Innovative and efficient workers are important contributors to the economy's good health, now and in the future, President Bush said Monday as he projected another year of solid economic growth.

To build upon U.S. worker productivity and keep the economy flourishing, Bush made a fresh pitch in his annual economic report to Congress for sharpening the country's competitive edge. He also renewed his call to lawmakers to make his tax cuts permanent.

"Our economy's fundamental strength comes from the ingenuity and hard work of our workers," Bush wrote in the introduction to the report, which examines economic conditions as well as challenges. These include rising health care costs, the massive strain on federal resources that will come from the looming retirement of millions of baby boomers and bloated trade and budget deficits.

Looking back at last year, Bush marveled at the economy's sturdiness after being jolted by the devastating Gulf Coast hurricanes and high energy prices. "The United States economy continues to demonstrate remarkable resilience, flexibility and growth," he said.

Bush gave credit for that to "the hard work of America's workers" as well as his own policies that cut taxes and aim to keep them low. The economy grew by 3.1 percent last year, as measured by gross domestic product from the fourth quarter of 2004 to the fourth quarter of 2005.

The president's report projects that the economy will grow by a respectable 3.4 percent this year as measured from the fourth quarter of last year to the fourth quarter of this year. In 2007, the economy should log another solid year, growing by 3.3 percent, he said.

The unemployment rate, which averaged 5.1 percent in 2005, should dip to 5 percent this year and hold steady at that rate next year, according to the White House's forecast.

Inflation, as measured by the Consumer Price Index, also should moderate this year. Consumers prices, which rose by 3.4 percent in 2005 — the most in five years— are expected to go up by no more than 2.4 percent this year and next year, the report said.

"The economy is projected to settle into a steady state in which GDP grows at its potential rate, the unemployment rate remains flat at a low level, and inflation remains moderate and stable," according to the report.

Bush, in the report, pushed anew for his "American Competitiveness Initiative," which responds to people's anxiety over competition from China, India and other countries. The initiative would extend an expired business tax break for research and development, double the government's commitment to basic scientific research and train thousands of new science and math teachers.

Addressing the government's balance sheets, Bush said the administration remains on track to cut the federal budget deficit in half by 2009. The president, who is calling on Congress to make his tax cuts permanent, would seek to slash the deficit by cutting spending.

The government ran up a $319 billion deficit last year. The administration is estimating the deficit for this year to hit a record in dollar terms of $423 billion, surpassing the previous record set in 2004. The worsening picture reflects increased spending for hurricane relief and the costs of the wars in Iraq and Afghanistan, the administration says.

The president also said he would continue to push for trade deals that would make it easier for U.S. companies to sell their goods on global markets.

The United States' trade deficit soared to $725.8 billion last year, the fourth year in a row the deficit hit a record high. The country's trade shortfall with China last year came to $201.6 billion, the highest deficit ever recorded with any country.

"My administration will continue to work tirelessly to open markets and knock down barriers to free and fair trade so that American farmers and workers can compete on a level playing field worldwide," Bush said.

Democrats, unions and other critics blame Bush's free trade policies for the loss of U.S. jobs, especially in the factory sector.