One on One With Edward Lazear, Chairman of the president`s Council of Economic Advisers
Friday, October 06, 2006SUSIE GHARIB: To find out how the Bush administration sees the employment picture, Washington bureau chief Darren Gersh talked today with Edward Lazear, chairman of the president`s Council of Economic Advisers. Darren began by asking if Lazear agreed with economists who called the jobs report a sign of a slow month.
EDWARD LAZEAR, CHIEF ECONOMIC ADVISOR: I wouldn`t characterize it as a slow month. I would characterize it as a month where we saw job growth pretty much in line with expectations. And the reason I say that is because we saw a job growth number of about 51,000. But we saw a revision of 60,000 up from August. So if you add those two together, what you end up with is 111,000 new jobs. The market was expecting somewhere in that neighborhood. So I would say this is pretty much what we expected in terms of job growth.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Still economists were looking for 125,000 for this month.
LAZEAR: Right.
GERSH: And they are always thinking that there might be revisions, but this was the slowest report since last October. So is this a sign, maybe, that we are in some kind of soft landing or maybe is it a little bit more trouble?
LAZEAR: No, I don`t think so. I see the labor market as still being very tight. The unemployment rate is down to 4.6 percent. We`re still seeing strong growth in -- people entering the labor force. And that is a key indication because people don`t have to enter the labor force. They only enter the labor force if there are jobs available. And we are seeing strong growth in labor force participation. That`s been up about 260,000 since July. So again, still on track for strong economic growth. Wages are continuing to grow. We are seeing nominal wage growth somewhere in the neighborhood of 4 percent for the year. That coupled with the decline in energy prices, which I`m sure everybody is happy to see gasoline prices are now down about $0.74 a gallon since early August. That -- what that means is that the paychecks that we`re seeing for workers will translate into real buying power. GERSH: But the work week was flat. And this month hourly earnings didn`t go up. And also we see if you look a little closer you see residential construction was off 16,000. Manufacturing in particular was off 12,000. And that was heavily concentrated in industries that have to do with housing, furniture, things like that. So are we seeing a little bit of weakness here?
LAZEAR: I don`t think so. I wouldn`t call it weakness. I would call it kind of a rebalancing of the economy. And let me tell you why. If we look at what has happened, particularly if we think about residential construction which everybody knows is the sector that`s been the weakest over the past few months, we are seeing that being offset almost completely by increases in nonresidential construction. I think of that as being actually a sign of a more robust economy. You hate to see an economy that is based primarily on strong consumption growth and strong housing growth and nothing else.
GERSH: The concern that the residential real estate folks are telling me is that the anecdotes out there are looking pretty ugly. And the Fed chairman was out there saying that we are in a substantial correction. But if you see these jobs going away in the manufacturing sector of -- that is related to housing, isn`t that an indication that maybe the housing correction could get worse?
LAZEAR: Obviously it could get worse. But I`m actually surprised by your comment. Because one of the things we do in addition to gathering numbers is we also talk to people in industry. We talk to bankers. We talk to finance people. We talk to manufacturers. We talk to retailers. And what we`ve been hearing from people out there is, in fact, that there might actually have already been a turn around. That if we look at, particularly financing in the housing market, we`re seeing some strength there. Some of the declines that we saw earlier in the year are now being turned around. People are saying that August was a pretty good month in terms of refinancing. We know retailing has picked up a bit. So there are a number of areas where we think, you know and again it`s too early to say. I`m not going to try and predict what the future is going to be. But it does look like there may be a turn around already. And that would be good, a turn around in the sense that we`ve seen a decline in some sectors. And that may be over.
GERSH: But the concern seems to be in Midwestern states, for example, Ohio, key election battleground. Surveys show that more than 80 percent of the people think that the economy is fair or poor. Are you going to be in trouble in this election because in key battleground states, people aren`t feeling the recovery that may be taking place elsewhere?
LAZEAR: One of the things that`s interesting is that if you look atthese surveys, people tend to say that the economy is poor, but they actually say that their own financial situation is considerably better than it was a few years ago. To be honest, it is a little bothersome to us in the sense that we would like people to recognize that the economy is strong. We believe it`s strong. The labor market is tight. We`re seeing very strong job growth, huge productivity growth over the past few years. Output is high, but when you do talk to the average American, I think they don`t see that the economy is as strong as it is. They do see their own personal financial situation strong. And the one thing I would just add to that is I think that much of that has to do with the increases in energy prices that you saw during the first half of the year. That was significant. And it really did hit people pretty hard. Of course, the good news on that front is that it has turned around and that the energy prices are declining at a rapid rate.
GERSH: All right, Mr. Lazear, thanks for your time.
LAZEAR: Thank you very much.
