FROM THE OFFICE OF PUBLIC AFFAIRS

There is growing sense today that after a series of shocks - including
terrorist attacks, corporate scandals, and a recession - the American
economy is accelerating again.

Last month the economy exceeded expectations and added new jobs. Inflation is low. After-tax incomes are rising. Home ownership is at record highs. Productivity is high. Factory orders, particularly for high-tech equipment, have risen over the last several months.  Both auto and non-auto consumer spending are strong.  The stock market is up 30 percent since March.  In the past few months, shipments of capital goods excluding defense and aircraft have increased at the fastest pace since early 2000.  Industrial production is on the rise.  Housing starts have remained outstanding.  Small business optimism recently reached a record high level, according to the National Federation of Independent Business, and confidence among large-company CEOs reached its highest level in eleven years according to the Conference Board. Corporate earnings are showing a nice upturn with many exceeding expectations.  Most importantly, improved business optimism has begun to translate into hiring and employment has started to rise.

Monday's budget numbers reinforce these indications of economic recovery.  As the economy grows, government revenues will increase, which will help keep the deficit under control.  Going forward, it is essential that we keep our focus on maintaining these favorable conditions.  Smart policies will lead to job creation and economic growth, while keeping tight control over federal spending.

I’m not pointing out these facts to claim any victories.  To the contrary,
too many people are still out of work, and employment - along with after tax disposable income - is the most important economic indicator in the lives of
most American families.  Real disposable income continues to rise.  That’s
very important.  And if we achieve the high levels of growth that
forecasters are expecting, businesses will create new jobs at a faster pace
to meet demand, and employment will increase.  That is critical, because we
cannot be satisfied so long as we have fellow citizens looking for work.

President Bush’s administration has worked steadily to turn a long slowdown into a pickup, and now we’re seeing the results.

The President’s policies have increased disposable income and kept the
economy on its feet.  He also worked with Congress to direct the SEC to
clean up corporate fraud, increase corporate accountability, and restore
confidence in the markets.  Now his Jobs and Growth Plan is entering full
force.  Child tax credits have arrived across America.  A greater share of
our paychecks is going home, and less is going to Washington.  New expensing rules are creating greater incentives for business investment – especially small business investment.  Reduced taxes on capital in the form of dividends and capital gains are inspiring more aggressive investments.

The fact is, the President’s policies have been creating jobs.  We estimate
that without the economic growth measures proposed by President Bush, in the second quarter in 2003 the unemployment rate would have been nearly 1 percent higher.  As many as 1.5 million fewer Americans would be working, and real GDP would have been as much as 2 percent lower.

Nonetheless, that’s small comfort for workers who are out there looking.  We have no intention of sitting back, waiting to see if the economy turns out
as predicted.  We are continuing to act to strengthen this economy and
create jobs.

A few weeks ago, the President unveiled a six-point plan for ensuring the
economic success we all want to see: namely, that every American who wants to work can find a job.  Our Commerce Secretary, Don Evans, has been acting on the President’s commitment to address the challenges facing U.S. manufacturing, in particular.

Under the President’s plan, we will take the following steps to create the
conditions in which employers will hire more workers:

First, we are working to make health care more affordable and its costs more predictable, so employers can add new workers without also adding a large and uncertain burden from health care costs.  We need to create an
environment where health care spending is focused on providing high quality, high value care.

Second, we are working to prevent frivolous lawsuits from diverting money
from job creation into legal battles.  We also intend to ensure that when
necessary lawsuits proceed, the settlements are paid to the victims, not the
trial lawyers.

Third, we are working to build a more affordable, reliable energy system
that can support the expansion of our economy.

Fourth, we are streamlining regulations and needless paperwork requirements that reduce business productivity and deter growth.

Fifth, we are opening new markets to high value American products and
bringing down prices for American consumers through trade agreements.

And sixth, we are working to make tax relief permanent, so businesses and
families alike can plan for the future with confidence.

Let me now turn for a moment to the state of the global economy.

With the dramatic expansion of trade in recent decades, the world economy is more connected than ever before.  For the United States, this means that our success in creating jobs and economic growth depends in no small measure on other economies.  When other economies are growing and expanding, their demand for the things we produce is greater.  By the same token, as the United States grows, we generate more domestic income and buy more from the rest of the world.  Successfully managing our economy is as important to the rest of the world as their success is to us.

As we look at the global economy today it is hard to escape the conclusion
that it is growing far too slowly – particularly in the largest industrial
nations.  Growth in Europe has been lagging.  Japan has experienced a
prolonged period of flat or negative growth.  The U.S. is just emerging from
a period of sub-par growth.

This weak performance in the large industrial economies has far-reaching
consequences for the rest of the world – especially developing countries. 
The developing countries depend on the industrial world to generate growth. Indeed, the best assistance we can provide is strong markets for their exports.

These issues were squarely covered at the meeting of the Group of Seven
finance ministers and central bank governors in Dubai.  For the first time,
the G7 set an agenda highlighting the need for growth, and each nation
committed to increase growth at home.  This acknowledgement, in my view, was a milestone.

While we share the need for growth, the impediments to growth vary between economies.  Much work remains to be done, but I’m encouraged by the sense of urgency among the G7 nations to achieve our goal.

Within our economies, as we solve shorter-term demand-side problems and the global recovery proceeds, we are discovering longer-term supply-side
barriers to productivity growth and employment.  Our key objective in the G7 is on the supply-side, targeting structural policies that increase
flexibility and raise productivity and employment.

In addition to measures already underway, my G7 colleagues agreed to pursue additional pro-growth policies by addressing structural problems in their own economies.  For example, labor market and pension reform in Germany; public sector and health care reform in France; and pension reform in Italy. Japan will promote banking reform.  Britain will take measures to improve skills and labor force productivity; Canada will implement a five-year tax reduction plan.  The European Union needs to revitalize investment, especially investment in infrastructure and research and development.

The United States cannot be the sole engine of world growth.  Asymmetric
growth rates among the major economies are unsustainable over the long term. The best way to allow for balanced growth is for the large industrial
economies to implement flexible policies that clear away structural barriers
to growth.

President Bush is leading by example, with an ambitious agenda for
maximizing growth and job creation in the United States.  We’re ready to
take this economy through the recovery stage, and move to a new level of
expansion, prosperity and success.

Thank you.