Academic journal article Monthly Labor Review

The U.S. Economy to 2005

Academic journal article Monthly Labor Review

The U.S. Economy to 2005

Article excerpt

The Bureau of Labor Statistics has prepared projections of the U.S. economy for the period 1994-2005.[1] As with prior BLS 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 and their implications for employment over the next 11 years, based on different assumptions regarding those factors most subject to uncertainty in future periods.

The moderate-growth projection is characterized by a gross domestic product (GDP) influenced by somewhat slower labor force growth than currently exists, an improving balance of foreign trade, modest improvements in labor productivity, several key shifts in the distribution of the demand components Of (GDP) and a gradually improving Federal budget deficit. In comparison, the high-growth model has greater population, labor force, and labor productivity growth; marked shifts in demand toward investment and exports, a more optimistic foreign trade outlook; and a balanced Federal budget by the end of the projection period. Finally, the low-growth scenario contains a lower estimate of labor force growth, a continuation of recent trends in demand shares and labor productivity growth, and a deteriorating budget deficit and foreign trade balance.

Under the assumptions used by the Bureau in developing these projections, by 2005 GDP is expected to range between $6.4 trillion and $7.4 trillion (in 1987 dollars). This translates to an average annual rate of growth for real GDP Of 1.6 percent in the low-growth alternative, 2.3 percent in the moderate-growth scenario, and 3.0 percent in the high-growth alternative over the 1994-2005 period, contrasting with a historical rate of 2.9 percent between 1983 and 1994. Real disposable personal income ranges between $4.5 trillion and $5.2 trillion, and disposable income per capita, also in real terms (that is, 1987 dollars), is projected to range from roughly $15,800 to $17,700 in 2005, compared with $14,700 in 1994.

Framework of the projections

More than 200 exogenous variables are used in conjunction with a macroeconomic model to generate aggregate projections of the U.S. economy.(2) A relatively small number of these assumptions contained within the variables significantly affect the long-term projections of employment and major demand categories Of GDP.(3) The assumptions are summarized in table 1.

In addition, the projections are generally prepared with selected variables, such as the level of the unemployment rate, the rate of growth of labor productivity, the inflation rate, and the presences and severity of business cycle fluctuations, that are much more carefully evaluated than the other variables in the model. These target variables assist the Bureau in defining the important parameters around which alternatives are developed, but in no sense should they be considered 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 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, to improve the accuracy of the projections, two recessions were assumed during the 1994-2005 period. It is important that this assumption not be read as a prediction that there will be recessions - either at all or in any specific years - during 1994-2005. Rather, it is a realistic nod to the seeming inevitability of business cycle fluctuations and the impact they have on the distribution and levels of demand GDP components, as well as on employment. It is also important to note that neither a downturn nor a recovery is projected for the year 2005; that year represents, in the BLS projections, a year on the long-term trend growth path for GDP. …

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