fact, intended.
Basically, the situation is that for much of this period of expansion of the economy growing at more than three percent for six quarters, inventories have been very lean relative to sales. We anticipated that there would come a point in which, as producers believed in the longevity of the expansion, that they would want to rebuild their inventories to more normal levels. So that's one sign that inventory accumulation is likely to have been largely planned.
Also, look at the evidence that producers must be looking at themselves. Consumer confidence is very high, remains very high. And orders for durable equipment and new orders for durable equipment in the nondefense area came in very strong in June. So I think there are a number of indicators that really are consistent with the view that this inventory accumulation we've seen in the second quarter is actually a planned phenomena, responding to the belief in the longevity of the expansion and in signs of its continued forward momentum.
Q And on capacity utilization?
DR. TYSON: I wasn't sure what you had in mind in the capacity utilization part of your question.
Q Well, you've been saying for quite a while that the economy has a lot of room to expand because there's a lot of excess capacity. And as it's been continuing to expand over the last six quarters, obviously that's had to have narrowed. And I'm wondering is it beginning to narrow to a point where there isn't a lot of excess capacity for the economy to continue growing at the rate it's growing.
DR. TYSON: I would say the following: First of all, it's important to note here that we've emphasized in both of our comments this morning and also in our forecast and also in the history of what the economy has been doing so far in the last six quarters, this is an investment-led expansion. There are additions to capacity that are being made quarter by quarter, significant additions to capacity being made.
In addition, the restructuring that's gone on, along with the introduction of new equipment, business equipment being at a postwar high relative to size of the economy, have meant a really strong performance on the productivity side, as Secretary Brown has mentioned. So capacity is not something in this economy which stands still, it is growing as well.
Now, I would then conclude by saying there's nothing we see in indicators of current levels of capacity utilization or in any of the inflation indicators one would look at to conclude that the economy is straining against capacity constraints.
Q Secretary Brown, getting back to the very first question, why do you think the President's approval ratings don't match, say, consumer confidence? Why hasn't all of this good economic news translated into better approval ratings for him?
SECRETARY BROWN: I am not a pollster. Maybe --
Q But you used to be head of the Democratic Party.
SECRETARY BROWN: Maybe we've turned the corner this morning with Dr. Tyson and I being here together and talking about the things that this administration has done that have clearly resulted in a strong economy. And maybe the American people will start listening to that and paying attention to that, not only to the comparative data between the four years before President Clinton was elected and the 18 months since he's been elected, but to specific actions that we have taken that we believe have resulted in this economic success, this economic growth; a growth that we believe will be sustainable.
DR. TYSON: Can I add one thing to this, because I think it's really important. It is the case that the -- if you look at the period following the formal end of the recession, the last recession in the spring of 1991, until January of 1993, the economy was growing in a sub-par way. That is, it was growing at a very slow aggregate rate of growth, relative to previous periods of economic recovery. So a strong economic recovery with real job creation capability has been with the economy approximately 18 months.
This follows, essentially, more than a decade -- I would say about 15 years -- during which the bottom 40 percent of American families saw declines in median family income, and the middle 60 percent saw there median family income go no place. Now, I would say that there are reasons why Americans might, although they see that the economy is doing better, and although consumer confidence levels -- remember, consumer confidence levels are very high, there's a kind of disjuncture between the consumer confidence surveys and the polls. But I can see why Americans after -- many American families and many American workers after having a very hard time for a very long time, what a little more time to come to believe in the expansion and the capability of the economy to generate income gains for them.
That's why it's so important that we have a sustained period of economic expansion, one that's built on very solid foundations. And what we're particularly pleased about in the performance of the economy over the past 18 months is the sense of balance and broad-based nature of the expansion and the sound foundations in terms of declining deficit and strong investment. That all suggests that we can have sustained expansion. And that, I think, is what we need to turn people's perceptions into the reality of an economy that works for them.
Q Coming back to the question of inventories and the big buildup in inventories, consumer spending -- the flip side, of course, was that was weak. Do you think consumer spending is going to come back and be stronger in the months ahead?
DR. TYSON: I would say a couple of things about that. Number one, consumer confidence levels remain very high. And that is an important sign that consumers are feeling good about the current situation and about their prospects for the future.
The second point to make is, we created -- the economy created a million new jobs in the second quarter of 1994 alone. That generates a lot of income for the American family, the American worker. And income is finally what will lead people, and their sense of future income prospects is what will lead people, fundamentally, in their consumer decision-making. So I think that if you look at those kinds of indicators, plus the fact that it is quite normal during a period of expansion for consumers to, at some point, begin to rebuild some of their savings. So the flip side of the slowdown in consumption spending this quarter has been, of course, an increase in the savings rate. And I would say when you put it all together, there is reason to believe that the economy's strength in consumption overall will continue.
Q Secretary Brown, it appears that the administration has not yet finalized its GATT funding proposals. Can you tell us, number one, what's the problem here? And, number two, when do you expect to finalize these things, and give us any clue as to what's going to be in the final package?
SECRETARY BROWN: The issue is also always to work out a package that the Congress approves. So there are ongoing conversations; Secretary Bentsen has been involved in many of them on the so-called pay-go issue. We believe that we are close to resolving these issues. We think it's terribly important that the Congress ratify the GATT with the appropriate implementing legislation. We're confident that that's going to be the case.
Q When do you think that will be?
SECRETARY BROWN: Conversations, discussions are ongoing. They are taking place as we speak.
Q Is there a particular item that's holding up the final decision?
SECRETARY BROWN: Well, there are a number of items being discussed, obviously. Fast track is one of those items; the funding issue is one of those items being discussed. Those are the two principal ones.
Q Can we talk about long-term rates for a second. Long-term rates have been very stable since the beginning of the Clinton administration. How do you keep something like that going?
DR. TYSON: Long-term interest rates? Well, first of all, I think that there are a couple of -- although there might be some who would disagree with the notion that they've been completely stable. I think that the truth is that there are a couple of things that are important. One thing is to convince, and I think we have succeeded with this, that the markets that for the foreseeable future government borrowing needs will be coming down relative to the size of the economy.
That's a very important factor in the determination of long-term interest rates over time. And, of course, the credibility of the deficit-reduction plan we put in place and then the actual performance of the economy, which essentially has generated better than anticipated deficit reduction performance, is an important factor, I think, over the long-term on the long-term part of the market.
The second thing, obviously, is convincing Americans, convincing financial market participants here and around the world that the economy is capable of sustained growth with moderate inflation. Now, we have six quarters of that behavior to demonstrate the ability of the economy to do that. And I think continuing that course will essentially deal with issues of inflationary expectations and the risk premium that is built into long-term interest rates because of inflationary expectations. So the performance itself of the economy should help in this regard over time.
Q Two weeks ago the administration predicted three percent growth for all of '94. Now you have three and a half percent for the first half. Are you anticipating that it will go down sharply for the second half or are you anticipating your estimate will have to be raised?
DR. TYSON: Well, first of all, let me say that we have always said that our forecast may be a bit on the conservative side. And the second thing I will say to your question is that as I ended my official opening statement, there's nothing that we see in our current -- in any indicators we've gotten from the economy so far this year that would cause us to do much in the way of changing our forecasts.
Of course, there are always risks to a forecast that you may be under or over what reality is, but we're about where most of the private sector is, and we believe, if anything, it may prove to be a conservative forecast based on what we've seen through the first half of this year.
Q Dr. Tyson, I don't know if I would use the word "drag," but in terms of investment or spending, do you feel there has been any kind of a lag in that because of the uncertainties caused by the health care debate, and would we see any significant expansion of economic activity once the question is settled one way or another probably this fall?
DR. TYSON: Look, I certainly think it's -- the economy has done extremely well over the past six quarters. It's really a very fine performance both by recent historical standards and by long-term historical standards in the U.S. economy.
So I think when you look at that, the health care debate has been going on during this entire six-month period, and the economy has done very well. I think the important issues about the health care debate have to do with providing universal coverage for all Americans, and getting it done and getting it done now. I don't think that one could draw a link between that debate, which is very important to our economic future, and what's happened over the past six quarters.
Q Secretary Brown, are you aware that a group of minority entrepreneurs is going to launch an organization on August the 2nd, coinciding with the birthday of the President, in order to promote export expansion and lull the Hispanic minority into supporting the ratification of the GATT and implementation of the NAFTA? They are going to have on the 30th of September a letter to the President coinciding with the report to their -- Do you believe that they have to do that kind of thing that is good for the country? Do you support that? What is your response?
SECRETARY BROWN: We have a national export strategy, it is working. I certainly want to make sure that minority entrepreneurs are the beneficiaries of that national export strategy. It's why the day that NAFTA was signed here at the White House, I was in Mexico City with a delegation of minority entrepreneurs to make sure that they can participate in the economic growth that will come from the NAFTA and from other activities that we're involved in in the export area. It's why yesterday, we had a press conference announcing a whole new national export center strategy, where, in fact, export assistance centers are being placed all around America. And we are totally reorganizing our domestic program to assist exporters. That effort will obviously include minority exporters.
Q Can I follow up? Do you -- (inaudible) -- Do you agree with that?
SECRETARY BROWN: Yes, I'd be glad to meet with and work with the organization. It sounds like they're doing things that are supportive of the administration.
END10:25 A.M. EDT