Press Briefing by President's National Economic Advisor Gene Sperling, and Chair of the President's Council of Economic Advisors Janet Yellen

The Briefing Room

1:16 P.M. EDT

MR. TOIV: We're pleased to have this afternoon to brief on the information that the President talked about today Gene Sperling, the President's National Economic Advisor; Janet Yellen, who is the Chair of the President's Council of Economic Advisors; and also here to answer any questions you may have on census and sampling and that sort of thing is Rob Shapiro, who is Under Secretary of Commerce for Economic Affairs.

MS. YELLEN: Well, today the Census Bureau issued its annual income and poverty reports, and those reports show that our vibrant economy is boosting income and reducing poverty among Americans of all backgrounds. In particular, many of our most disadvantaged groups have seen the greatest gains, which is really very good news.

Incomes rose for the typical American family between 1996 and 1997 with especially large increases for low-income groups. In particular, incomes rose rapidly among black, Hispanic, and single-mother families. And as incomes rose, poverty rates also fell. And I'd like to go over what I consider some of the highlights to be from the report.

Median household income was up 1.9 percent between 1996 and 1997. Median family income rose 3 percent, which means an increase of nearly $1,300 between 1996 and 1997, which is more than during the previous two years combined. The typical family, as the President mentioned, now has $3,500 more income than in 1993. And the gains are reaching across our diverse population. Black and Hispanic households, for example, made some of the most impressive advances this year. Median household incomes grew 4.3 percent for blacks and 4.5 percent for Hispanics. In fact, median Hispanic household income has risen faster over the last two years than at any time on record.

Single-mother families, who are among the poorest groups in our society, are also sharing in the gains. We saw this year that families headed by women realized income gains of 4.4 percent between 1996 and 1997.

Today's report also has good news about earnings of American workers. It shows strong growth in median earnings. Among women who work full-time and year-round, we saw earnings up 3 percent in real terms. Men saw a 2.4 percent earnings increase. And I think increases in earnings are particularly good news because they indicate that Americans are doing better by earning more for every hour that they work.

As income is rising, poverty is declining. The poverty rate is simply the percentage of Americans who live in a poor family.

There are other ways to determine who is needy, but we find the poverty rate useful because it's a consistent measure from year to year. And what we saw is that this year, as incomes rose, poverty rates declined to 13.3 percent in 1997, down from 13.7 percent in 1996. And we have nearly a million fewer people in poverty in 1997 than in 1996.

The poverty rate now for blacks is the lowest on record. Hispanics saw the largest one-year drop in 20 years. And child poverty, although it remains a very serious problem, we now have fewer than one in five children in poverty, and that is the first time in nearly a decade. And poverty among the elderly has returned to its record low.

So, clearly, the benefits of our strong economy have been shared by all groups of Americans over the past year, and what today's report shows is that robust economic growth supported by wise and sound economic policy is bringing benefit to American families, including those with the greatest need.

MR. SPERLING: Thank you. I'll just make a couple of quick additions. I think generally we're seeing that a stronger economy with stronger demand for labor is bringing in groups that have been, at times, on the outside of the economy, and that the strong economy sustained over a significant period of time is having a positive impact on the unemployment rate. African-American unemployment has gone down since the President took office from 14.1 to 9 percent; Hispanic, from 11.3 to 7.5 percent. Certainly, you're seeing that feeding into the income numbers.

Also we've seen that in the lowest bottom 20 percentile -- lowest quintile, that they've either, depending on how you calculate it, have the highest growth of the five quintiles or second highest -- highest, in terms of family income up 11.5 percent since between '93 and '97; or the second highest, which would be the household income, under that measure, up 7.8 percent. So each quintile in the economic range has seen their income rise during this time period. If you measure it by family income, the lowest quintile has risen the fastest. If you measure by household income, the lowest 20 percent have risen the second fastest.

Also, the Earned Income Tax Credit, which the President talked about today, is not calculated in the normal poverty rates, but there is an alternative rate that tries to show what it means to have the Earned Income Tax Credit and what it means not to have it. And that, which is listed in Table C-4, is what shows that the Earned Income Tax Credit pulls 4.3 million Americans out of poverty.

What is certainly gratifying for the President is that that number was 2.1 million before the President's increase, so the President's increase, not just Earned Income Tax Credit -- what was there and what we've tried to protect -- but the increase has lifted an additional 2.2 million Americans out of poverty. That is why -- as you remember when the balanced budget agreement ended in 1997, the final thing we were fighting for was whether the $500 child tax credit would also apply to that group. And because of the President's battle to the end, 12 million children in families making under $30,000 were able to get the child tax credit who might not have under different formulations. So that child tax credit, which will be in people's income for this year or on their tax file for April, for next April, will again be something else that will not be measured in the official poverty numbers, but will again help people making under $30,000, some of our hardest working families.

And just to give you one last example, if you imagine a family of three making the minimum wage when the President came into office, what they were -- with the minimum wage and the Earned Income Tax Credit would have been a total of about $10,000. The increase for that family for the Earned Income Tax Credit plus the increase for the minimum wage raises that particular family's income, just based on nothing else but the minimum wage and Earned Income Tax Credit, by $3,000, which is obviously a 30-percent increase in that family's well-being and just enough to lift them out of poverty.

So the combination of the minimum wage and Earned Income Tax Credit makes an extraordinary difference for hundreds, thousands, if not millions, of families.

And the last thing I'll say, and then we'll take questions, is the President made a powerful statement about African American child poverty rate. I think there is no number that shows so powerfully the progress that's been made and the work that still has to be done. The African American child poverty rate was 46.1 percent when the President came into office. It has now gone down to 37.2 percent. That is the lowest it's been; that is the largest four-year drop. And yet, even at 37.2 percent, it is a shame on our nation and one of the things that compels us to continue fighting for initiatives and programs that make sure all children have a fair chance to make it in our country.

So we're happy to take whatever questions you might have.

Q: It appears that the welfare rolls are dropping faster than the poverty rate is dropping. Does that suggest that some of the people who are leaving the welfare rolls are remaining in poverty, or perhaps doing worse off than they were before? I mean, the welfare rolls are falling faster than people are coming out of poverty. If you look at the difference between '96 and '97, there was such a dramatic drop in the number of people on welfare, and this is a big drop and not that big.

MS. YELLEN: Rebecca Blank, who is a member of the Council and is an expert on welfare reform.

MS. BLANK: The numbers that you have right here are 1997 numbers, which was a year that we made rather substantial progress in the welfare caseload. It did fall, and it did fall faster than these poverty numbers are falling. However, you have to realize that this is the year when many states were really just beginning to implement their programs. The welfare reform signed in 1996 was not implemented until July of '97. So you have a lot of programs being implemented and people going into job training programs who really haven't completed those programs, who are just coming out.

I think it's way too early to look at these numbers and conclude very much about the successes of welfare reform, that we have a lot of other measures that do indicate that welfare reform is working quite effectively, the caseload numbers being one. But I think the fact that it hasn't shown up in the poverty numbers simply isn't a surprise. These numbers are just too early.

Q: -- but the global financial crisis has intensified and is getting worse than anyone had really forecasted when it started. Are you beginning to have to reexamine your growth forecasts for the U.S., and do you agree with the proposition that perhaps inflation or lack of growth is a greater danger than perhaps tight markets for labor and such not?

MS. YELLEN: We have certainly been looking very closely at the impact of the international financial crisis on the U.S. economy. Certainly this is, I think, one of the most serious -- the most serious risk to our forecast going forward, of continued solid growth going forward.

At this point, the statistics and what we know about the fundamental strength of the U.S. economy suggests to me that the most likely scenario is growth at least in line with what we've forecast in our mid-session review. We have very strong consumption spending, and the fundamentals underlying that remain very robust. Residential investment spending are very strong, but we are seeing clearly a drag from the Asian crisis -- it's showing up in our net exports. And certainly the biggest risk to that outlook is deterioration or further widening or deepening of that crisis. And so, we are monitoring that risk carefully, and it is the major risk.

MR. SPERLING: The only other thing is I would refer you to the President's Council Foreign Relations speech and then also the G-7 statement that came out the same day, in which the President did state that our perspective in terms of the world economy was the balance of risk had shifted and that the emphasis needed to be on growth and the different recipes the different countries or parts of the world had to do -- which in our case we believe is maintaining the fiscal discipline that's kept long-term interest rates low and led to the investment surge we've had -- and for Japan, certainly requires much more significant or quicker demand-led growth and prompt corrective action in their banking system, particularly in regards to strengthening weak, but viable banking institutions.

Q: -- arrange with other countries in the world, regarding for this issue?

MR. SPERLING: Are we coordinating with -- well, the statement in the President's Council on Foreign Relations speech, certainly the Treasury Department was working with our G-7 allies in coordinating the finance minister part of that, and certainly what came out there echoed that. And there is constant communication and focus among the G-7 and emerging countries on these issues.

As to the monetary side, obviously, we do not -- our policy -- comment either on the Fed's monetary views, which Janet used to be a member, or any possible coordinated action that could occur.

Q: Gene, does the White House have a view of the tax plan being introduced by Daschle?

MR. SPERLING: What we know of the tax plan being introduced by Senator Daschle is that it is targeted, it focuses on working families, and that it is paid for and does not use the surplus or in any way violate the President's pledge to save every penny of the surplus until Social Security is saved. So, while I don't know -- I'm not sure that I know the exact details or the final details, from what we have seen it is consistent with the President's Social Security first pledge and a strong targeted package that if it were to hit the President's desk he would sign.

Q: The President in his Council on Foreign Relations speech called for a G-22 meeting of finance ministers and Central Bank governors, and that's coming up in a week or two. Does the administration plan to go into that with a specific set of proposals or a proposal as far as what it would like to see come out of that and actions taken going ahead?

MR. SPERLING: I think the important thing to understand is as situations evolve around the world this year there's been often coordination through the IMF or in other forms to deal with a particular short-term crisis or country specific issues. This particular meeting is designed to deal with the over-global financial architecture and in many ways is an acceleration, elevation and expansion of a process that really started in Naples and Halifax to look broadly at these issues.

So I think that this is an intensification of an effort is underway, and that it is going to take significant work and focus. It is not -- this is not the process designed for any specific short-term responses, but the larger issue. I do think what the President did say in his Council on Foreign Relations speech is that there are a couple of issues that are clearly more on the table -- certainly the issue of how the financial architecture should deal more with contagion issues where countries are basically or predominantly being affected by weakness elsewhere in the global economy, how to keep an open capital and trade system while moderating excessive booms and busts that come from excessive inflows or outflows of capital based on excessive optimism or excessive pessimism.

And obviously if we were having this discussion four or five months ago, a lot of your questions would have been on moral hazard. Clearly what's happened now has put a lot of the focus on how to restore confidence and getting capital flows back into countries. So I think that suggests that this is a larger and longer-term reform and not one that one should think is going to pop out proposals or recommendations within a week or a month or even a few months. I think they are going to aim to have a preliminary report to the heads of state by the beginning of the year.

Q: Gene, that income inequality -- the report notes that the gap has ceased to widen after incredibly good growth and tight labor markets. Are you, first of all, concerned that if growth eases or if the labor markets start to loosen up a bit, that that gap will start to widen again? And what's the long-term plan to actually have that gap start to shrink?

MR. SPERLING: Well, again, as you see, in virtually every budget what we have focused on -- we have focused very hard on making sure people in the bottom -- or the lower 20 percent in income were benefitting in every way possible. That's why we're supporting another increase in the minimum wage. That's why, just remember, the very last issue in the balanced budget was our insistence that families under $30,000 receive benefit from the $500 children's tax credit. Again, that may not show up in these numbers, but it shows up in their lives and their pocketbook.

But this isn't just a concern, this is largely one of the main reasons we're here. And we are both gratified by the fact that the income inequality is not expanding, but also not satisfied in the slightest that it has only stabilized. But I will say that for most people the most important thing is that everybody is growing. And I think what would concern us the most is if average Americans or those on the lower end weren't having their incomes grow. If their income is growing and it just happens to be that people at the top were having a good year because of the stock market, that should be less of a concern than people's wages stagnating or people failing to get the opportunity. I think that's where the primary focus should be.

MS. YELLEN: I would just reenforce what Gene said. It's impressive, this year we have seen very substantial income growth in every quintile of the distribution. There has been a long-term trend toward widening inequality, and I think really we have seen it stabilize. And the fact that we have seen for every quintile of the income distribution very strong income gains is something in which we should take satisfaction.

Q: Gene, the gains you mention are impressive, but it's hard not to notice some of the declines for men, both when measured by earnings or when looking at households. I wonder why that's happening. And also, is it more -- how you would counter the perception that the gains are more a redistribution, that some of these gains in the areas are occurring at the expense of men?

MS. YELLEN: I'm sorry, I'm uncertain what numbers you're referring to --

Q: -- from '89 to '97 you have male householders, non-family, having a five percent decline --

MR. SPERLING: I know what you're looking at -- you're looking at Table -- one of the questions people want to know is when are we getting back that we've recovered all the losses that happened in the recession. And I think the table you're seeing shows that while families actually now have done better than they were doing in '89 -- so, in other words, they have not only gained, but recaptured everything that was lost since the recession of '89 -- if you broke that out between men and women, men would not have caught up completely, while women, and I believe African Americans, are actually now doing better than they were in '89.

So now I've explained it and you can answer it.

Q: Why is that the case?

MS. YELLEN: You're referring simply, if I understand you right, to men who were not in family households.

Q: No, I'm referring to earnings of men and also to non-family male householders and male householders, no wife present. I mean in every category --

MS. YELLEN: Because male earnings are up 2.4 percent in real terms. Male householders who are in families have experienced over the last year small but positive real gains. And over this past year, the only thing that I see is a loss is for male householders who are not part of -- not in families, which is a smaller group.

Q: Why is this happening? I guess that's still the question. Why should men not be experiencing some of the gains?

MS. YELLEN: I mean most -- what I take from this report is that most men are experiencing gains, the largest number of men are experiencing gains, and that's what I take away from that report. I'm not even sure that it would qualify as a statistically significant change, the number that you recited.

MR. SPERLING: I think the number you're simply showing to -- and I don't want to make up an explanation on the spot -- is you're just saying that since 1989, men have gained -- families have gained. If you break it down by men and women, women have gained enough so that they're above where they were in '89 while men have not quite caught up.

It's important to understand that men income are rising, it just hasn't risen as fast as women's income. And obviously, a lot of Americans experience their income as a family unit, which is, as we noted, above where things were in '89. But I don't have an answer for you.

MR. TOIV: We have two more questions here.

Q: Yes, I've got a question about long-term capital -- Gene, I think probably you're the person I need to answer this --do you think that the long-term capital debacle means that there needs to be a regulatory response to rein in hedge funds?

MR. TOIV: One more question. (Laughter.)

Q: Thanks, Barry.

MR. SPERLING: The Treasury Department has been -- Gary Gensler at Treasury has been particularly focused on this issue and looking at this. I expect as a natural course that people will review and ask questions like that. I think right now, though, I'm not sure that based on what we know there, that we can draw that conclusion. But I think we probably will look further. But we should -- the question is whether the actions of a particular company reflect the poor judgment or poor luck of a single company or something systemic. I have no reason to believe that at this point people would believe that it reflected a need to change regulatory structures.

On the other hand, you always have to go back and look seriously. I do think that in this particular case that Mr. Gensler believes that the people being affected were substantial players, so to speak, and not average investors. And I think that's worth noting. But you may want to speak with Gary Gensler at the Treasury Department, who is going to be the new under secretary.

Q: With the tight labor markets, we've been at -- for umpteen number of months. I've lost count how many months we've been there. Is there any time that inflation in the economy --

MR. SPERLING: I want to make one comment before Janet gives the answer. Whenever we're a little frustrated, whenever the economic team thinks the President is not taking their advice, I always say, well, remember, the guys who came in in '93 and told them you'll never get unemployment under 5 percent without inflation going up. So anyway. (Laughter.)

Q: My second question, the President of Brazil -- this maybe if for Gene -- the President of Brazil indicated that Brazil may be on the verge of seeking international loans to bolster the economy. Would the U.S. be receptive to such an idea?

MR. SPERLING: I'm sorry, when was his comment? Was that in the speech he gave two days ago, or was that something from today?

Q: I was reading in the paper today. I'm sorry, I don't know exactly what the antecedent for it is. But the question will remain, would the U.S. be receptive to granting international loans or organizing international loans to Brazil to bolster the economy?

MR. SPERLING: I think Brazil clearly has to make its decisions as to its best policy for stabilizing their economy. I think that the President has made clear that under the right conditions the United States would, of course, be supportive if that was a path that they at some point felt was the right one. But I don't want to say much more, particularly because I'm not particularly sure what comment you're referring to. Because I did not recall that was in his substantial speech he gave sometime yesterday.

MS. YELLEN: I would just add a little bit to what Gene said about narrow -- we've been enjoying a remarkable period in which unemployment has been falling and low for a substantial amount of time, below what most analysts regard as -- quote -- "narrow" is the rate below which one could expect inflation to accelerate. Throughout this period, theory has been overtaken by events. The consequence of that has been that analysts have been revising consistently downward their notion of "narrow" to make theory conform more closely up to what our experience has been.

At this point, I would say we have a low unemployment rate by any historical measure, tight labor markets, and no evidence of inflation. In the sense that certainly real wages can rise at a rate consistent with productivity growth in the economy without generating increases in costs that would translate into inflationary pressures. And really, that's what we're seeing now.

Finally, we've got solid, real wage gains, but closely mirroring productivity growth, so that we're not seeing that the kind of cost squeeze emerge for corporations that would result in inflationary pressures. And then on top of that, the international situation, in part, is resulting in pressures that reduce inflation further; namely, import prices are falling, and we've seen a substantial decline in the cost of imported oil. And all of that is holding down in inflation.

So, at this point, even though we have a 4.5 percent unemployment rate, I don't think there's any inflation in evidence in the near future.

MR. TOIV: Thanks very much.

END 1:46 P.M. EDT