Academic journal article Monthly Labor Review

The U.S. Economy into the 21st Century

Academic journal article Monthly Labor Review

The U.S. Economy into the 21st Century

Article excerpt

The Bureau of Labor Statistics has prepared projections of the U.S. economy to the year 2005, our first look into the 21 st century. The new projections, with 1990 as the base year, extend previously published projections. (1) As with prior aggregate economic projections, three alternatives have been developed: low growth, moderate growth, and high growth. These alternatives are designed to examine a range of production possibilities over the next 15 years, a range based on different assumptions regarding those factors most open to question in future periods of time.

The moderate-growth projection is characterized by a gross national product (GNP) influenced by slowing labor force growth, an improved balance of foreign trade, some improvements in labor productivity, several key shifts in the distribution of the demand components of GNP, and a gradually improving Federal budget balance. In comparison, the high-growth model has stronger labor force and labor productivity growth, marked shifts in demand toward investment and exports, but with somewhat less optimistic foreign trade balances. Finally, the low-growth version contains lower estimates of population and labor force growth and a continuation of recent trends in demand shares and labor productivity growth.

Any attempt to look into the future is an endeavor filled with uncertainty. The alternative projections prepared by BLS provide users with a range of results, a range which encompasses reasonable economic futures, but which in no sense completely exhaust all of the variations possible. The potential GNP and employment growth are determined by many factors, all subject to a wide range of values which may be chosen. The alternatives provided in this article attempt to address that uncertainty, at least for those variables deemed most critical in the process of determining GNP.

By 2005, under the assumptions used by the Bureau in developing these projections, GNP is expected to range between $5.2 trillion and $6.4 trillion (in 1982 dollars). This translates to an average annual rate of growth for real GNP of 1.5 percent in the low-growth alternative, 2.3 percent in the moderate growth, and 2.9 percent in the high alternative over the 1990 to 2005 period, contrasting with a historical rate of GNP growth of 2.9 percent between 1975 and 1990. Real disposable personal income ranges between $3.7 and $4.6 trillion, and disposable income per capita is predicted to range between $35,000 and $44,800, compared with the 1990 level of $15,700.

Framework of the projections

More than 200 exogenous variables are provided to a macro-economic model used to generate projections of the U.S. economy.(2) A relatively small number of these assumptions significantly affect the long-term projections of employment and major demand categories of GNP.(3) The assumptions are summarized in table 1.

In addition, the projections are generally prepared with selected variables which are much more carefully evaluated, such as the level of the unemployment rate, the rate of growth of labor productivity, the inflation rate, and the presence and severity of business cycle fluctuations. These "target" variables assist BLS in defining the important parameters for which alternatives are developed, but in no sense should they be considered as fixed. Rather, the preliminary target values provide a test of reasonableness against which the overall projection results may be compared.

Major target assumptions were made regarding business cycle fluctuations in the 1990's. Critical reviews of past projection efforts in which trend growth was imposed on the future have indicated that certain sectors of the economy, notably durable goods consumption and investment in equipment and structures, are overstated when no cycle is present. Consequently, in order to improve the accuracy of the projections, two recessions were assumed during the 1990-2005 period in addition to the 1990-91 downturn. …

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