Minnesota Gov. Tim Pawlenty (R) spoke to members of the conservative Republican group GOPAC Wednesday morning, urging those in attendance to adapt traditional conservative principles to modern voter concerns, particularly on domestic issues such as health care, education and energy.

Pawlenty, who is active as a surrogate on behalf of presumptive Republican presidential nominee Sen. John McCain (Ariz.), declined once again to address the possibility that he might be selected as a vice presidential running mate. In a suggestion that appeared to be made in jest, Pawlenty said he was pulling for McCain to select GOPAC Chairman Michael Steele, the former Maryland lieutenant governor and failed 2006 Senate candidate.

“We are the market party. … Well, in elections, in politics, what is the ultimate market measure? It’s called an election,” said Pawlenty, currently in his second term after winning a narrow re-election victory in 2006.

“And the last few rounds of market measurement for the Republican Party [and] the conservative movement have not been positive. The elections of 2006 and the special elections since then are signaling something. … If we’re the marketplace party, we have to step back from that and say: ‘Why are we losing market share?”

Pawlenty, speaking this morning at the Key Bridge Marriott in Arlington, Va., to GOPAC members attending a two-day training seminar, was scheduled to take questions from reporters at the National Press Club in Washington, D.C., this afternoon.

Pawlenty was disciplined in predicting Congressional election victories for Republicans running this year in Minnesota. But Steele was typically blunt in assessing the GOP’s prospects in House and Senate contests — which he believes are dim, although the Maryland Republican did predict that McCain would beat Sen. Barack Obama (D-Ill.) in the race for the White House.

Pawlenty was firm in saying that Democrats would fail to unseat Sen. Norm Coleman (R-Minn.), and just as confident that Republicans would win the open 3rd district and hold off the Democrats’ play to oust a GOP freshman in the 6th district.

Steele predicted steep losses for House Republicans generally, and similarly disappointing results for Republicans running for Senate. Democrats could grow their Senate majority from 51-49 to 58-42, Steele forecasted, adding that the GOP could end up even worse off in the House — possibly dropping from a 199-strong minority Conference to one with as few as 170 Members.

However, Steele said the energy issue and high gas prices could help Republicans keep their Congressional losses at a minimum on Nov. 4.

“It’s going to be tough in the fall,” Steele said. “But I guess that’s the one caveat I’d put in play here. This issue could be a catalyst to stem that flow that would lead to the scenario I just painted.”

Also Wednesday morning, Pawlenty said he understands that many Republicans facing tough re-election races might not attend the early September GOP presidential nominating convention in St. Paul. In fact, Pawlenty said it makes political sense for such Republicans not to attend, although he hopes everyone shows up nonetheless.

“It’s an important and good event. But if you’re in a tight race, taking off a week to go to a convention … is not a wise use of your time if you need to be out campaigning,” Pawlenty said.