The U.S. Economy to 2012: Signs of Growth: Based on the Assumptions Used in Developing Economic Projections, Real GDP Is Expected to Grow during the Next Decade, While Productivity Remains Strong and Inflation Remains Stable
Su, Betty W., Monthly Labor Review
Every 2 years, the Bureau of Labor Statistics prepares a set of projected U.S. economic factors that form the basis for the employment projections program. This article presents the projections of U.S. economic factors that underlie the 2002-12 employment projections. This set of aggregate economic projections presents some unique challenges. After the boom of the 1990s, the U.S. economy suffered a number of serious setbacks, including: the bursting of the technology bubble; the September 11, 2001, terrorist attacks; significant losses of stock market wealth; a stagnant job market; corporate accounting scandals; and uncertainties related to the war in Iraq.
Although the economy has had difficulty shaking off a stubborn slowdown, recent statistical data suggest that we are now poised for a more sustained recovery. During the 2000-02 period, the U.S. economy has experienced low inflation, low interest rates, strong productivity growth, and a healthy housing market. Also, both government monetary and fiscal policies have been focused on stimulating economic growth. Under the assumptions used by the Bureau in developing these projections, gross domestic product (GDP) is expected to reach $12.6 trillion in chained 1996 dollars by 2012, an increase of $3.2 trillion during the 2002-12 decade. (Also see box on page 25.) (1) This translates to an average annual rate of growth for real GDP of 3.0 percent over the period, 0.2 percentage point lower than the historical rate of 3.2 percent from 1992 to 2002. A slower growth of civilian household employment, from 1.3 percent a year during the 1992-2002 period to 1.2 percent from 2002 to 2012, is expected to result in an increase of 17.3 million employees over the latter period, still greater than the increase of 15.8 million employees over the preceding 10-year period, from 1992 to 2002. The employment projection is accompanied by an expected unemployment rate of 5.2 percent in 2012, 0.6 percentage point lower than that in 2002.
Reflecting increased globalization of the U.S. economy, foreign sectors are expected to continue their fast growing trend in the next 10 years. Besides foreign trade, gross private domestic investment also is expected to play a substantial role in the economy over the 2002-12 period. Business spending on high-tech and computer-related equipment is anticipated to lead the rapid growth. On the government side, a projected increase in defense spending reflects the long-term efforts to win the global war on terrorism and protect the American homeland.
This article begins the discussion of economic projections with the macroeconomic model and major underlying assumptions. It then examines more closely the projections of aggregate demand categories of GDP. Lastly, the Bureau's expectations for the growth of incomes, employment, and labor productivity are discussed in turn. The projections are described in the context of trends over the 2002-12 period.
The macroeconomic model
The aggregate economic projections presented in this article have been developed in the context of the macroeconomic model provided by Macroeconomic Advisers, LLC, a St. Louis, MO, based forecasting group. (2) The company's quarterly model comprises 609 variables descriptive of the U.S. economy, of which 169 are exogenous assumptions--that is, variables whose values must be provided to the model in order to calculate a solution for a given period of time. Among the 169 exogenous variables, only a relatively small number of these assumptions significantly affect the long-term projections of the value of cop and its demand makeup, as well as the level of employment necessary to produce that GDP. Those key assumptions are listed in table 1.
In addition, the projections are generally prepared with selected variables, such as the inflation rate, the level of the unemployment rate, the labor productivity growth rate, and the international trade-related issue, which are much more carefully evaluated than the other variables in the model. …