Paulson sanguine on economy, China

WASHINGTON —  Treasury Secretary Henry M. Paulson Jr. says the economy is healthy, inflation seems to be under control and the U.S. should not perceive China as an economic enemy.

After the Dow Jones industrials posted their worst weekly performance in more than four years, Paulson said in a television interview broadcast Sunday he felt good about the economy and discounted the risk of an economic downturn.

“Markets never move in any one direction forever in a straight line. And so I look at it and put it in perspective and say, over the last year, the Dow’s up almost 11%, the S&P;’s [Standard & Poor’s 500 index] up 9%, and I’ll take it,” Paulson said in an interview taped Friday for “This Week” on ABC.

The Dow dropped 416 points Tuesday, after big declines in China and other countries. Wall Street’s tumble rattled investor confidence about the state of the U.S. economy.

The sell-off followed comments a day earlier by former Federal Reserve Chairman Alan Greenspan that the economy might slip into recession by year end. Just weeks ago, the current chairman, Ben S. Bernanke, gave Congress a mostly upbeat view of the economy’s prospects.

“Clearly, no one’s got a crystal ball. So there’s always a possibility that there will be a downturn, always a possibility,” Paulson said. “But I don’t see it. I think we have a healthy economy in the U.S.

“You know, a year ago, when the growth rates were much higher, I was concerned. I said, ‘Is this going to be sustainable?’ Now I’m looking at it and I’m seeing a situation where it looks like we’re successfully making the transition.

“We’ve got a very healthy labor market.... Inflation seems to be contained. And what really makes a difference to me is the average worker is now beginning to feel the benefits. Real income is up 2.1% for the average American worker over the last year. So I’m feeling good about the U.S. economy.”

Paulson, who this week will make his third visit to China as Treasury secretary, said strong economic ties were essential for the two countries.

The former head of the investment bank Goldman Sachs Group Inc. has said China was moving too slowly in overhauling its currency system and cracking down on copyright piracy. U.S. businesses blame these factors in part for the soaring U.S. trade deficit with China.

“I would say that our relationship with China is multifaceted, and it’s a very important relationship for the U.S. And I don’t believe we need to make China an enemy,” Paulson said. “This relationship is an important relationship, and the economic relationship is an important part of the overall relationship.”