Office of the Press Secretary

For Immediate Release September 10, 2018




James S. Brady Press Briefing Room

2:26 P.M. EDT

MS. SANDERS: Good afternoon. The September jobs report continues America's economic winning streak under President Trump, evidenced by strong job creation, rising wages, rapid business growth, soaring consumer confidence, and increased manufacturing activity.

To go into greater detail on why the American economy is booming, I'd like to welcome Kevin Hassett, Chairman of the Council of Economic Advisers, to the podium to take your questions on this topic. And, as always, I'll be back up to answer questions on news of the day. And I apologize in advance for Kevin's really bad calculus jokes. (Laughter.)

And, with that, Kevin.

CHAIRMAN HASSETT: Thanks. It's really a great pleasure to be back here. And thank you, Sarah, for the kind introduction.

You know, one of the hypotheses that's been floating around about the economy lately is that the strong economy that we're seeing is just a continuation of recent trends. And, you know, since we're the nerds at the White House, we decided that this is a testable hypothesis. And so what we can do is we can go out and we can estimate recent trends -- that is, trends that ran in the economy up to the point of the last election -- and then compare the latest data to the recent trends.

In most cases, by the way, the estimates of the trends that we present to you here are very statistically significant, as are the deviations from the trend.

And so now I'm going to, as I always do, show you a few slides. Could I have the next slide, please? That's the first slide again. There we go.

So the first slide that we're looking at is small-business optimism. And this is basically -- for parallel construction, you're going to see that each of the slides we go through is going to look a lot like this. And so the blue part to the left of the slide is what happened from the 2012 election through the 2016 election. And the dotted blue line is the trend that President Trump inherited from the previous President. And the red line is what actually happened with the data.

And so, I think that if you look at this chart, you can see that the first thing is small-business optimism. The middle chart is the percent reporting now as a good time to expand. The last one is the percent expecting higher real sales in six months. I think if you look at any of those, you'd say, "Gee, that doesn't really look like the continuation of a recent trend."

Could I have the next slide, please?

The next chart is something that, in my first presser here, way back last fall, we talked a lot about. It's business investment, which is more than $300 billion over the trend. Again, if you look at the blue line on the left, the first chart is nonresidential fixed investment. And the dotted line is the trend and the growth rate to that, that President Trump inherited.

For the middle chart is structures, or buildings. And that, as you can see, the dotted line is something that is headed straight down.

And then, the final chart is equipment investment, and that went straight down before President Trump was elected.

And I think that if anyone were to assert that the capital spending boom that we're seeing right now was a continuation of the trend that President Trump inherited, then, well, you know, they wouldn't get a high grade in graduate school for that assertion.

The next chart, please.

Durable goods orders, capital goods orders -- it's a key part of the economy, and it's one of the factors that we look at most closely because it characterizes, basically, the good-paying jobs, the jobs that affects normal Americans -- blue- collar Americans.

And the first chart is core capital goods orders, and the second chart is core capital goods shipments. And if you look at it, the blue again shows a clear downward trajectory and billions of dollars. And then that trajectory reversed itself completely when President Trump was elected.

If you were going to assert that the current good news is just the extension of a recent trend, then you'd just simply be factually incorrect.

The next slide, please.

Here we're looking at the ISM purchasing managers index, which is a survey of people who are purchasing managers for manufacturing firms. And so they're the folks that, you know, as the title suggests, manage the purchases. And so it's a really great indicator of the economy because you can survey them and say, "Hey, have you been buying lots of stuff this month or have you not?" And the index shows what their responses look like.

And you can see that the trend on the purchasing managers index was pretty much flat when President Trump took office. And the red line shows you what happened since, that there's a clear inflection right at the election and a clear break in the trend.

Let's turn to the next one, please.

Now, one of the things that I can remember at the American Enterprise Institute talking a lot about before I came in here was the fact that entrepreneurship in America was falling off. And one of the ways we can measure entrepreneurship is that, if you start a new business, that you have to apply for an ID number -- a tax ID number -- for your business.

And so, in this chart, we've plotted the EIN applications for new businesses. And if you look at the blue line, they were heading up because we were at a recovery, but there's clear upward trajectory way above the trend at the end.

And, you know, Sarah -- like John Roberts -- is a calculus geek. And so she looked at that one, and said, "Jeez, that looks like a very strong second derivative to me." (Laughter.) And then, I said, "I didn't know you did calculus." And she said, "I like calculus better than talking to these guys."

The next chart is prime-age workers reentering the labor force. And again, if you look at the trend, one of the things people said when we put out our growth forecast that said that we'd have 3 percent growth was we said that President Trump's policies are going to bring factories back to the U.S., give you the capital spending boom that you saw in the previous chart, and that was going to bring people back into the labor force at precisely the right time. Once again, you can see that there's clear break in the trend.

And so, if you see a break in the trend in the capital spending, the new plant formation that gives blue-collar workers their jobs -- go to the next slide, please -- then maybe we see a break in the trend in blue-collar workers employment as well. And so this is employment for people in goods-producing industries.

If you look, again, at the blue part on the left, you can see that there's a clear downward trend going on in the growth rate of that for President Obama, and then a clear inflection timed almost precisely, once again, at the election. And the notion, again, that somebody might defensively attempt to assert that this is a continuation of the trend is almost laughable if you look at this chart and, you know, look at the rest of them.

Now, somebody might say, if you're showing a bunch of charts, well, gee, maybe it depends on when you estimate the trend. And I'm sure that if you went back and began your estimate of the trend at the Civil War, and then thought about, well, what trend do we get then -- well, then, maybe we're not -- yeah, well, you would get a different answer from what we see.

But another way to sort of test whether the data that I just showed you is a fair representation of what a trend looked like when President Trump was elected is just to compare it to what nonpartisan bodies were saying.

So if I could have a look at my final chart here. I know -- guys, I heard this sigh of relief when I said "final chart." So if you look at the final chart, you'll see that the black line is, in June of 2017, what the CBO -- Congressional Budget Office, a nonpartisan agency that has a job, really, of looking at recent trends and projecting it -- what they said would happen to capital spending back in 2017. The blue line is what they said in April 2018. And the red line is what's actually happened.

And so, I would assert that if you look at the collective body of evidence, the notion that what we're seeing right now is just a continuation of recent trends is not super defensible. And I think that -- I know that we're in a political time and passions are high. But, as geeky economists, one of the things we have to do is think ahead to what historians will think when they look back at this time. And I can promise you that economic historians will 100 percent accept the fact that there was an inflection at the election of Donald Trump, and that a whole bunch of data items started heading north. They will, of course, argue for a long time about why that happened.

But my final thought for you is just this: That when they do that, and when you watch people do that in the media going forward, with op-eds and so on, that you should watch out for ex-post theorizing. As an economist, one of the things I most care about is an ex-ante theory -- something that happens before, and then let's watch the data, and then see if it agrees with a theory. That's how you test a theory.

You might recall that I came back here last fall, and I told you that if we had the tax cuts that President Trump advised that we have, that he pursued -- if we passed them, then there would be a boom in capital spending this year.

In fact, we provided estimates at the time last fall that said that capital spending this year would go up about 11 percent because of the tax cuts. So far, in the first half of the year, capital spending is up 10 percent.

And so you don't have to really reach far for a theory of what happened. President Trump deregulated the economy; we've talked about how that affects growth. The tax cuts have had exactly the predicted effect on the economy that's brought businesses back to the U.S., factories back to the U.S., and created jobs for ordinary Americans. It clear in the data that there's been a trend break.

And with that, I look forward to taking a few questions before I hand it off to Sarah to talk about other things. And I'll let Mr. Roberts go first, and then I'll maybe try one for each row, because I know I'm not allowed to go for the whole time.

Q Kevin, based on the information that you have given us, where did the revenue drive, from all of these increasing trends, meet the deficit line caused by tax cuts?

CHAIRMAN HASSETT: You know, it's a great question. One of the things that we could talk about -- in fact, Sarah, let's have a whole other briefing -- well, after we do the calculus briefing, let's do a briefing on the deficit.

But one of the ways to think about it is that there's been a big change in tax law and a big change in spending policy. And in the tax law side, you could remember that the dynamic score for the corporate tax was that it would have a very, very low cost. And I think that the cost estimate, not dynamically scored -- and Tyler will nod for me -- was about $400 billion in the final bill, over 10 years. And clearly, the growth and the investment boom that was projected by CBO was a significant underestimate for what's happened already. And so I think that the notion that the corporate tax side has about paid for itself is clearly in the data.

On the individual side, there was about a trillion-dollar cost. About $700 billion of that was a refundable child credit that got expanded at the last minute to get the votes they needed to pass it.

Now, a refundable child credit is a very sound policy for people who care about equality of opportunity, or families with children. President Trump supported it wholeheartedly but not at the size that it came out. And the child credit, though, is not something that you would expect would pay for itself.

And so the tax cuts have increased the deficit a little bit, but not the tax cuts that the Democrats are attacking, but rather the tax cuts that the Democrats probably should have supported.

I'll go to row two, right there. I am sorry I dont know your name.

Q Steven. There's another chart, not included in your packet, and that's a chart about the spike in the consumer price index. That's the cost of goods, and it's inflation going up --


Q -- at a higher rate -- (laughter) -- (inaudible) for those who dont. Americans are paying more for their goods now than they did in recent years. Can you explain to what extent Americans should be concerned about the fact that the price of goods is increasing at a high rate?

CHAIRMAN HASSETT: Right. Well, Americans should be

concerned that prices are going up. And if you look at the consumer price index, then -- over the most recent year, then it's a little bit short of 3 percent. And I know that that's something that affects Americans when they go to the grocery store or the gas station. And they should be concerned about that.

But the best defense against increase in inflation is an increase in wages. And the CEA put out a report this week that documented that it correctly measured real after-tax wages are growing about 1.4 percent this year. So that means that the wage growth that President Trump has helped create with his policies is overpowering the inflation numbers right now.

I'll go to row three and then back.

Q Thanks, Kevin. What credit, if any, does former President Obama deserve for the current state of the economy?

CHAIRMAN HASSETT: You know, I think that attributing blame or credit to individuals requires that I identify policies and then talk about, well, what affected this policy or that policy. And I prefer to give blame or credit to policies than to individuals. I think that President Obama sometimes, on the partisan trail, gets criticized with numbers that are clearly incorrect because people blame him for the Great Recession, which was there when he started, and it's not fair.

If I look specifically at President Obama's policies, there are a whole bunch of policies that I think were very negative for growth. I think the Affordable Care Act lifted marginal tax rates on individual workers, so much so that the CBO even said that it would have a negative effect on growth. He increased marginal tax rates on small businesses, and that's why small-business creation wasnt so high.

And so I could look at a lot of policies, and we could talk about them one by one and say, did they help or hurt growth. I think he also advocated policies that he said would help growth that clearly did not. And really, I kind of wonder about what was going on in the heads of the economists that told him they would, like Cash for Clunkers, and so on, that really didnt have much effect at all.

But to say he destroyed the economy, or something like that, that's not what the CEA chair should be doing.

And I'll go back another row.

Q Thanks, Kevin. I have two questions for you. Can I take them separately? Do you mind?


Q First one --


Q -- just playing off of this question here.

CHAIRMAN HASSETT: But yeah, go separately, because I'll forget the first one when you finish the second.

Q Exactly. Thank you. You're coming out, obviously, talking about the economic numbers in our first briefing here in nearly three weeks. It seems like it might be timed to President Obama's speeches on Friday and Saturday, in which he talked about the economy and some of these very issues. Is that why you're here today? Or is that just a coincidence?

CHAIRMAN HASSETT: That -- you know, thank you for asking that, actually. Because Sarah can tell you that I've been pushing her to let me show these slides for quite a while, that we've updated them for recent data, but that, in fact -- I dont know about the three-week lag; I think it has something to do with the fact that sensible people sometimes, even in the White House, take a break in August, and there was some vacation taking at the time.

But yeah, that -- we were prepared to do this briefing a few weeks ago. And there's not in any way a timing that's related to President Obama's Friday remarks.

And then I promised you number two.

Q Thank you very much. You talked about, obviously --

CHAIRMAN HASSETT: But the next person is going to ask for three, you realize, and so I shouldn't have done that. (Laughs.)

Q (Inaudible) -- under President Trump, the President also -- and I'm curious about your views and comments on this -- has told private companies -- Apple, Amazon, the NFL -- how to run their business. Do you believe that's appropriate for a President to do? Do you believe that stimulates economic growth for a President to be dictating how private companies run their stuff?

CHAIRMAN HASSETT: Well, the President has strong opinions about everything. I think that we wouldnt have had all the policy success that we've had if he hadnt been such a strong advocate for the things that we've seen. I think that his strong opinions sometimes stretch into areas that are outside of the places that CEA has any purview. And I dont counsel him on that.

I think, at a previous presser, I once said that I dont run the "Council of Twitter Advisors," and may that be true for all of my stay here.

I'll go back to the blue shirt in the back. Yeah. And I skipped a row. Sorry, I'll come forward.

Q A quick question for you on an economic stat that the President put out in a comment today. The President said, "The GDP Rateis higher than the Unemployment Ratefor the first time in over 100 years!" That's just not true, though, is it?

CHAIRMAN HASSETT: Yeah, that's -- so I could tell you what is true. (Laughter.) And the history of thought -- no, but, though, let me just say that the history of thought of how errors happen is not something that I can engage in. Because, like, from the initial fact to what the President said, I dont know the whole chain of command. But what is true is that it's the highest in 10 years. And at some point, somebody probably conveyed it to him, adding a zero to that, and they shouldnt have done that.

And I could say that we numbers geeks here at the White House are grateful for -- when the press finds mistakes that we make. We dont like making mistakes, but we're grateful when they're pointed out because we want to correct them.

And you might have noticed that I gave Sarah a bad number a few weeks ago. It was 100 percent my fault, and I apologized immediately. And we created it. And, you know, you'd have to talk to the President about where the number came from, but the correct number is 10 years.

And then I said I would come forward.

Q He said President Obama -- former President Obama -- said "President Trump would need a magic wand to get to 4 percent GDP." The President suggested that was a direct quote from President Obama. Did President Obama ever say that?

CHAIRMAN HASSETT: I don't know. I'm sorry. And again, I'm not the chairman of the "Council of Twitter Advisors." But I was trying to go back up. Yeah.

Q On wage growth, the White House put out a number that uses a different way of calculating wage growth. It seems like that's unfortunate, because you get an apples and oranges comparison to previous wage-growth calculations. Why is it important to do that? The new calculation incorporated things that are non-cash benefits, like vacation time and other types of benefits. Why do that mid-stream and not just base your analysis on wage growth based on the way that its been calculated in the past?

CHAIRMAN HASSETT: Yeah. Well, thanks for the question. We have a whole report that came out last week, and there were a lot of new stories that I thought were very well done and thoughtful about the piece. And I think that the question for Americans -- what they really want to know is: How are President Trumps policies affecting their lives? And it turns out that the statistic that got the most attention in the media is not a very reasonable statistic for answering that question.

Now, we talked about how to better measure that. And it was not a criticism of the Bureau of Labor Statistics. We love those people; were data geeks. We use their data to come up with a better measure. But a better measure will account for the fact that people get benefits. A better measure would account for the fact that people just had tax cuts. A better measure will account for the fact that the composition of the labor force is changing because so many people are coming in. And the people who have been out for a while tend to be lower skilled, and so they can bring averages down if you dont control for that.

And so, in our study, we controlled for all of that and showed that just as is consistent with our 4.2 GDP growth, were seeing a massive amount of wage growth right now compared to what projections were when President Trump took office.

And I dont see Sarah telling me I have to stop. So should I keep going?

MS. SANDERS: (Inaudible.)

CHAIRMAN HASSETT: (Laughs.) Okay. Oh, yeah, Ill go back there and then -- Ive been right-handed and thats really terrible. I apologize.

Sir, yeah.

Q To keep these trends going, how important is it for you to have a new North American Free Trade Agreement including Canada?

CHAIRMAN HASSETT: Yeah. Thank you for the question. And the first thing, before I turn to the trade part of the question, is that some people have also said, Well, sure, the economy is strong, but thats a sugar high. But its not a sugar high at all. Because whats happened is that the capital spending boom that we promised would happen if we passed the tax cuts is underway. And the cool thing about capital spending is that people build factories -- thats what capital spending is -- and they do that in the first half of the year. Its up 10 percent since the beginning of the year. And then in the second half of the year, those factories start producing output, so you get more output.

And so the idea that the trend might not continue -- that its a sugar high -- is just inconsistent with the form that the growth is taking. And as for NAFTA, Ambassador Lighthizer and the whole team have been in negotiations with Canada. We continue to be hopeful that theyll sign on to the 21st century deal with Mexico, which is really a better deal for American workers. And they should sign on to that.

So Ill come over here and Ill go back to you.

Q Hi, Yamiche with PBS NewsHour. I have a question about income inequality. Can you talk a little bit about whether or not youve seen income inequalities shrink? And are you at all concerned about whether or not people that are just poor -- not just people that are in the economy, but actual poor people that are living beyond the poverty line -- below the poverty line -- are they being improved by this economy?

CHAIRMAN HASSETT: Yeah, they certainly are. Certainly think about it. All the new entrants that get a job -- they go from having zero wage to having a wage, but they wont necessarily show up in the wage statistics -- those people are better off.

And there are a number of other ways that people are better off, too, because of the growth in the economy, but also because of policies that have given resources to families that are needy. At the CEA, we put out a different report over the summer on whats going on with poverty -- correctly measured. And then, in the stay tuned department, there is important data coming out this week which will help us look at how income inequality has changed over -- not in this year, but over the previous year.

My expectation is that that data will start to turn, and that this year were going to see a decline in income inequality because blue-collar wages are starting to grow.

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