Bush Gives Rosy View of Economy

President Bush expressed new confidence in the economy Tuesday, declaring that his policies had laid “the foundation for sustained growth.”

But he said he was concerned that growth could be slowed by the rising costs of energy and healthcare.

Flanked by eight of his top economic advisors, the president spoke with reporters about an hour before the Federal Reserve raised its short-term interest rate a quarter of a percentage point, to 3.5% -- the highest rate in four years.

The Fed’s action -- the 10th time it has raised the rate since June 2004 -- came amid signals that more such increases were likely as the central bank continued nudging up the cost of borrowing money to contain inflation.

“In terms of ... the effect interest rates will have on our economy, I think we’re more concerned about energy prices and healthcare prices,” Bush said. “Those are the two areas that we see as having a greater effect on ... the future of economic growth.”

Bush did not directly express an opinion on the interest rate hike, which had been expected.

“I trust the judgment of Chairman Alan Greenspan,” the president said. “He makes decisions based upon facts, not based upon politics. And I think it’s important for the American people to understand that.”

Bush’s glowing comments about the state of the economy largely squared with increasingly bullish forecasts by private economists.

Just the day before, for example, New York investment house Goldman, Sachs & Co. revised its projections of economic growth from an annual rate of 3.5% to 5% from July to September, and from 3.4% to 3.8% for all of 2005. It saw the unemployment rate, which it had previously expected to hold steady at 5%, falling to 4.5% by the middle of next year.

On both economic growth and joblessness, the Goldman Sachs projections were brighter than the administration’s own.

Unlike Bush, however, the analysts typically cited forces in the private economy -- not government action -- for their rosy outlook. Goldman Sachs listed growing global consumer demand and an early reversal of manufacturers’ pattern of clearing their shelves of inventory instead of producing more goods.

Bush acknowledged that “some challenges to the economy” remained but said his administration was moving to tackle them. He cited the recently approved energy bill and the Central American Free Trade Agreement, and called on Congress to pass the rest of his economic agenda, which includes making permanent the tax cuts enacted in 2001 and 2003, passing a medical liability overhaul and simplifying the tax code.

Nevertheless, the president sounded almost boastful.

“I’m pleased to report that the strategy is working,” he said. “The economy is growing faster than any other major industrialized country. Job growth is strong. We added over 200,000 new jobs in July. This country’s added nearly 4 million new jobs since May of 2003. The unemployment rate is 5%, which is below the average of the 1970s, 1980s and 1990s.

“Americans have more money in their pocket, and that’s good news.”

Bush also pointed to the latest budget deficit projection -- about $94 billion less than forecast -- and attributed it to “a combination of tax relief, which got our economy growing, and [congressional] spending restraint.”

The latest projections, he said, put the administration “ahead of pace to cut the deficit in half by 2009” -- one of his reelection campaign pledges.

Allan B. Hubbard, director of Bush’s National Economic Council, told reporters after meeting with Bush that the administration’s policies had resulted in “a spectacular economic growth.”

But neither Bush nor Hubbard addressed some less encouraging economic trends.

Most recently, the Labor Department reported Tuesday that productivity -- defined as worker output per hour -- rose at an annual rate of 2.2% in the April-to-June period, down from 3.2% in the previous three months. Productivity last grew that slowly for the whole calendar year of 1997.

Worker compensation grew even slower, and so unit labor costs -- the cost of producing a unit of output -- slowed to a tame 1.3% from 3.6% from January to March. But productivity slowdowns often mean that higher inflation is on the way, and unit labor costs have risen at a more worrisome 4.4% in the last year.

If unemployment declines to 4.5% without a quick turnaround in productivity, that could mean higher unit labor costs and present the Fed with “a serious inflation problem,” predicted Ian Shepherdson, chief global economist for High Frequency Economics, an economic analysis firm in Valhalla, N.Y.

That, he said, is why the Fed will keep raising rates.

By contrast, Ben S. Bernanke, chairman of Bush’s Council of Economic Advisors, listed inflation and productivity, along with economic growth and jobs, as the bright spots of the economy.

The dark clouds, Bernanke said, are record oil prices and intractable healthcare costs.

Among those meeting with Bush at his ranch, in addition to Hubbard and Bernanke, were Treasury Secretary John W. Snow, Labor Secretary Elaine Chao, Agriculture Secretary Mike Johanns, Commerce Secretary Carlos M. Gutierrez, Office of Management and Budget Director Joshua B. Bolten and U.S. Trade Representative Rob Portman.

Chen reported from Crawford and Havemann from Washington.