Press Briefing by Dr. Joe Stiglitz, Chairman of the Council of Economic Advisors

Press Filing Center

Sheraton Hotel

Chicago, Illinois

1:26 P.M. CDT

DR. STIGLITZ: I knew there were a lot of other things on people's minds. Let me talk about the economy, because there are some very interesting economic news.

As most of you may have remembered, when the numbers came out earlier on the GDP at 4.2 percent, that caused quite a stir, it was such a strong number. And the economy has, inevitably, become an important issue at the current time. A key part of the debate will be the economy.

The revised numbers for GDP that came out today have the economy growing at 4.8 percent, which is an extremely strong number. There's only been one quarter in which the GDP has grown at this rate over the last six years. While we had expected an increase in GDP, this was stronger. Let me talk a little bit about some of the sources of revision which I think are important in delineating where the economy is going.

There was a significant improvement in the trade balance and that was partly because exports are up. Over the last three years, exports have been up 31 percent. Investment was also revised upwards, and particularly important is investments in equipment which form the basis of increases in productivity.

There were downward revisions in inventories, and that's important, for those of you who are paying attention -- (laughter) -- because -- both of these numbers are important because one of the issues we want to know is where the economy is going in the short run and where the economy is going in the long run.

Lower inventories mean that there is stronger potential GDP growth going in the immediate short run, because one of the major factors contributing to an economic slowdown is excess inventory accumulation. The fact that there was a downward revision in inventories means that their inventories are even leaner than we thought previously, which strengthens the prognosis of a strong economy going forward over the next half a year.

The increases in investment are important as providing the basis of longer-term economic growth. But one of the concerns that is always raised when there's a strong GDP number like this is what is going to happen to inflation. We're always in this balance between -- if growth is too strong people start worrying about inflation.

The numbers on inflation remain very strong. There was a .1 revision. The GDP inflation numbers are at 2.2 percent, which is the same rate that it's been over the last year. So what is remarkable about this is that the increase in the GDP, the GDP growth rate, at 4.8 percent, has not been accompanied by any increase in inflation. So we've had high growth with inflation remaining extremely stable.

The other part of the numbers that was released are the income numbers that are associated with these GDP numbers. The profit share, which is very important for where the stock market is going, which is something some of you may be interested in -- the profits as a share of GDP reached a 30-year high at 8.7 percent in these revised numbers. And this high profit share, 8.7 percent, combined with earlier released numbers on the ECI, the Employment Cost Index, which went up at 3.4 percent, show that these increases in GDP are being translated to increases in income.

The other number that was released today were the new single-family home sales, and those were up 8 percent. These numbers are consistent with the overall pattern of increased homeownership that has occurred over the last 3.5 years -- 4.4 million families have homes today more than did at the beginning of the administration.

There are a number of other factors which have contributed -- that are indicators of a strong economy. But let me conclude by pointing out that from our perspective these good numbers are not an accident, they are the result of the kinds of economic policies that we have been putting into place -- the deficit reduction, the export promotion which has led to the improved trade balances, and a vast array of microeconomic policies including telecommunications reform.

Why this is so important is that if the kinds of tax proposals that have been put forward by the Republicans were adopted, the kinds of progress that we have made in all these areas would be put in jeopardy.

Are there any questions?

Q: Is this good news?

DR. STIGLITZ: This is very good news. This is very good news for the economy.

THE PRESS: Thank you.

END 1:36 P.M. CDT