Press Briefing by Martin Bailey, Council of Economic Advisors

The Briefing Room

11:21 A.M. EDT

Q: To what do you attribute this new rise in employment?

MR. BAILEY: To what do I attribute it? Well, I think it's a combination. Obviously, the American economy itself gets most of the credit -- these are private sector jobs, American workers, American business. But I think it's also the case that the policies that the President has put in place should get substantial credit for this improvement in the economy.

Q: For what, for example? What do you mean?

MR. BAILEY: For example? I mean the deficit reduction in 1993, in particular, which has brought the deficit down.

Q: Are you worried at all about inflation; and do you think that the Fed should just hang tight on the interest rates, given that there's no inflation worry?

MR. BAILEY: Well, I'm not going to comment directly on the Feds. It's our policy not to do that, and I don't plan to change that policy.

In terms of inflation, obviously, we need to watch inflation and make sure that it's not a matter of concern going forward. But at the moment, in these numbers, we don't see a direct concern about inflation. If you exclude food and energy, the Consumer Price Index still looks quite low. I think over the last year it's up 2.7 percent. The GDP deflator is up, I think, 2.3 percent over the past year. So the price numbers really are not showing an inflationary concern.

Q: Do you see any pressure on wages?

MR. BAILEY: Well wages have risen a little bit. But I think that's perfectly appropriate. We want to see American workers getting a raise. Even in this report, employment report, over the past 12 months, average hourly earnings have been up 3.4 percent.

Now, since we're getting productivity growth of about 1.25 percent, that means that unit labor costs are only going up around 2.25 percent. So unit labor costs are not rising any faster than prices. So there's nothing in this last wage numbers to suggest that inflation should accelerate.

Q: What do you say to those on Wall Street who say the economy is exceeding the speed limit for this, that you should be worried about those pressures?

MR. BAILEY: Well, we don't think that's right. We think that we should not be concerned about a strong economy in and of itself. The thing that you should look for is whether inflation is becoming a problem, and I've just answered that we don't think that's the case.

Q: Wall Street reacted to this good news with a drop of 81 points during the first half hour of the Dow Jones. What does that tell you?

MR. BAILEY: Well, obviously, they're concerned about interest rates. Interest rates did rise, and a strong economy sometimes has that effect on Wall Street. But I think what we want to do is to try to reassure Wall Street this is not just a strong economy, it's a good low inflation economy. And they should take the good news.

Q: The manufacturing sector's already lost close the 300,000 jobs in just over a year. With the strength in the dollar threatening export growth, could the manufacturing sector lose even more jobs?

MR. BAILEY: I don't think so. Most of the signs in manufacturing look pretty good. Auto sales have been good. The recent purchasing managers report in manufacturing was good. New factory orders were strong. So that, yes, there is a concern about manufacturing jobs. Part of the problem, obviously, is productivity is so strong in manufacturing. But I would think, in the short run, we should actually see some turnaround in manufacturing employment. We certainly hope so.

Q: The strength of the dollar, that's not a source of concern --

MR. BAILEY: I think the dollar, at this point, U.S. companies feel they are competitive in the world economy.

Q: Is there something wrong with an economy in which Wall Street goes down because somebody gets a job in this country?

MR. BAILEY: Well, I'll leave that -- I think you should ask the people on --

Q: I mean, really, this is unbelievable. And the same with the Fed -- somebody gets a job and they raise the interest rates. What is this?

MR. BAILEY: Well, I think you should ask the people on Wall Street about that. We certainly think that --

Q: I'm asking the Council of Economic Advisors. What's the story here? I mean, why is that?

MR. BAILEY: Well, let's remember the big picture, which is that the stock market has done extraordinarily well over the past few years. So I don't think we have any overall complaint about the performance of the stock market, nor should the people on Wall Street. So let's not get too worried about a gyration that's going to take place one day.

Q: I'm not worried about Wall Street, I'm worried about the concept that if people get work in this country, that everything seems to be falling apart in terms of interest rates and Wall Street.

MR. BAILEY: I agree with you, it's a good thing when people get work in this country.

Q: But you don't have an answer for it, that's clear.

THE PRESS: Thank you.

END 11:26 A.M. EDT