FROM THE OFFICE OF PUBLIC AFFAIRS

May 7, 2004
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The Honorable John W. Snow
Secretary of the Treasury
Prepared Remarks for the Federal Reserve Bank of Chicago
Friday, May 7, 2004

Thank you so much for having me here today.

The resilience and strength of our economy, particularly when given the proper stimulus of tax relief and low interest rates, has been proven once again in recent months.

Our economy has turned the corner, and the path ahead is a long one... a long path of growth of a non-inflationary type. I believe this economy has plenty of room to run without creating inflation.

That said, we know that consumers are facing some jarring prices on everyday purchases. Prices for gasoline, groceries and houses have increased, and they can be a strain on a household budget.

I'm also concerned about the rapid rise in health care costs. It has an enormous impact on our nation's financial future, and this administration is dedicated to finding and implementing ways to control those costs.

Overall, however, I remain extremely optimistic. Prices on some other common consumer purchases have fallen. And while we absolutely must remain sensitive to the daily costs of American's lives, I'm really pleased with our economic health and outlook.

I'm delighted to report, for example, that we've had the best nine months of growth in almost 20 years; GDP has been averaging an outstanding annual rate of 5.5 percent over the last three quarters.

Our economy is on very solid footing, our upward trend is strong, and there can be no doubt that President Bush's leadership on tax cuts made the decisive difference. There can be no doubt that lower marginal income tax rates work.

Yes, investment and hiring were a little delayed this time, but think of what we had to contend with: the horror of 9/11, the high tech bubble bursting, high levels of productivity, as well as the damage done by corporate excesses dating back to the 1990s.

We came back from a low point - and with every bit of good economic news, the spirits of the American people are lifted.

I'd like to add that we can't underestimate how that lifting of spirits positively impacts the economy as well.

We are unique in the world in terms of our ability to rebound. Think about it: Just one year ago, there was a very different economic picture, and some forecasters were pessimistic. You may remember that it was the specter of deflation that was being raised at that point not-so-long-ago.

State budgets were struggling to achieve balance and even those who saw the economy in pretty good shape characterized the recovery as at best wobbly, weak or anemic.

Today, more than half of the states are projecting budget surpluses for this fiscal year. Our economy is running on all four cylinders, thanks in large part to the fact that Americans are keeping more of their hard-earned money - after-tax incomes are up 10 percent since December of 2000 and are substantially above levels following the last recession.

It's great to see that the manufacturing sector is coming back - an important job creator. Factory orders increased 4.3 percent in March - the biggest increase since July of 2002. The component for durable goods new orders jumped 5 percent in March and the February gain was revised up. A manufacturing activity index signaled expansion in April for the eleventh straight month, remaining near the 20-year high reached in January.

The housing industry remains very strong, with homeownership at an all-time high, and this is something to be very proud of, as a nation. New home sales surged in March, rising 8.9 percent to reach a new record high. Also worth noting, housing starts were up in March, as well as building permits, which are a forward-looking measure of housing activity.

Business spending has rebounded. Business and consumer confidence is up. Consumer confidence increased 4.4 points in April. This means that American households sense that the job market is strengthening.

And now I'd like to talk specifically about the job market. Because jobs are the most important thing - any of us who have ever looked for work and couldn't find it for any period of time know this well - and jobs are what follows all of these other indicators that I've just mentioned.

The news on jobs is good. Our economy has created 759,000 jobs in the last seven months... 308,000 in March alone. Layoffs are down, unemployment is down. At 5.7 percent, the unemployment rate remains lower than the average of the 1970s, 80s and 90s, and far below its peak of 6.3 percent in June of 2003. Over the past year, the unemployment rate has fallen in 45 of the 50 states. Initial claims for unemployment insurance have fallen substantially: down 20% over the last year.

I anticipate that this economy will be creating a lot more jobs in the coming months. I'm often asked to make a prediction about how many jobs will be created going forward. I don't know exactly, of course, and I don't make personal predictions or estimates. But what I am confident of, what I do know, is that jobs will follow economic recovery, and jobs will follow economic growth. History tells us that and history will repeat itself today.

So, again, I am optimistic, but I also carry a word of caution: if the President's tax cuts aren't made permanent, the U.S. economy, in our view, will lose its current momentum. The tax relief is the key stimulus for increased capital formation, entrepreneurship and investment that causes sustained, long-term economic growth. And people need to be able to plan if we want them to invest or take risks. Permanency is essential for planning.

The continuation of growth is important to our country, and it is important to the world. It is government's responsibility to ensure the ability of our free-market economy to operate unfettered, lifting the weights that slow it down as much as possible.

We are fortunate to live in a country where freedom allows for great prosperity... and we must never take that for granted, in our daily lives or in our policy decisions.

Thank you for having me here today.

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