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Lou Dobbs Tonight

President Bush Pushes Economic Plan; Terror in Iraq

Aired September 01, 2003 - 18:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


JOHN KING, CNN ANCHOR: Jobless in America. President Bush says he won't be satisfied until every American who wants a job has one. Kitty Pilgrim will report on the huge challenge facing the administration.
Let the campaigning begin. Senior political analyst Bill Schneider will tell us if the Democrats have any chance of winning the White House in 2004.

Movie surprise. Hollywood spent hundreds of millions of dollars on sequels this summer, but that was no guarantee of success.

And American classics: America's national pastime, baseball. Peter Viles will have a special look.

ANNOUNCER: This is LOU DOBBS TONIGHT for Monday, September 1. Sitting in for Lou Dobbs, John King.

KING: Good evening. Lou is off tonight.

President Bush today marked Labor Day by delivering an optimistic message on jobs and the economy. The president told union members in Ohio that everyone who wants a job should be able to find one. Recent opinion polls show unemployment is the top issue for Americans, and that's a problem for a president gearing up for reelection. Nearly three million people have lost their jobs since Mr. Bush took office.

Suzanne Malveaux will report on the president's political strategy. And Kitty Pilgrim will report on the jobless recovery in the economy.

We go first to Suzanne Malveaux at the White House -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, John, a main part of the strategy here, of course, is to really highlight the positive economic indicators.

The president in Richfield, Ohio, before a group of union workers, talked not only about his economic agenda, but also the administration's effort to create new jobs. He talked about the fact that consumer spending is up, worker productivity is up, economic growth is up. He also called on the American people to be patient. He said that, yes, his tax cut plan, as well as his benefits, are going to work, they're going to create more jobs, but that Americans just have to be patient and give it more time.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I come with an optimistic message. I believe there are better days ahead for people who are working and looking for work. Economic output is rising faster than expected. Low interest rates mean that families can save billions by refinancing their homes.

I bet some of you have refinanced your homes, put a little extra money in your pocket. Consumer spending is on the rise. Companies are seeing more orders, especially orders for heavy equipment. Now, things are getting better, but there are some things we've got to do to make sure the economy continues to grow.

(END VIDEO CLIP)

MALVEAUX: John, another part of the strategy is for the president essentially to say: It is not my fault, the situation that we're in now.

He says that, of course, he inherited the recession. He talks about 9/11, the terrorist attacks that hit the economy, corporate corruption, the war on terror, the fact that he has moved every step of the way to remedy those situations, and that he should get a chance at a second term.

Another part of the strategy as well is that he is calling on cooperation from many different individuals. He's saying he is not only trying to create jobs, but he's also calling for control of lawsuits, restraining government spending, establishing free trade agreements with other countries. And he is calling on Congress as well to pass a comprehensive energy bill.

And, as everybody knows, in politics it's not just what you say, but where you say it that's also important. Today, it was Ohio. Now, this is a state that has 20 electoral votes, very important for the president. He moves on. He travels on Thursday to Missouri. That is a state that he narrowly won to Gore in 2000. And then, finally, he goes on to Indiana. And that is a state where he trounced Gore by 16 percentage points. And the president wants to keep it that way -- John.

KING: Suzanne, you mentioned the president's legislative priorities. Not in there is another tax cut. Has this president decided he will run for reelection on the tax cuts so far and hope that, eventually, they create enough jobs to make the voters happy?

MALVEAUX: Well, so far, what the president is arguing is that you need to give it more time to let it work itself out, that, yes, you're already seeing some indications that the economy is improving because of this initial tax cut.

At this time, he is not calling for an additional tax cut. There was some discussion about that before. But right now, his economic advisers are saying: Let's just let this play out a little bit further, see where this takes us. We think it's going to take us in the right direction. KING: Suzanne Malveaux at the White House, thank you.

As Suzanne reported, it's no accident President Bush was in Ohio today. No Republican has ever won the White House without carrying Ohio. And Mr. Bush won that state by only a small margin in the 2000 presidential election. And since then, the state has lost nearly a quarter of a million jobs. The unemployment rate in Ohio is now 6.2 percent, the same as the national rate.

Back in January 2001, the Ohio jobless rate was 3.9 percent, compared to 4.2 percent nationally. Jobs in the manufacturing sector have been declining at a steep rate in recent years; 160,000 factory jobs were lost between July 2000 and June 2003. That is a loss of more than 15 percent of the state's manufacturing employment, equivalent to one out of every six factory jobs in Ohio.

There is some encouraging news nationwide. Economic growth is picking up and corporate profits are rising at their fastest pace in years. But the problem is that most companies are not hiring new workers.

Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Nine million people out of work. More than 2.5 million people have lost their jobs over the last three years. The government calls one million more discouraged workers, out of a job for so long, they don't even show up in the statistics. Many of those Americans are saying, don't tell me there's a recovery; tell me I have a job.

The recession started in March 2001. It ended about November of that same year. So, technically, there is no recession. Yet, the economy has continued to hemorrhage jobs. Placement experts say the period between Labor Day and the end of the year is prime time for additional cuts.

RICK COBB, CHALLENGER, GRAY & CHRISTMAS: The last four months of the year are typically where companies make their most significant numbers of cuts. So after Labor Day is a time when companies start to look forward to what's going to happen next year and make adjustments.

PILGRIM: Most of the jobs lost in the last three years are in manufacturing. President Bush, speaking to factory workers in Ohio, talked about the high worker productivity in this country and how that affects jobs.

BUSH: We've lost thousands of jobs in manufacturing, some of it because of productivity gains. In other words, people can have the same output with fewer people.

PILGRIM: An international comparison shows that to be true. Compared to the rest of the world, U.S. workers are cranking it out, pressed to do more and more. Output per worker in the United States was up 2.8 percent in 2002, double the gains in Europe in that time. (END VIDEOTAPE)

PILGRIM: The worst part is, even with all that hard work, wages have basically remained flat. And any recovery in the economy has not yet turned up in the paycheck -- John.

KING: You say not yet. On the issue of jobs, it's a not yet for the president, too. He is banking his reelection on the fact that those jobs will come between now and when voters have to go to the polls. What do the economists and the CEOs think? Will we see a jobs boom?

PILGRIM: The growth numbers look good. The tax cut may help. It's a wait-and-see situation, John.

KING: Wait and see. No one more interested than the president of the United States.

Kitty Pilgrim, thank you.

Later in the show, I'll talk with Labor Secretary Elaine Chao about the challenge of creating new jobs as the economy recovers.

Democrats believe the economy is the president's political weak spot, but do they have a candidate who can exploit it?

Senior political analyst Bill Schneider joins us now from Washington.

Bill, answer the question. Do they?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, the news is that Bush does look beatable.

Put together a message that says the United States is spending $1 billion a week in Iraq and almost two million jobs have been lost in this country, and you may have a real contest. Now, pit President Bush against an unnamed Democratic opponent, and what happens? Well, he wins, though only with, as we see here, a bare majority, 51 percent.

Don't most voters think it's a foregone conclusion that Bush will be reelected? Actually, John, they don't. Only 38 percent feel it's a sure thing; 50 percent believe a Democrat really has a chance to win; 51 percent say they would vote for Bush; 50 percent say a Democrat could win. Uh-oh. It looks like a very close contest. Better book your tickets to Florida now.

(LAUGHTER)

KING: Well, Bill, as we book our tickets to Florida some time before the first ballots are cast in Iowa and then on to New Hampshire, but give us the state of play on Labor Day this year, the year before the election, of the Democratic field.

SCHNEIDER: Well, according to a new CBS News poll, two-thirds of Democrats cannot name a single one of the nine Democrats -- nine -- who are running for president. There they are. Who are these people? They asked Democrats, and Democrats said they can't name any of them.

Well, what happens if you give them a list with the actual names on it? Then Joe Lieberman comes out on top. Well, why not? He was Al Gore's running mate. Dick Gephardt, he comes in second. Well, he's run for president before. Howard Dean, John Kerry are the only other candidates in double-digits.

So how can Dean be widely seen as the front-runner in this race? Here's how. Dean is running ahead of Gephardt, the local favorite, in Iowa. If Dean beats Gephardt in Iowa, the conventional wisdom is, Gephardt is finished. Dean is running ahead of John Kerry, the local favorite in New Hampshire. If Dean beats Kerry in New Hampshire, conventional wisdom is, Kerry's finished.

Then what? Who's left who could stop Howard Dean? Joe Lieberman and John Edwards might make a stand in some of the conservative later states, like South Carolina and Arizona. But they've been campaigning for months and they haven't acquired much momentum. Well, that's why Democrats who want to stop Dean are getting very nervous. And they've started fantasizing about bringing someone else into the race, maybe Hillary?

KING: Well, I guess we'll book our tickets to Iowa and New Hampshire before our tickets to Florida.

Bill Schneider, thank you for joining us tonight from Washington.

SCHNEIDER: Sure, John.

KING: Thank you.

And still ahead: terror in Iraq. The FBI joins the hunt for terrorists who killed at least 83 people in Najaf. Ben Wedeman will have a live report from Najaf.

Reforming Medicare, it's one of the biggest challenges facing Congress and one of the biggest worries for America's seniors. Lisa Sylvester will have our report.

And Hurricane Fabian gathers speed in the Atlantic. We will have the latest on its path toward North America.

Stay with us.

(COMMERCIAL BREAK)

KING: Still to come tonight: a puzzle in Pennsylvania, as police look for a link between the death of a bank robber with a bomb and a co-worker who died miles away days later -- that investigation and much more when we return.

(COMMERCIAL BREAK)

KING: An audiotape attributed to Saddam Hussein today denied responsibility for the bombing in Najaf. That bombing killed at least 83 people, including a leading Shiite cleric. Many people in Najaf believe the attack was carried out by supporters of former President Saddam Hussein.

Ben Wedeman joins us live now from Najaf with the latest -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: Yes, John.

Well, we did hear that Al-Jazeera tape today. Interestingly, the Jazeera crew in Najaf had to leave town, because several apparently senior clerics were most unhappy that they broadcast that tape. Now, meanwhile, we're hearing from Marine sources outside of Najaf that their information is that the Iraqi police are holding several people who may be interrogated by the FBI, which is going to be brought into this investigation.

They're particularly interested in looking at a piece of computer hardware that was found on one of those people currently in custody. Meanwhile, this town is bracing for tomorrow's funeral for the late Ayatollah Mohammed Baqir al-Hakim, expecting several hundred thousand people here. The Marines have brought in more medical supplies in case of an emergency.

Two possibilities they are looking at is Iraqi clashes, rather, clashes among Iraqis, or possibly, John, another car bomb.

KING: And, Ben, U.S. troops were scheduled to pull back from Najaf and turn it over to Polish troops? The U.S. troops are now going to stay. How visible is the U.S. presence on the ground?

WEDEMAN: Actually, the U.S. presence is not very visible at all. What they're trying to do is try to stay on the outskirts of the city.

And within the last couple months, they've really stayed out of the middle of the city because of religious sensitivities. And, certainly, tomorrow, they are going to be as low-profile as possible. As far as that handover goes, there will be a ceremony on Wednesday to hand over authority to the Polish contingent. But, however, the U.S. Marines are actually going to be staying where they are until the situation calms down. And there's no indication when that is going to happen -- John.

KING: Ben Wedeman, live in Najaf, Iraq -- thank you, Ben.

U.S. troops in Afghanistan are hunting Taliban gunmen who killed two U.S. soldiers near the border with Pakistan. Today, suspected Taliban members killed at least eight government workers near Kabul, government soldiers.

Pentagon correspondent Barbara Starr joins me now from the Pentagon -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, John, it is Afghanistan that is heating up.

Several hundred U.S. combat forces are now conducting a major operation in south central Afghanistan in very rugged, mountainous territory. They are on the hunt, we are told, for what they believe may be hundreds of Taliban fighters. This operation, called Operation Mountain Viper, is being conducted in Uruzgan and in Zabul Province in the very remote Dai Chupan Mountains.

This is where troops conducted a very little-noticed air assault into the region over the weekend, a longtime Taliban stronghold. Now, military force sources tell CNN the mission was launched after many intelligence reports that there were large numbers of small groups of Taliban operating in the area with small arms, rocket-propelled grenades, AK-47s. But they wanted to go after these Taliban groups very specifically because of concern over many attacks in the region in the last several weeks and concern that, if they went on unchecked, they might pose a threat to the central government of Hamid Karzai.

Now, this is the second combat operation being conducted by U.S. forces in recent days. There is another operation ongoing a bit to the east along the Pakistan border. That is called Operation Warrior Sweep. That has been going on since mid-July, and it remains ongoing. In the -- Gardez area, U.S. troops are conducting patrols between coast and Gardez, looking for any other suspected Taliban or al Qaeda members.

But, John, it is Afghanistan that is proving to be equally deadly to U.S. forces, as you say, two U.S. troops killed over the weekend -- John.

KING: Equally deadly now, Barbara, but for a good period of time, almost a forgotten front in the war on terrorism. With all the emphasis on Iraq, any concerns by the commanders in Afghanistan? Do they have the troops to back up the troops that are suddenly more busy? Do they have the supplies to back up their troops, as these raids intensify? Or were the resources move to Iraq?

STARR: Well, at the moment, there's every indication they feel they're OK.

This is a major operation, though. We've been asked not to say how many troops, but Operation Mountain Viper does involve several hundred troops. It involves Air Force, Army, and Marine Corps aircraft. They are conducting around-the-clock operations in this very rugged terrain. At the moment, they are going, though, after relatively small concentrations, so they think that they are fine.

This is an area they haven't had a chance to go into in recent months. They believe the Taliban have basically come to the surface again. And they want to go after them. They want to take care of them before they do pose a threat to the government there -- John.

KING: Barbara Starr, live at the Pentagon, thank you.

Israel today declared all-out war against the radical Islamist group Hamas. Israel today killed another two Hamas activists in a helicopter attack in Gaza. Israeli helicopters have now killed 12 Hamas members since the organization claimed responsibility for the Jerusalem bus bombing two weeks ago; 21 people died in that attack. Coming up: a bank robbery, a bomb, and the mysterious deaths of two pizza deliverymen. Police in Pennsylvania are trying to solve a bizarre case. We'll bring you details.

Plus: Labor union endorsements can make or break political campaigns. But with union membership dwindling across the country, can big labor keep its political clout? Louise Schiavone with that report.

And AFL-CIO President John Sweeney will be our guest.

And Medicare reform has cleared both houses of Congress, but some are doubting whether it will ever become law. Lisa Sylvester will have the report -- that and much more just ahead.

Stay with us.

(COMMERCIAL BREAK)

KING: It's been a very wet Labor Day in Texas. The remnants of Tropical Storm Grace have produced heavy storms across the state, dumping up to a foot of rain in some areas. The remnants of that storm are now heading for Kansas, where flash floods this weekend turned deadly. Four children died when the family van was swept away by raging waters. Their mother and another man are still missing.

Flash floods are a concern in Hawaii tonight. Tropical Storm Jimena is bearing down on the big island, packing strong winds and heavy rains. In the Atlantic, Hurricane Fabian has grown into a dangerous Category 4 storm. Fabian, with winds of more than 140 miles an hour, is still more than 300 miles from the Leeward Islands in the Caribbean. And, in China, more than 100,000 people have been evacuated in the northwestern part of the country. Days of continuous rain have produced dangerous floods and landslides that have destroyed 10,000 homes.

In Erie, Pennsylvania, tonight, a bizarre story that has puzzled police since Thursday. It began when a pizza deliveryman with a bomb strapped to his chest robbed a bank. That bomb later exploded, killing him. Now, the FBI and local police are looking for a connection between his death and that of a co-worker yesterday.

Scott Cook of CNN affiliate WICU has the story from Erie, Pennsylvania.

(BEGIN VIDEOTAPE)

SCOTT COOK, WICU REPORTER: Here in the basement of the Erie County courthouse, forensic experts are finishing up their autopsy of 43-year-old Robert Pinetti, who died in his home yesterday. It's the latest turn in this bizarre story.

Pinetti man was a deliveryman for the same pizza shop as Brian Wells , who died Thursday when the bomb strapped to his chest was somehow detonated. It could be a strange coincidence, but more than 50 investigators, from local detectives, to the FBI and ATF, are awaiting these autopsy results.

Pinetti and Wells, both in their 40s, reported to be good friends, now both dead. Paramedics initially responded to Pinetti's home Sunday morning around 5:00. Pinetti sent them away. And within hours, he was dead.

MARK ZALESKI, PENNSYLVANIA STATE POLICE: There is a relationship between the two individuals. We decided that we're going to pursue this a little bit further, just in the event that there might be additional information that we can glean from this.

COOK: Officials are expected to release the autopsy results of both men some time tomorrow morning at a press conference.

I'm Scott Cook in Erie, Pennsylvania, for CNN.

(END VIDEOTAPE)

KING: Still to come: Organized labor works to put President Bush on the unemployment line. AFL-CIO leader John Sweeney is my guest.

California's gubernatorial campaign takes another twist. Bob Franken has the latest on the recall race.

And the big-budget sequels are a bust. We'll tell you what's hot in Hollywood and what to look forward to this fall when we return.

(COMMERCIAL BREAK)

KING: California's recall election is now just five weeks away. And many of the candidates for governor are spending their Labor Day on the campaign trail. One of them, the best known perhaps, Republican candidate Arnold Schwarzenegger, is the focus of controversy for refusing to take part in the campaign's first debate. Governor Gray Davis and a number of challengers are expected to be there.

Bob Franken is live in Los Angeles and has the latest for us -- Bob.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well, let's start with the governor today.

He, of course, is trying very hard to make all of this an exercise in futility, by not being recalled. And he took his campaign today to a Labor Day rally, a series of Labor Day rallies. This one is in downtown Los Angeles. That is when the labor internal polls and some of the Gray Davis organization's internal polls, we're told by sources within his campaign, are showing an even darker picture than "The Los Angeles Times," which had 50 percent supporting the recall.

The internal polls, the ones that were done last week, show it at about 52 percent. Well, at any rate, Gray Davis has decided that he needs to speak directly to members, the 2.6 million members of the labor unions, who live in California. (BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: This recall is a humbling experience. I would not wish it on my worst enemy. But if the good people of this state decide that they're going to allow me to finish the term to which they elected me, I promise you I will do some things differently and I will work every day to make their life better.

(END VIDEO CLIP)

FRANKEN: Now, that was a reference to the new campaign that labor is going to be mounting right now. This brochure really shows it off. The idea, according to the labor unions, is that, if a Republican gets in the statehouse, workers in the state are going to lose an awful large number of their rights.

Well, of course, the man who's leading the Republicans was also out doing some Labor Day campaigning. Arnold Schwarzenegger was outside the state fair in Sacramento. But he was also having to face questions about his decision not to participate in the first two televised debates, agreeing only to appear in one three weeks down the road.

And he had to deal with CNN's Rusty Dornin about that.

(BEGIN VIDEO CLIP)

RUSTY DORNIN, CNN CORRESPONDENT: Mr. Schwarzenegger, you're live on CNN. Would you like to tell us if you are going to be at the debates or why you're only going to do one of the debates?

ARNOLD SCHWARZENEGGER (R), CALIFORNIA GUBERNATORIAL CANDIDATE: I'm looking forward to the debates. It's going to be great with the California broadcasters, yes. It's going to be a fantastic experience.

DORNIN: Are you not going to do any of the other debates, sir?

SCHWARZENEGGER: We're going to do one great debate, where we all can bring out all the different issues, OK?

(END VIDEO CLIP)

FRANKEN: So Schwarzenegger says he's going to be sitting out the debate which is held Wednesday night. That's the first of two that he's not going to be attending. That debate will have a half-hour devoted to Governor Gray Davis taking questions from reporters and then a debate between the candidates, the leading candidates, who want to replace him.

Among those, of course, is the Democratic lieutenant governor, Cruz Bustamante -- John.

KING: Bob Franken live for us in Los Angeles keeping track of the recall -- thank you, Bob. Now, Labor Day traditionally kicks off the political season not only for the candidates, but also for unions. Organized labor is a usual source of strength for the Democrats, but that political support does not carry the weight it once did.

Louise Schiavone has the report.

(BEGIN VIDEOTAPE)

LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): Nine Democratic presidential candidates are on the stump this week, each of them vying fiercely for the support of their core constituency, organized labor. But with membership rolls falling, can unions deliver?

JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: Union membership has been declining. It's been tougher for unions to make the argument to candidates that they can bring out the voters. What they can contribute are dollars, but even that's under pressure. Obviously, there are great cost concerns throughout the workplace.

SCHIAVONE: Today, 16.1 million workers in the United States belong to labor unions. That's 11 percent of the nation's 146.5 million workers. Compare that to union membership 40 years ago. In 1963, 16.5 million U.S. workers were in the union rank-and-file, but that was 22 percent of the nation's labor force of 74.6 million.

Unions have suffered membership losses through a layoff-filled recession and the migration of jobs in an ever more global workplace and the fact that worker benefits, such as wage, hour, and safety rules are now common for all workers, union or otherwise. Despite its declining rolls, the 13 million-member AFL-CIO professes to be in fighting form and poised to wield political clout in 2004. Analysts don't disagree.

RICHARD TRUMKA, SECRETARY-TREASURER, AFL-CIO: Last election, we were 26 percent of the vote for people that went to the polls. This time, we're going to have a bigger mobilization program, a bigger educational program. So, hopefully, we'll be even a larger percentage of the people that turn out to the polls. That's our goal.

ED POTTER, EMPLOYMENT POLICY FOUNDATION: If you look at just union dues and union income, it all adds up to about $13.5 billion; $13.5 billion makes you a Fortune 100 company. They have substantial resources to devote to public policies.

SCHIAVONE: Higher-paid white-collar workers now constitute 30 percent of union rolls, which, despite declining overall membership, still makes unions financially strong and a political force to be reckoned with in the 21st century.

Louise Schiavone for CNN Financial News, Washington.

(END VIDEOTAPE)

KING: Organized labor leaders today launched a massive get-out- the-vote campaign. They would like to defeat President Bush, whose policies, they say, are hostile to American workers.

Earlier, I spoke with the AFL-CIO president, John Sweeney. And I asked him why he feels that this is the most anti-worker administration in history.

(BEGIN VIDEOTAPE)

JOHN SWEENEY, PRESIDENT, AFL-CIO: Well, I wish that the economy was improving.

And the job creation situation is just a disaster. We've seen two million manufacturing jobs -- 2.5 million manufacturing jobs during the two years that the president's been in office wiped out. There is no initiatives being taken to really develop jobs. And the president took care of the wealthy with his tax cuts. If he would have paid more attention to preserving the surplus, he would have had the ability to create jobs through infrastructure and school building and so much of what's necessary in terms of addressing health care and prescription drugs.

Those are what the American people want. And those are the concerns of workers. Jobs is probably the No. 1 concern this Labor Day, together with the health and retirement security issues.

KING: That is your opinion, sir, and obviously the opinion of the AFL-CIO. Yet, on this Labor Day, the president was invited to a union picnic in Ohio by a president of the Operating Engineers Union who happens to also be a member of your Executive Council on the AFL- CIO, Frank Hanley.

He had a very different opinion of the president today. I want you to listen to this.

(BEGIN VIDEO CLIP)

FRANK HANLEY, PRESIDENT, INTERNATIONAL UNION OF OPERATING ENGINEERS: He understands our problems. And I'm very, very grateful. I could say many, many things here today. It's an honor and a pleasure to be able to introduce the president of the United States, a great, great man.

God bless you.

(END VIDEO CLIP)

KING: A great, great man, John Sweeney, who understands the problems of union workers. Is there disagreement within the hierarchy of the AFL-CIO?

SWEENEY: No, I don't think there's disagreement.

I think the Operating Engineers have the same concerns as other workers. I think that it is nice that the president of the United States is at least paying attention to workers issues one day out of the year. And now we'll see what he does the rest of the year. I hope that he will focus more on really stimulating the economy and improving the lives of middle-income and low-income wage earners.

KING: What is the one thing you would want him to do tomorrow, when the Congress comes back tomorrow? What is the one thing he could do?

SWEENEY: Well, as a start, he could pull back on the changes that he wants to make with overtime pay, to wipe out overtime pay for eight million workers who depend on it as their regular income, whose needs, family needs, are taken care of as a result of working overtime.

And if a worker is working more than the 40-hour workweek, they deserve to be compensated for it. And they plan on it. Their family budget depends on it.

KING: The president is not the only politician out on this Labor Day. Most of the Democrats who would like to take his job are also out. One of them is Congressman Dick Gephardt of Missouri, a longtime friend of the labor movement. Many even within his campaign concede, his campaign could live or die based on whether he gets the endorsement of the AFL-CIO. Will he get it, sir?

SWEENEY: Well, it remains to be seen.

Dick Gephardt has spent his whole public career working on the issues that concern workers and has a lot of support. But we have to go through our process to make sure that our members in the different affiliates, who they want to endorse and who they will support for president. And there are a number of candidates out there who have good records as well. But we just have to go through this process. And we hope that, by the middle of October, we will have enough of a consensus to make an endorsement.

KING: John Sweeney, president of the AFL-CIO, thank you for joining us today.

SWEENEY: Thank you.

(END VIDEOTAPE)

KING: And that brings us to our poll question tonight. What do you think will be the most important issue in the 2004 presidential election, jobs and the economy, health care, homeland security, or the war in Iraq? You can vote on our Web site, CNN.com/Lou. We'll share the preliminary results a bit later in the show.

One key issue in next year's campaign could be health care and Medicare reform. Both the House and the Senate passed versions of Medicare reform, but those bills are drastically different. Working out a compromise version is one of the biggest challenges facing the Congress when it returns from its August recess this week. And some say it can't be done.

Lisa Sylvester has the report.

(BEGIN VIDEOTAPE) LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Daniel Metzman was a lawyer for 56 years, and it still took him a while before he understood all the details of the House and Senate Medicare bills. He does not like what he sees.

DANIEL METZMAN, FORMER ATTORNEY: Some adjustment has to be made, money has to be found from somewhere to broaden the benefits and cover more people, without a burdensome amount of money that they have to pay to participate.

SYLVESTER: He's not alone. The AFL-CIO says, retirees could lose their company-sponsored drug coverage and could be left with fewer benefits under a government plan. Fiscal conservatives say both proposals are irresponsible given the ballooning deficit.

PETER SEPP, NATIONAL TAXPAYERS UNION: It seems that this Medicare prescription drug plan costs everyone, but pleases no one. That's a prescription for disaster that policy-makers ought to just scrap and start over again from.

PATRICIA NEUMAN, KAISER FAMILY FOUNDATION: If they do go back to the drawing board and toss away the House and Senate proposals, sort of anything's up for grabs. And maybe they can come up with something that could garner enough support in the House or Senate, or maybe more fractions will appear and may be more difficult to come up with a compromise.

SYLVESTER: If they decide not to start all over, House and Senate lawmakers will have to make some major compromises to reconcile the two versions when they return after Labor Day. But it may be difficult bridging the divide.

The House gives private insurers a bigger role. The Senate has higher co-pays, but relies more on the traditional Medicare payment plan.

(END VIDEOTAPE)

SYLVESTER: Complicating matters is the enormous pressure lawmakers are under to pass some kind of drug benefit bill heading into an election year. Seniors vote in large numbers. And if they don't get Medicare drug benefits that have been repeatedly promised to them, they may be looking to hold someone accountable -- John.

KING: Lisa, any evidence at all that, during the August recess, was there any progress at all in the negotiations, at least at the staff level, any other major political changes to the dynamic of this debate?

SYLVESTER: Well, it's been very slow going during the month of August, John, with the lawmakers out. Staff members really don't have -- at this stage, at least, have the power to drop some of these major provisions that have been the sticking points.

But what has been going on, for instance, labor unions doing a lot of lobbying behind the scenes, urging their members to call up their members of Congress to reject both versions, both the House and the Senate versions, of the Medicare bill. Also, you have different groups, senior groups, urging that there be more compromise. They're looking to get additional benefits -- John.

KING: Lisa Sylvester, live in Washington, thank you.

And coming up: This Labor Day, the White House says it is working to create more jobs. Secretary Elaine Chao will join us to talk about the state of the labor market -- that and much more ahead.

Stay with us.

(COMMERCIAL BREAK)

KING: On this Labor Day, Labor Secretary Elaine Chao says the White House is focused on helping every American who wants a job find a job.

Secretary Chao joins us now from Washington.

Madam Secretary, let me start here.

The president, in his remarks in Ohio today, said he inherited a recession from the Clinton administration. The terrorists struck on 9/11, then the corporate scandals, Enron and the like. But he must understand, on Labor Day heading into a presidential election year, that, one year from now, he will be judged. This will be the Bush economy. He gets that, doesn't he?

ELAINE CHAO, LABOR SECRETARY: Well, the president is very concerned, as he has said many times, when any American who's looking for work can't find one.

That's why he's working so hard to ensure that the environment is appropriate for creating new jobs. The recovery is not as strong as we would like, but the president's jobs and economic growth plan is beginning to have an impact. We're seeing leading indicators trend upward. The unemployment insurance initial claims numbers are dropping, and that's positive as well.

And at the Department of Labor, we have a number of assistance programs and training programs, retraining programs, that will help to connect workers to higher-paying jobs and employers who are looking for workers. So, for example, we have a high-growth initiative that, again, will help people who are looking for work to transition into better-paying jobs.

For example, in the health care sector, which is a high-growth sector, there's a need for one million nurses in the next eight years. And so we have about -- we spend about $12 billion a year on training and retraining opportunities and programs. And so we want to be able to connect workers and employers, so that people will have more opportunities to find new jobs.

KING: When the last installment of the tax cut was passed, then White House Press Secretary Ari Fleischer said it would create one million new jobs. If you are back here one year from today, will we have seen those one million new jobs? Do you stand by that number?

CHAO: Well, I certainly hope so. And we would expect that.

As I mentioned, the recovery is gaining strength. And all the leading economic indicators are trending upward. But, clearly, we want to make sure that those who are in a transitional period in their lives and those that are vulnerable, that they know that there is a whole array of programs and assistance programs available to them for immediate assistance.

We have 3,800 what's called one-stop career centers located throughout the United States. They offer job counseling, job placement, job training, and also skills assessment. So we hope that people will reach out and access many of these programs. As I mentioned, we also have apprenticeship programs, because the skilled trades are also looking for new workers, as are the financial sector and some of the retail sectors as well. And these are not lower- paying jobs. These are good, high-paying jobs.

KING: Madam Secretary, John Sweeney, the AFL-CIO president, was on earlier in the program.

CHAO: Yes.

KING: He said your administration is trying to gut the overtime rules in this country and punish workers by denying those who work more than 40 hours a week their access to overtime. Your take on that debate?

CHAO: Well, I'm glad you asked me about that, because there's a great deal of misinformation being floated around.

First of all, this is not an overtime regulation. There are many overtime regulations on the books. This is called a white-collar regulation. Basically, these regulations have not been updated in well over 50 years. And they list specific occupations which no longer exist, like legman, gang leader, keyhole puncher. And what we want to do is to protect 1.3 million low-wage, vulnerable workers so that they can be guaranteed overtime.

Right now, if you're earning $8,000 a year and someone slaps an assistant manager label on you, you are not guaranteed overtime. You either have to resort to the courts, which will take a long time if they're successful, or come to the department. And that will take time as well. We want to clarify these outdated regulations, so that people know what they're entitled to receive and so that we can guarantee overtime for the low-wage workers.

And, also, this is a white-collar regulation, so it does not impact blue-collar workers. First-responders are not impacted. Police, firemen, nurses, they're not impacted at all. And if you're a labor union member, you're protected by the collective bargaining agreement. So you're not covered at all either. So what we want to do is to guarantee overtime for 1.3 million low-wage, vulnerable workers. We're trying to protect those workers. KING: Labor Secretary Elaine Chao, we need to end it there, one of the more complicated debates and one of the many debates about the economy. We will continue to follow this in the months ahead. Thank you so much. I know it's been a long day.

CHAO: Thank you.

KING: Thank you.

Now, job creation is just one challenge facing not only administration officials, but also governors across the country. And it's far from the only one. Tonight, we begin a series of special reports on the "State of the States." Most are battling financial crises, as well as challenges from education to infrastructure.

Tonight, Jan Hopkins looks at some of those challenges and the novel solutions some states are trying.

(BEGIN VIDEOTAPE)

JAN HOPKINS, CNN CORRESPONDENT (voice-over): California's governor, Gray Davis, may lose his job over that state's $38 billion budget gap. California is in good company. This year, states across the country face $80 billion in budget deficits. Some say it's the worst the states have faced since the Depression.

CORINA ECKL, NATIONAL CONF. OF STATE LEGISLATURES: But if you consider the past two to three years and the cumulative budget gaps over those several years, states have had to address some $200 billion in budget gaps. And they have taken actions to close those gaps.

HOPKINS: Raising taxes is a gamble an increasing number of states are taking. Illinois has raised taxes on riverboat casinos. Minnesota has a new tax on bars that want to stay open an extra hour. In all, governors in 29 states are proposing $17.5 billion in new taxes and fees.

New York and California collect the most in taxes, but residents in Hawaii and Delaware pay the highest state income taxes. Seven states, including Texas and Florida, manage without an income tax. And five states, including Delaware, have no sales tax. New York's former governor argues, big states have a harder time because they have more responsibilities.

MARIO CUOMO, FORMER NEW YORK GOVERNOR: It's easier to be healthy if you're a small family. If you've got one kid, two kids, you make $40,000, that's one thing. You have got five kids, the way Matilda and I were blessed, $40,000 doesn't go as far.

HOPKINS: Education and health care are at the top of the list of state expenses. Many of these programs are required, but not funded by the federal government. This adds $82 billion a year to state expenses.

(on camera): States are not like the federal government, which can run a deficit. Every state except Vermont is required to balance its budget.

(voice-over): In order to live within their means, states are cutting services. A total of $14.5 billion is coming out of budgets. Residents don't always like the priorities of those who govern. And in 24 states, they can get their complaints on the ballot.

CHELLIE PINGREE, COMMON CAUSE: A citizens group in Maine collected 50,000 petition signatures. And what they said to the state government was, we want you to fund 55 percent of all education costs, take the burden off the property taxpayer.

HOPKINS: States are caught in a huge vise, with a slow economy cutting what comes in and higher costs pushing up what goes out. Many states have done what individuals have done, taken money out of their savings.

States' rainy-day funds are down 88 percent from the boom times of 2000. Yet, despite all the challenges, some states have managed quite well. We'll look at four of them this week.

Jan Hopkins, CNN, New York.

(END VIDEOTAPE)

KING: A reminder now to vote on our poll question tonight. We're asking, what do you think will be the most important issue in the 2004 presidential election, jobs and the economy, health care, homeland security, or the war in Iraq? You can vote on our Web site, CNN.com/Lou. We'll share the preliminary results later in the show.

And coming up: new trends at the movies. Hollywood banked on the success of sequels this summer. But not all have been as successful as "Jeepers Creepers 2." Gitesh Pandya of BoxOfficeGuru.com will tell us why.

(COMMERCIAL BREAK)

KING: Wake up. Summer's over, at least as far as the movie business is concerned. Labor Day brings a new season at the box office.

For a look at the summer past and the season ahead, Gitesh Pandya of BoxOfficeGuru.com joins me now.

Biggest winner this summer in terms of a studio is?

GITESH PANDYA, BOXOFFICEGURU.COM: The biggest studio was Disney. They had two hit films which will end up being the biggest blockbusters of summer 2003. "Finding Nemo," from Disney and Pixar Pictures, animated film, grossed over $330 million. It's the highest- grossing animated film in history. And, also, they have "Pirates of the Caribbean," from producer Jerry Bruckheimer. This movie is on its way to grossing about $290 million to $300 million.

So, for Disney, they were unstoppable and unbeatable this summer.

KING: And so the biggest loser, then?

PANDYA: Well, the biggest loser, then, you would have to look at Jennifer Lopez and Ben Affleck. "Gigli" was a disaster at the box office. Here's a film which cost $54 million to produce, tens of millions more to promote. And it's on its way to grossing less than $10 million domestically. So it's a big flop for them. We will see the two of them back together in a movie called "Jersey Girl" next year. So we'll see how that does.

KING: We'll see.

A lot of sequels this summer. Did we meet anyone new?

PANDYA: Not really. It was the summer of sequels. We had a record 15 sequels this summer. And I think Hollywood learned that they can't rely too much on sequels.

We have especially action sequels coming out. And some of them, like "The Matrix Reloaded" and "X-Men 2," did quite well, big grocers. And action films especially do very well overseas, on average, can do 50 to 60 percent better in overseas markets than domestically.

KING: You say Hollywood learned. But the films we will see soon in the fall are already in the can, obviously.

PANDYA: Right.

KING: What's about to come? Any hope that things will be better?

PANDYA: Well, the fall is a slower season than the summertime. Kids go back to school. A new football season starts. A new TV season starts. So the studios don't rely on too many big films.

However, with Halloween coming up, there will be a lot of horror films. There's a remake of "Texas Chainsaw Massacre" coming up in October. There's also "Cabin Fever" in September, as well as "Cold Creek Manor." And then when we get closer to Halloween, there's a spoof comedy called "Scary Movie 3," yet another sequel, on its way to theaters.

KING: Now, box office receipts were up slightly this summer, but that's because of higher prices, actually, fewer people in the seats. Should the industry be worried?

PANDYA: That's exactly right.

The overall box office grosses for the summer season, which ends today, on Labor Day, is just slightly ahead of last summer's record pace. However, that's mostly because of higher ticket prices. So we're actually seeing an admission total that's down about 2 percent vs. last year. Now, that figure compares to the cost of films. And movies are costing more and more to both produce and market. And that can squeeze out profitability for many of these studios.

So that's one of the reasons why studios rely on sequels so much, is because they have a built-in audience and they need less marketing. And they hopefully will get those dollars back.

KING: Gitesh Pandya, BoxOfficeGuru.com, thank you very much.

PANDYA: Thanks for having me.

KING: And coming up: the results of tonight's poll question.

Then baseball, the game that has provided countless memories to millions for more than 150 summers. Peter Viles will have our report on an "American Classic."

(COMMERCIAL BREAK)

KING: Now the preliminary results of tonight's poll question. We asked, what do you think will be the most important issue in the 2004 presidential election? Eighty-four percent of you said jobs and the economy. Three percent said health care. Three percent said homeland security. And 10 percent said the war in Iraq.

And finally tonight, baseball. It's part of Labor Day for many Americans, but it's also a great deal more.

Peter Viles reports on an American classic that's still the great national pastime.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Take me out to the ball game.

PETER VILES, CNN CORRESPONDENT (voice-over): What makes baseball our national pastime? Why do we still love a game that's old and kind of slow? Well, let's face it. Some of it is nostalgia.

(BEGIN VIDEO CLIP, "FIELD OF DREAMS")

JAMES EARL JONES, ACTOR: This field, this game, it's a part of our past, Ray. It reminds us of all that once was good.

RAY LIOTTA, ACTOR: Hey, is this heaven?

KEVIN COSTNER, ACTOR: No. It's Iowa.

(END VIDEO CLIP)

VILES: Even without Hollywood's help, baseball has a glorious past. When we needed heroes, baseball gave us Babe Ruth, Lou Gehrig's unforgettable farewell.

LOU GEHRIG, FORMER PROFESSOR BASEBALL PLAYER: Today, I consider myself the luckiest man on the face of the Earth.

VILES: And when we needed to laugh, baseball helped.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Who's on first. What's on second. I don't know is on third.

UNIDENTIFIED MALE: You know the guys' names on the baseball team?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: Well, go ahead. Who's on first?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: I mean, the guy's name.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy playing first.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy playing first base.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy on first base.

UNIDENTIFIED MALE: Who is on first.

UNIDENTIFIED MALE: What are you asking me for? I don't know.

(END VIDEO CLIP)

VILES: But baseball is not a museum piece. It's a game. It's living history; 78 million people have been to a pro game this summer; 2.5 kids played little league. You think baseball's over the hill? Well, try telling these kids.

UNIDENTIFIED MALE: What's fun about it is winning, bubble gum, and free food.

UNIDENTIFIED MALE: Hitting a grand slam when you're down by three with a full count and two outs.

UNIDENTIFIED MALE: Pressure.

UNIDENTIFIED MALE: Getting dirty, man. Nothing better. Getting dirty.

VILES (on camera): Just try to imagine America without baseball. Think about all the things baseball has given us that we take for granted, the slump, the rally, the comeback, the double-play, the grand slam. Baseball gave us AstroTurf. If we didn't have baseball in America, we wouldn't have baseball caps.

(voice-over): Baseball bridges the generations. Maybe your grandfather saw Lou Gehrig play. Well, you saw Cal Ripken.

CAL RIPKEN, FORMER BALTIMORE ORIOLE: When I was linked with Lou Gehrig, it made a lot of people think and forget about the big business of baseball and about the money and about free agents and all that kind of stuff. They started to look at it as baseball again. And when you focus on what happens in between the white lines, it's a really great game.

VILES: And if you want to know why baseball has it over football, watch the hats.

TIM MCCARVER, BASEBALL ANNOUNCER: You never see any football players who don't wear baseball caps on the sidelines. And you would be hard-pressed to find a baseball player relaxing in a dugout with a football helmet on.

VILES: Peter Viles, CNN, Brooklyn, New York.

(END VIDEOTAPE)

KING: That's our show tonight. Thanks for joining us.

Tomorrow, in our series of special reports, "State of the States," we look at a small state with big ideas. Delaware's governor, Ruth Ann Minner, will be our guest. Plus, former CIA Director James Woolsey joins us.

For all of us here on this Labor Day, good night from New York.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired September 1, 2003 - 18:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN KING, CNN ANCHOR: Jobless in America. President Bush says he won't be satisfied until every American who wants a job has one. Kitty Pilgrim will report on the huge challenge facing the administration.
Let the campaigning begin. Senior political analyst Bill Schneider will tell us if the Democrats have any chance of winning the White House in 2004.

Movie surprise. Hollywood spent hundreds of millions of dollars on sequels this summer, but that was no guarantee of success.

And American classics: America's national pastime, baseball. Peter Viles will have a special look.

ANNOUNCER: This is LOU DOBBS TONIGHT for Monday, September 1. Sitting in for Lou Dobbs, John King.

KING: Good evening. Lou is off tonight.

President Bush today marked Labor Day by delivering an optimistic message on jobs and the economy. The president told union members in Ohio that everyone who wants a job should be able to find one. Recent opinion polls show unemployment is the top issue for Americans, and that's a problem for a president gearing up for reelection. Nearly three million people have lost their jobs since Mr. Bush took office.

Suzanne Malveaux will report on the president's political strategy. And Kitty Pilgrim will report on the jobless recovery in the economy.

We go first to Suzanne Malveaux at the White House -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Well, John, a main part of the strategy here, of course, is to really highlight the positive economic indicators.

The president in Richfield, Ohio, before a group of union workers, talked not only about his economic agenda, but also the administration's effort to create new jobs. He talked about the fact that consumer spending is up, worker productivity is up, economic growth is up. He also called on the American people to be patient. He said that, yes, his tax cut plan, as well as his benefits, are going to work, they're going to create more jobs, but that Americans just have to be patient and give it more time.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I come with an optimistic message. I believe there are better days ahead for people who are working and looking for work. Economic output is rising faster than expected. Low interest rates mean that families can save billions by refinancing their homes.

I bet some of you have refinanced your homes, put a little extra money in your pocket. Consumer spending is on the rise. Companies are seeing more orders, especially orders for heavy equipment. Now, things are getting better, but there are some things we've got to do to make sure the economy continues to grow.

(END VIDEO CLIP)

MALVEAUX: John, another part of the strategy is for the president essentially to say: It is not my fault, the situation that we're in now.

He says that, of course, he inherited the recession. He talks about 9/11, the terrorist attacks that hit the economy, corporate corruption, the war on terror, the fact that he has moved every step of the way to remedy those situations, and that he should get a chance at a second term.

Another part of the strategy as well is that he is calling on cooperation from many different individuals. He's saying he is not only trying to create jobs, but he's also calling for control of lawsuits, restraining government spending, establishing free trade agreements with other countries. And he is calling on Congress as well to pass a comprehensive energy bill.

And, as everybody knows, in politics it's not just what you say, but where you say it that's also important. Today, it was Ohio. Now, this is a state that has 20 electoral votes, very important for the president. He moves on. He travels on Thursday to Missouri. That is a state that he narrowly won to Gore in 2000. And then, finally, he goes on to Indiana. And that is a state where he trounced Gore by 16 percentage points. And the president wants to keep it that way -- John.

KING: Suzanne, you mentioned the president's legislative priorities. Not in there is another tax cut. Has this president decided he will run for reelection on the tax cuts so far and hope that, eventually, they create enough jobs to make the voters happy?

MALVEAUX: Well, so far, what the president is arguing is that you need to give it more time to let it work itself out, that, yes, you're already seeing some indications that the economy is improving because of this initial tax cut.

At this time, he is not calling for an additional tax cut. There was some discussion about that before. But right now, his economic advisers are saying: Let's just let this play out a little bit further, see where this takes us. We think it's going to take us in the right direction. KING: Suzanne Malveaux at the White House, thank you.

As Suzanne reported, it's no accident President Bush was in Ohio today. No Republican has ever won the White House without carrying Ohio. And Mr. Bush won that state by only a small margin in the 2000 presidential election. And since then, the state has lost nearly a quarter of a million jobs. The unemployment rate in Ohio is now 6.2 percent, the same as the national rate.

Back in January 2001, the Ohio jobless rate was 3.9 percent, compared to 4.2 percent nationally. Jobs in the manufacturing sector have been declining at a steep rate in recent years; 160,000 factory jobs were lost between July 2000 and June 2003. That is a loss of more than 15 percent of the state's manufacturing employment, equivalent to one out of every six factory jobs in Ohio.

There is some encouraging news nationwide. Economic growth is picking up and corporate profits are rising at their fastest pace in years. But the problem is that most companies are not hiring new workers.

Kitty Pilgrim reports.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Nine million people out of work. More than 2.5 million people have lost their jobs over the last three years. The government calls one million more discouraged workers, out of a job for so long, they don't even show up in the statistics. Many of those Americans are saying, don't tell me there's a recovery; tell me I have a job.

The recession started in March 2001. It ended about November of that same year. So, technically, there is no recession. Yet, the economy has continued to hemorrhage jobs. Placement experts say the period between Labor Day and the end of the year is prime time for additional cuts.

RICK COBB, CHALLENGER, GRAY & CHRISTMAS: The last four months of the year are typically where companies make their most significant numbers of cuts. So after Labor Day is a time when companies start to look forward to what's going to happen next year and make adjustments.

PILGRIM: Most of the jobs lost in the last three years are in manufacturing. President Bush, speaking to factory workers in Ohio, talked about the high worker productivity in this country and how that affects jobs.

BUSH: We've lost thousands of jobs in manufacturing, some of it because of productivity gains. In other words, people can have the same output with fewer people.

PILGRIM: An international comparison shows that to be true. Compared to the rest of the world, U.S. workers are cranking it out, pressed to do more and more. Output per worker in the United States was up 2.8 percent in 2002, double the gains in Europe in that time. (END VIDEOTAPE)

PILGRIM: The worst part is, even with all that hard work, wages have basically remained flat. And any recovery in the economy has not yet turned up in the paycheck -- John.

KING: You say not yet. On the issue of jobs, it's a not yet for the president, too. He is banking his reelection on the fact that those jobs will come between now and when voters have to go to the polls. What do the economists and the CEOs think? Will we see a jobs boom?

PILGRIM: The growth numbers look good. The tax cut may help. It's a wait-and-see situation, John.

KING: Wait and see. No one more interested than the president of the United States.

Kitty Pilgrim, thank you.

Later in the show, I'll talk with Labor Secretary Elaine Chao about the challenge of creating new jobs as the economy recovers.

Democrats believe the economy is the president's political weak spot, but do they have a candidate who can exploit it?

Senior political analyst Bill Schneider joins us now from Washington.

Bill, answer the question. Do they?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, the news is that Bush does look beatable.

Put together a message that says the United States is spending $1 billion a week in Iraq and almost two million jobs have been lost in this country, and you may have a real contest. Now, pit President Bush against an unnamed Democratic opponent, and what happens? Well, he wins, though only with, as we see here, a bare majority, 51 percent.

Don't most voters think it's a foregone conclusion that Bush will be reelected? Actually, John, they don't. Only 38 percent feel it's a sure thing; 50 percent believe a Democrat really has a chance to win; 51 percent say they would vote for Bush; 50 percent say a Democrat could win. Uh-oh. It looks like a very close contest. Better book your tickets to Florida now.

(LAUGHTER)

KING: Well, Bill, as we book our tickets to Florida some time before the first ballots are cast in Iowa and then on to New Hampshire, but give us the state of play on Labor Day this year, the year before the election, of the Democratic field.

SCHNEIDER: Well, according to a new CBS News poll, two-thirds of Democrats cannot name a single one of the nine Democrats -- nine -- who are running for president. There they are. Who are these people? They asked Democrats, and Democrats said they can't name any of them.

Well, what happens if you give them a list with the actual names on it? Then Joe Lieberman comes out on top. Well, why not? He was Al Gore's running mate. Dick Gephardt, he comes in second. Well, he's run for president before. Howard Dean, John Kerry are the only other candidates in double-digits.

So how can Dean be widely seen as the front-runner in this race? Here's how. Dean is running ahead of Gephardt, the local favorite, in Iowa. If Dean beats Gephardt in Iowa, the conventional wisdom is, Gephardt is finished. Dean is running ahead of John Kerry, the local favorite in New Hampshire. If Dean beats Kerry in New Hampshire, conventional wisdom is, Kerry's finished.

Then what? Who's left who could stop Howard Dean? Joe Lieberman and John Edwards might make a stand in some of the conservative later states, like South Carolina and Arizona. But they've been campaigning for months and they haven't acquired much momentum. Well, that's why Democrats who want to stop Dean are getting very nervous. And they've started fantasizing about bringing someone else into the race, maybe Hillary?

KING: Well, I guess we'll book our tickets to Iowa and New Hampshire before our tickets to Florida.

Bill Schneider, thank you for joining us tonight from Washington.

SCHNEIDER: Sure, John.

KING: Thank you.

And still ahead: terror in Iraq. The FBI joins the hunt for terrorists who killed at least 83 people in Najaf. Ben Wedeman will have a live report from Najaf.

Reforming Medicare, it's one of the biggest challenges facing Congress and one of the biggest worries for America's seniors. Lisa Sylvester will have our report.

And Hurricane Fabian gathers speed in the Atlantic. We will have the latest on its path toward North America.

Stay with us.

(COMMERCIAL BREAK)

KING: Still to come tonight: a puzzle in Pennsylvania, as police look for a link between the death of a bank robber with a bomb and a co-worker who died miles away days later -- that investigation and much more when we return.

(COMMERCIAL BREAK)

KING: An audiotape attributed to Saddam Hussein today denied responsibility for the bombing in Najaf. That bombing killed at least 83 people, including a leading Shiite cleric. Many people in Najaf believe the attack was carried out by supporters of former President Saddam Hussein.

Ben Wedeman joins us live now from Najaf with the latest -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: Yes, John.

Well, we did hear that Al-Jazeera tape today. Interestingly, the Jazeera crew in Najaf had to leave town, because several apparently senior clerics were most unhappy that they broadcast that tape. Now, meanwhile, we're hearing from Marine sources outside of Najaf that their information is that the Iraqi police are holding several people who may be interrogated by the FBI, which is going to be brought into this investigation.

They're particularly interested in looking at a piece of computer hardware that was found on one of those people currently in custody. Meanwhile, this town is bracing for tomorrow's funeral for the late Ayatollah Mohammed Baqir al-Hakim, expecting several hundred thousand people here. The Marines have brought in more medical supplies in case of an emergency.

Two possibilities they are looking at is Iraqi clashes, rather, clashes among Iraqis, or possibly, John, another car bomb.

KING: And, Ben, U.S. troops were scheduled to pull back from Najaf and turn it over to Polish troops? The U.S. troops are now going to stay. How visible is the U.S. presence on the ground?

WEDEMAN: Actually, the U.S. presence is not very visible at all. What they're trying to do is try to stay on the outskirts of the city.

And within the last couple months, they've really stayed out of the middle of the city because of religious sensitivities. And, certainly, tomorrow, they are going to be as low-profile as possible. As far as that handover goes, there will be a ceremony on Wednesday to hand over authority to the Polish contingent. But, however, the U.S. Marines are actually going to be staying where they are until the situation calms down. And there's no indication when that is going to happen -- John.

KING: Ben Wedeman, live in Najaf, Iraq -- thank you, Ben.

U.S. troops in Afghanistan are hunting Taliban gunmen who killed two U.S. soldiers near the border with Pakistan. Today, suspected Taliban members killed at least eight government workers near Kabul, government soldiers.

Pentagon correspondent Barbara Starr joins me now from the Pentagon -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, John, it is Afghanistan that is heating up.

Several hundred U.S. combat forces are now conducting a major operation in south central Afghanistan in very rugged, mountainous territory. They are on the hunt, we are told, for what they believe may be hundreds of Taliban fighters. This operation, called Operation Mountain Viper, is being conducted in Uruzgan and in Zabul Province in the very remote Dai Chupan Mountains.

This is where troops conducted a very little-noticed air assault into the region over the weekend, a longtime Taliban stronghold. Now, military force sources tell CNN the mission was launched after many intelligence reports that there were large numbers of small groups of Taliban operating in the area with small arms, rocket-propelled grenades, AK-47s. But they wanted to go after these Taliban groups very specifically because of concern over many attacks in the region in the last several weeks and concern that, if they went on unchecked, they might pose a threat to the central government of Hamid Karzai.

Now, this is the second combat operation being conducted by U.S. forces in recent days. There is another operation ongoing a bit to the east along the Pakistan border. That is called Operation Warrior Sweep. That has been going on since mid-July, and it remains ongoing. In the -- Gardez area, U.S. troops are conducting patrols between coast and Gardez, looking for any other suspected Taliban or al Qaeda members.

But, John, it is Afghanistan that is proving to be equally deadly to U.S. forces, as you say, two U.S. troops killed over the weekend -- John.

KING: Equally deadly now, Barbara, but for a good period of time, almost a forgotten front in the war on terrorism. With all the emphasis on Iraq, any concerns by the commanders in Afghanistan? Do they have the troops to back up the troops that are suddenly more busy? Do they have the supplies to back up their troops, as these raids intensify? Or were the resources move to Iraq?

STARR: Well, at the moment, there's every indication they feel they're OK.

This is a major operation, though. We've been asked not to say how many troops, but Operation Mountain Viper does involve several hundred troops. It involves Air Force, Army, and Marine Corps aircraft. They are conducting around-the-clock operations in this very rugged terrain. At the moment, they are going, though, after relatively small concentrations, so they think that they are fine.

This is an area they haven't had a chance to go into in recent months. They believe the Taliban have basically come to the surface again. And they want to go after them. They want to take care of them before they do pose a threat to the government there -- John.

KING: Barbara Starr, live at the Pentagon, thank you.

Israel today declared all-out war against the radical Islamist group Hamas. Israel today killed another two Hamas activists in a helicopter attack in Gaza. Israeli helicopters have now killed 12 Hamas members since the organization claimed responsibility for the Jerusalem bus bombing two weeks ago; 21 people died in that attack. Coming up: a bank robbery, a bomb, and the mysterious deaths of two pizza deliverymen. Police in Pennsylvania are trying to solve a bizarre case. We'll bring you details.

Plus: Labor union endorsements can make or break political campaigns. But with union membership dwindling across the country, can big labor keep its political clout? Louise Schiavone with that report.

And AFL-CIO President John Sweeney will be our guest.

And Medicare reform has cleared both houses of Congress, but some are doubting whether it will ever become law. Lisa Sylvester will have the report -- that and much more just ahead.

Stay with us.

(COMMERCIAL BREAK)

KING: It's been a very wet Labor Day in Texas. The remnants of Tropical Storm Grace have produced heavy storms across the state, dumping up to a foot of rain in some areas. The remnants of that storm are now heading for Kansas, where flash floods this weekend turned deadly. Four children died when the family van was swept away by raging waters. Their mother and another man are still missing.

Flash floods are a concern in Hawaii tonight. Tropical Storm Jimena is bearing down on the big island, packing strong winds and heavy rains. In the Atlantic, Hurricane Fabian has grown into a dangerous Category 4 storm. Fabian, with winds of more than 140 miles an hour, is still more than 300 miles from the Leeward Islands in the Caribbean. And, in China, more than 100,000 people have been evacuated in the northwestern part of the country. Days of continuous rain have produced dangerous floods and landslides that have destroyed 10,000 homes.

In Erie, Pennsylvania, tonight, a bizarre story that has puzzled police since Thursday. It began when a pizza deliveryman with a bomb strapped to his chest robbed a bank. That bomb later exploded, killing him. Now, the FBI and local police are looking for a connection between his death and that of a co-worker yesterday.

Scott Cook of CNN affiliate WICU has the story from Erie, Pennsylvania.

(BEGIN VIDEOTAPE)

SCOTT COOK, WICU REPORTER: Here in the basement of the Erie County courthouse, forensic experts are finishing up their autopsy of 43-year-old Robert Pinetti, who died in his home yesterday. It's the latest turn in this bizarre story.

Pinetti man was a deliveryman for the same pizza shop as Brian Wells , who died Thursday when the bomb strapped to his chest was somehow detonated. It could be a strange coincidence, but more than 50 investigators, from local detectives, to the FBI and ATF, are awaiting these autopsy results.

Pinetti and Wells, both in their 40s, reported to be good friends, now both dead. Paramedics initially responded to Pinetti's home Sunday morning around 5:00. Pinetti sent them away. And within hours, he was dead.

MARK ZALESKI, PENNSYLVANIA STATE POLICE: There is a relationship between the two individuals. We decided that we're going to pursue this a little bit further, just in the event that there might be additional information that we can glean from this.

COOK: Officials are expected to release the autopsy results of both men some time tomorrow morning at a press conference.

I'm Scott Cook in Erie, Pennsylvania, for CNN.

(END VIDEOTAPE)

KING: Still to come: Organized labor works to put President Bush on the unemployment line. AFL-CIO leader John Sweeney is my guest.

California's gubernatorial campaign takes another twist. Bob Franken has the latest on the recall race.

And the big-budget sequels are a bust. We'll tell you what's hot in Hollywood and what to look forward to this fall when we return.

(COMMERCIAL BREAK)

KING: California's recall election is now just five weeks away. And many of the candidates for governor are spending their Labor Day on the campaign trail. One of them, the best known perhaps, Republican candidate Arnold Schwarzenegger, is the focus of controversy for refusing to take part in the campaign's first debate. Governor Gray Davis and a number of challengers are expected to be there.

Bob Franken is live in Los Angeles and has the latest for us -- Bob.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well, let's start with the governor today.

He, of course, is trying very hard to make all of this an exercise in futility, by not being recalled. And he took his campaign today to a Labor Day rally, a series of Labor Day rallies. This one is in downtown Los Angeles. That is when the labor internal polls and some of the Gray Davis organization's internal polls, we're told by sources within his campaign, are showing an even darker picture than "The Los Angeles Times," which had 50 percent supporting the recall.

The internal polls, the ones that were done last week, show it at about 52 percent. Well, at any rate, Gray Davis has decided that he needs to speak directly to members, the 2.6 million members of the labor unions, who live in California. (BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: This recall is a humbling experience. I would not wish it on my worst enemy. But if the good people of this state decide that they're going to allow me to finish the term to which they elected me, I promise you I will do some things differently and I will work every day to make their life better.

(END VIDEO CLIP)

FRANKEN: Now, that was a reference to the new campaign that labor is going to be mounting right now. This brochure really shows it off. The idea, according to the labor unions, is that, if a Republican gets in the statehouse, workers in the state are going to lose an awful large number of their rights.

Well, of course, the man who's leading the Republicans was also out doing some Labor Day campaigning. Arnold Schwarzenegger was outside the state fair in Sacramento. But he was also having to face questions about his decision not to participate in the first two televised debates, agreeing only to appear in one three weeks down the road.

And he had to deal with CNN's Rusty Dornin about that.

(BEGIN VIDEO CLIP)

RUSTY DORNIN, CNN CORRESPONDENT: Mr. Schwarzenegger, you're live on CNN. Would you like to tell us if you are going to be at the debates or why you're only going to do one of the debates?

ARNOLD SCHWARZENEGGER (R), CALIFORNIA GUBERNATORIAL CANDIDATE: I'm looking forward to the debates. It's going to be great with the California broadcasters, yes. It's going to be a fantastic experience.

DORNIN: Are you not going to do any of the other debates, sir?

SCHWARZENEGGER: We're going to do one great debate, where we all can bring out all the different issues, OK?

(END VIDEO CLIP)

FRANKEN: So Schwarzenegger says he's going to be sitting out the debate which is held Wednesday night. That's the first of two that he's not going to be attending. That debate will have a half-hour devoted to Governor Gray Davis taking questions from reporters and then a debate between the candidates, the leading candidates, who want to replace him.

Among those, of course, is the Democratic lieutenant governor, Cruz Bustamante -- John.

KING: Bob Franken live for us in Los Angeles keeping track of the recall -- thank you, Bob. Now, Labor Day traditionally kicks off the political season not only for the candidates, but also for unions. Organized labor is a usual source of strength for the Democrats, but that political support does not carry the weight it once did.

Louise Schiavone has the report.

(BEGIN VIDEOTAPE)

LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): Nine Democratic presidential candidates are on the stump this week, each of them vying fiercely for the support of their core constituency, organized labor. But with membership rolls falling, can unions deliver?

JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: Union membership has been declining. It's been tougher for unions to make the argument to candidates that they can bring out the voters. What they can contribute are dollars, but even that's under pressure. Obviously, there are great cost concerns throughout the workplace.

SCHIAVONE: Today, 16.1 million workers in the United States belong to labor unions. That's 11 percent of the nation's 146.5 million workers. Compare that to union membership 40 years ago. In 1963, 16.5 million U.S. workers were in the union rank-and-file, but that was 22 percent of the nation's labor force of 74.6 million.

Unions have suffered membership losses through a layoff-filled recession and the migration of jobs in an ever more global workplace and the fact that worker benefits, such as wage, hour, and safety rules are now common for all workers, union or otherwise. Despite its declining rolls, the 13 million-member AFL-CIO professes to be in fighting form and poised to wield political clout in 2004. Analysts don't disagree.

RICHARD TRUMKA, SECRETARY-TREASURER, AFL-CIO: Last election, we were 26 percent of the vote for people that went to the polls. This time, we're going to have a bigger mobilization program, a bigger educational program. So, hopefully, we'll be even a larger percentage of the people that turn out to the polls. That's our goal.

ED POTTER, EMPLOYMENT POLICY FOUNDATION: If you look at just union dues and union income, it all adds up to about $13.5 billion; $13.5 billion makes you a Fortune 100 company. They have substantial resources to devote to public policies.

SCHIAVONE: Higher-paid white-collar workers now constitute 30 percent of union rolls, which, despite declining overall membership, still makes unions financially strong and a political force to be reckoned with in the 21st century.

Louise Schiavone for CNN Financial News, Washington.

(END VIDEOTAPE)

KING: Organized labor leaders today launched a massive get-out- the-vote campaign. They would like to defeat President Bush, whose policies, they say, are hostile to American workers.

Earlier, I spoke with the AFL-CIO president, John Sweeney. And I asked him why he feels that this is the most anti-worker administration in history.

(BEGIN VIDEOTAPE)

JOHN SWEENEY, PRESIDENT, AFL-CIO: Well, I wish that the economy was improving.

And the job creation situation is just a disaster. We've seen two million manufacturing jobs -- 2.5 million manufacturing jobs during the two years that the president's been in office wiped out. There is no initiatives being taken to really develop jobs. And the president took care of the wealthy with his tax cuts. If he would have paid more attention to preserving the surplus, he would have had the ability to create jobs through infrastructure and school building and so much of what's necessary in terms of addressing health care and prescription drugs.

Those are what the American people want. And those are the concerns of workers. Jobs is probably the No. 1 concern this Labor Day, together with the health and retirement security issues.

KING: That is your opinion, sir, and obviously the opinion of the AFL-CIO. Yet, on this Labor Day, the president was invited to a union picnic in Ohio by a president of the Operating Engineers Union who happens to also be a member of your Executive Council on the AFL- CIO, Frank Hanley.

He had a very different opinion of the president today. I want you to listen to this.

(BEGIN VIDEO CLIP)

FRANK HANLEY, PRESIDENT, INTERNATIONAL UNION OF OPERATING ENGINEERS: He understands our problems. And I'm very, very grateful. I could say many, many things here today. It's an honor and a pleasure to be able to introduce the president of the United States, a great, great man.

God bless you.

(END VIDEO CLIP)

KING: A great, great man, John Sweeney, who understands the problems of union workers. Is there disagreement within the hierarchy of the AFL-CIO?

SWEENEY: No, I don't think there's disagreement.

I think the Operating Engineers have the same concerns as other workers. I think that it is nice that the president of the United States is at least paying attention to workers issues one day out of the year. And now we'll see what he does the rest of the year. I hope that he will focus more on really stimulating the economy and improving the lives of middle-income and low-income wage earners.

KING: What is the one thing you would want him to do tomorrow, when the Congress comes back tomorrow? What is the one thing he could do?

SWEENEY: Well, as a start, he could pull back on the changes that he wants to make with overtime pay, to wipe out overtime pay for eight million workers who depend on it as their regular income, whose needs, family needs, are taken care of as a result of working overtime.

And if a worker is working more than the 40-hour workweek, they deserve to be compensated for it. And they plan on it. Their family budget depends on it.

KING: The president is not the only politician out on this Labor Day. Most of the Democrats who would like to take his job are also out. One of them is Congressman Dick Gephardt of Missouri, a longtime friend of the labor movement. Many even within his campaign concede, his campaign could live or die based on whether he gets the endorsement of the AFL-CIO. Will he get it, sir?

SWEENEY: Well, it remains to be seen.

Dick Gephardt has spent his whole public career working on the issues that concern workers and has a lot of support. But we have to go through our process to make sure that our members in the different affiliates, who they want to endorse and who they will support for president. And there are a number of candidates out there who have good records as well. But we just have to go through this process. And we hope that, by the middle of October, we will have enough of a consensus to make an endorsement.

KING: John Sweeney, president of the AFL-CIO, thank you for joining us today.

SWEENEY: Thank you.

(END VIDEOTAPE)

KING: And that brings us to our poll question tonight. What do you think will be the most important issue in the 2004 presidential election, jobs and the economy, health care, homeland security, or the war in Iraq? You can vote on our Web site, CNN.com/Lou. We'll share the preliminary results a bit later in the show.

One key issue in next year's campaign could be health care and Medicare reform. Both the House and the Senate passed versions of Medicare reform, but those bills are drastically different. Working out a compromise version is one of the biggest challenges facing the Congress when it returns from its August recess this week. And some say it can't be done.

Lisa Sylvester has the report.

(BEGIN VIDEOTAPE) LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Daniel Metzman was a lawyer for 56 years, and it still took him a while before he understood all the details of the House and Senate Medicare bills. He does not like what he sees.

DANIEL METZMAN, FORMER ATTORNEY: Some adjustment has to be made, money has to be found from somewhere to broaden the benefits and cover more people, without a burdensome amount of money that they have to pay to participate.

SYLVESTER: He's not alone. The AFL-CIO says, retirees could lose their company-sponsored drug coverage and could be left with fewer benefits under a government plan. Fiscal conservatives say both proposals are irresponsible given the ballooning deficit.

PETER SEPP, NATIONAL TAXPAYERS UNION: It seems that this Medicare prescription drug plan costs everyone, but pleases no one. That's a prescription for disaster that policy-makers ought to just scrap and start over again from.

PATRICIA NEUMAN, KAISER FAMILY FOUNDATION: If they do go back to the drawing board and toss away the House and Senate proposals, sort of anything's up for grabs. And maybe they can come up with something that could garner enough support in the House or Senate, or maybe more fractions will appear and may be more difficult to come up with a compromise.

SYLVESTER: If they decide not to start all over, House and Senate lawmakers will have to make some major compromises to reconcile the two versions when they return after Labor Day. But it may be difficult bridging the divide.

The House gives private insurers a bigger role. The Senate has higher co-pays, but relies more on the traditional Medicare payment plan.

(END VIDEOTAPE)

SYLVESTER: Complicating matters is the enormous pressure lawmakers are under to pass some kind of drug benefit bill heading into an election year. Seniors vote in large numbers. And if they don't get Medicare drug benefits that have been repeatedly promised to them, they may be looking to hold someone accountable -- John.

KING: Lisa, any evidence at all that, during the August recess, was there any progress at all in the negotiations, at least at the staff level, any other major political changes to the dynamic of this debate?

SYLVESTER: Well, it's been very slow going during the month of August, John, with the lawmakers out. Staff members really don't have -- at this stage, at least, have the power to drop some of these major provisions that have been the sticking points.

But what has been going on, for instance, labor unions doing a lot of lobbying behind the scenes, urging their members to call up their members of Congress to reject both versions, both the House and the Senate versions, of the Medicare bill. Also, you have different groups, senior groups, urging that there be more compromise. They're looking to get additional benefits -- John.

KING: Lisa Sylvester, live in Washington, thank you.

And coming up: This Labor Day, the White House says it is working to create more jobs. Secretary Elaine Chao will join us to talk about the state of the labor market -- that and much more ahead.

Stay with us.

(COMMERCIAL BREAK)

KING: On this Labor Day, Labor Secretary Elaine Chao says the White House is focused on helping every American who wants a job find a job.

Secretary Chao joins us now from Washington.

Madam Secretary, let me start here.

The president, in his remarks in Ohio today, said he inherited a recession from the Clinton administration. The terrorists struck on 9/11, then the corporate scandals, Enron and the like. But he must understand, on Labor Day heading into a presidential election year, that, one year from now, he will be judged. This will be the Bush economy. He gets that, doesn't he?

ELAINE CHAO, LABOR SECRETARY: Well, the president is very concerned, as he has said many times, when any American who's looking for work can't find one.

That's why he's working so hard to ensure that the environment is appropriate for creating new jobs. The recovery is not as strong as we would like, but the president's jobs and economic growth plan is beginning to have an impact. We're seeing leading indicators trend upward. The unemployment insurance initial claims numbers are dropping, and that's positive as well.

And at the Department of Labor, we have a number of assistance programs and training programs, retraining programs, that will help to connect workers to higher-paying jobs and employers who are looking for workers. So, for example, we have a high-growth initiative that, again, will help people who are looking for work to transition into better-paying jobs.

For example, in the health care sector, which is a high-growth sector, there's a need for one million nurses in the next eight years. And so we have about -- we spend about $12 billion a year on training and retraining opportunities and programs. And so we want to be able to connect workers and employers, so that people will have more opportunities to find new jobs.

KING: When the last installment of the tax cut was passed, then White House Press Secretary Ari Fleischer said it would create one million new jobs. If you are back here one year from today, will we have seen those one million new jobs? Do you stand by that number?

CHAO: Well, I certainly hope so. And we would expect that.

As I mentioned, the recovery is gaining strength. And all the leading economic indicators are trending upward. But, clearly, we want to make sure that those who are in a transitional period in their lives and those that are vulnerable, that they know that there is a whole array of programs and assistance programs available to them for immediate assistance.

We have 3,800 what's called one-stop career centers located throughout the United States. They offer job counseling, job placement, job training, and also skills assessment. So we hope that people will reach out and access many of these programs. As I mentioned, we also have apprenticeship programs, because the skilled trades are also looking for new workers, as are the financial sector and some of the retail sectors as well. And these are not lower- paying jobs. These are good, high-paying jobs.

KING: Madam Secretary, John Sweeney, the AFL-CIO president, was on earlier in the program.

CHAO: Yes.

KING: He said your administration is trying to gut the overtime rules in this country and punish workers by denying those who work more than 40 hours a week their access to overtime. Your take on that debate?

CHAO: Well, I'm glad you asked me about that, because there's a great deal of misinformation being floated around.

First of all, this is not an overtime regulation. There are many overtime regulations on the books. This is called a white-collar regulation. Basically, these regulations have not been updated in well over 50 years. And they list specific occupations which no longer exist, like legman, gang leader, keyhole puncher. And what we want to do is to protect 1.3 million low-wage, vulnerable workers so that they can be guaranteed overtime.

Right now, if you're earning $8,000 a year and someone slaps an assistant manager label on you, you are not guaranteed overtime. You either have to resort to the courts, which will take a long time if they're successful, or come to the department. And that will take time as well. We want to clarify these outdated regulations, so that people know what they're entitled to receive and so that we can guarantee overtime for the low-wage workers.

And, also, this is a white-collar regulation, so it does not impact blue-collar workers. First-responders are not impacted. Police, firemen, nurses, they're not impacted at all. And if you're a labor union member, you're protected by the collective bargaining agreement. So you're not covered at all either. So what we want to do is to guarantee overtime for 1.3 million low-wage, vulnerable workers. We're trying to protect those workers. KING: Labor Secretary Elaine Chao, we need to end it there, one of the more complicated debates and one of the many debates about the economy. We will continue to follow this in the months ahead. Thank you so much. I know it's been a long day.

CHAO: Thank you.

KING: Thank you.

Now, job creation is just one challenge facing not only administration officials, but also governors across the country. And it's far from the only one. Tonight, we begin a series of special reports on the "State of the States." Most are battling financial crises, as well as challenges from education to infrastructure.

Tonight, Jan Hopkins looks at some of those challenges and the novel solutions some states are trying.

(BEGIN VIDEOTAPE)

JAN HOPKINS, CNN CORRESPONDENT (voice-over): California's governor, Gray Davis, may lose his job over that state's $38 billion budget gap. California is in good company. This year, states across the country face $80 billion in budget deficits. Some say it's the worst the states have faced since the Depression.

CORINA ECKL, NATIONAL CONF. OF STATE LEGISLATURES: But if you consider the past two to three years and the cumulative budget gaps over those several years, states have had to address some $200 billion in budget gaps. And they have taken actions to close those gaps.

HOPKINS: Raising taxes is a gamble an increasing number of states are taking. Illinois has raised taxes on riverboat casinos. Minnesota has a new tax on bars that want to stay open an extra hour. In all, governors in 29 states are proposing $17.5 billion in new taxes and fees.

New York and California collect the most in taxes, but residents in Hawaii and Delaware pay the highest state income taxes. Seven states, including Texas and Florida, manage without an income tax. And five states, including Delaware, have no sales tax. New York's former governor argues, big states have a harder time because they have more responsibilities.

MARIO CUOMO, FORMER NEW YORK GOVERNOR: It's easier to be healthy if you're a small family. If you've got one kid, two kids, you make $40,000, that's one thing. You have got five kids, the way Matilda and I were blessed, $40,000 doesn't go as far.

HOPKINS: Education and health care are at the top of the list of state expenses. Many of these programs are required, but not funded by the federal government. This adds $82 billion a year to state expenses.

(on camera): States are not like the federal government, which can run a deficit. Every state except Vermont is required to balance its budget.

(voice-over): In order to live within their means, states are cutting services. A total of $14.5 billion is coming out of budgets. Residents don't always like the priorities of those who govern. And in 24 states, they can get their complaints on the ballot.

CHELLIE PINGREE, COMMON CAUSE: A citizens group in Maine collected 50,000 petition signatures. And what they said to the state government was, we want you to fund 55 percent of all education costs, take the burden off the property taxpayer.

HOPKINS: States are caught in a huge vise, with a slow economy cutting what comes in and higher costs pushing up what goes out. Many states have done what individuals have done, taken money out of their savings.

States' rainy-day funds are down 88 percent from the boom times of 2000. Yet, despite all the challenges, some states have managed quite well. We'll look at four of them this week.

Jan Hopkins, CNN, New York.

(END VIDEOTAPE)

KING: A reminder now to vote on our poll question tonight. We're asking, what do you think will be the most important issue in the 2004 presidential election, jobs and the economy, health care, homeland security, or the war in Iraq? You can vote on our Web site, CNN.com/Lou. We'll share the preliminary results later in the show.

And coming up: new trends at the movies. Hollywood banked on the success of sequels this summer. But not all have been as successful as "Jeepers Creepers 2." Gitesh Pandya of BoxOfficeGuru.com will tell us why.

(COMMERCIAL BREAK)

KING: Wake up. Summer's over, at least as far as the movie business is concerned. Labor Day brings a new season at the box office.

For a look at the summer past and the season ahead, Gitesh Pandya of BoxOfficeGuru.com joins me now.

Biggest winner this summer in terms of a studio is?

GITESH PANDYA, BOXOFFICEGURU.COM: The biggest studio was Disney. They had two hit films which will end up being the biggest blockbusters of summer 2003. "Finding Nemo," from Disney and Pixar Pictures, animated film, grossed over $330 million. It's the highest- grossing animated film in history. And, also, they have "Pirates of the Caribbean," from producer Jerry Bruckheimer. This movie is on its way to grossing about $290 million to $300 million.

So, for Disney, they were unstoppable and unbeatable this summer.

KING: And so the biggest loser, then?

PANDYA: Well, the biggest loser, then, you would have to look at Jennifer Lopez and Ben Affleck. "Gigli" was a disaster at the box office. Here's a film which cost $54 million to produce, tens of millions more to promote. And it's on its way to grossing less than $10 million domestically. So it's a big flop for them. We will see the two of them back together in a movie called "Jersey Girl" next year. So we'll see how that does.

KING: We'll see.

A lot of sequels this summer. Did we meet anyone new?

PANDYA: Not really. It was the summer of sequels. We had a record 15 sequels this summer. And I think Hollywood learned that they can't rely too much on sequels.

We have especially action sequels coming out. And some of them, like "The Matrix Reloaded" and "X-Men 2," did quite well, big grocers. And action films especially do very well overseas, on average, can do 50 to 60 percent better in overseas markets than domestically.

KING: You say Hollywood learned. But the films we will see soon in the fall are already in the can, obviously.

PANDYA: Right.

KING: What's about to come? Any hope that things will be better?

PANDYA: Well, the fall is a slower season than the summertime. Kids go back to school. A new football season starts. A new TV season starts. So the studios don't rely on too many big films.

However, with Halloween coming up, there will be a lot of horror films. There's a remake of "Texas Chainsaw Massacre" coming up in October. There's also "Cabin Fever" in September, as well as "Cold Creek Manor." And then when we get closer to Halloween, there's a spoof comedy called "Scary Movie 3," yet another sequel, on its way to theaters.

KING: Now, box office receipts were up slightly this summer, but that's because of higher prices, actually, fewer people in the seats. Should the industry be worried?

PANDYA: That's exactly right.

The overall box office grosses for the summer season, which ends today, on Labor Day, is just slightly ahead of last summer's record pace. However, that's mostly because of higher ticket prices. So we're actually seeing an admission total that's down about 2 percent vs. last year. Now, that figure compares to the cost of films. And movies are costing more and more to both produce and market. And that can squeeze out profitability for many of these studios.

So that's one of the reasons why studios rely on sequels so much, is because they have a built-in audience and they need less marketing. And they hopefully will get those dollars back.

KING: Gitesh Pandya, BoxOfficeGuru.com, thank you very much.

PANDYA: Thanks for having me.

KING: And coming up: the results of tonight's poll question.

Then baseball, the game that has provided countless memories to millions for more than 150 summers. Peter Viles will have our report on an "American Classic."

(COMMERCIAL BREAK)

KING: Now the preliminary results of tonight's poll question. We asked, what do you think will be the most important issue in the 2004 presidential election? Eighty-four percent of you said jobs and the economy. Three percent said health care. Three percent said homeland security. And 10 percent said the war in Iraq.

And finally tonight, baseball. It's part of Labor Day for many Americans, but it's also a great deal more.

Peter Viles reports on an American classic that's still the great national pastime.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Take me out to the ball game.

PETER VILES, CNN CORRESPONDENT (voice-over): What makes baseball our national pastime? Why do we still love a game that's old and kind of slow? Well, let's face it. Some of it is nostalgia.

(BEGIN VIDEO CLIP, "FIELD OF DREAMS")

JAMES EARL JONES, ACTOR: This field, this game, it's a part of our past, Ray. It reminds us of all that once was good.

RAY LIOTTA, ACTOR: Hey, is this heaven?

KEVIN COSTNER, ACTOR: No. It's Iowa.

(END VIDEO CLIP)

VILES: Even without Hollywood's help, baseball has a glorious past. When we needed heroes, baseball gave us Babe Ruth, Lou Gehrig's unforgettable farewell.

LOU GEHRIG, FORMER PROFESSOR BASEBALL PLAYER: Today, I consider myself the luckiest man on the face of the Earth.

VILES: And when we needed to laugh, baseball helped.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Who's on first. What's on second. I don't know is on third.

UNIDENTIFIED MALE: You know the guys' names on the baseball team?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: Well, go ahead. Who's on first?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: I mean, the guy's name.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy playing first.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy playing first base.

UNIDENTIFIED MALE: Who.

UNIDENTIFIED MALE: The guy on first base.

UNIDENTIFIED MALE: Who is on first.

UNIDENTIFIED MALE: What are you asking me for? I don't know.

(END VIDEO CLIP)

VILES: But baseball is not a museum piece. It's a game. It's living history; 78 million people have been to a pro game this summer; 2.5 kids played little league. You think baseball's over the hill? Well, try telling these kids.

UNIDENTIFIED MALE: What's fun about it is winning, bubble gum, and free food.

UNIDENTIFIED MALE: Hitting a grand slam when you're down by three with a full count and two outs.

UNIDENTIFIED MALE: Pressure.

UNIDENTIFIED MALE: Getting dirty, man. Nothing better. Getting dirty.

VILES (on camera): Just try to imagine America without baseball. Think about all the things baseball has given us that we take for granted, the slump, the rally, the comeback, the double-play, the grand slam. Baseball gave us AstroTurf. If we didn't have baseball in America, we wouldn't have baseball caps.

(voice-over): Baseball bridges the generations. Maybe your grandfather saw Lou Gehrig play. Well, you saw Cal Ripken.

CAL RIPKEN, FORMER BALTIMORE ORIOLE: When I was linked with Lou Gehrig, it made a lot of people think and forget about the big business of baseball and about the money and about free agents and all that kind of stuff. They started to look at it as baseball again. And when you focus on what happens in between the white lines, it's a really great game.

VILES: And if you want to know why baseball has it over football, watch the hats.

TIM MCCARVER, BASEBALL ANNOUNCER: You never see any football players who don't wear baseball caps on the sidelines. And you would be hard-pressed to find a baseball player relaxing in a dugout with a football helmet on.

VILES: Peter Viles, CNN, Brooklyn, New York.

(END VIDEOTAPE)

KING: That's our show tonight. Thanks for joining us.

Tomorrow, in our series of special reports, "State of the States," we look at a small state with big ideas. Delaware's governor, Ruth Ann Minner, will be our guest. Plus, former CIA Director James Woolsey joins us.

For all of us here on this Labor Day, good night from New York.

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