Revisiting GDP Growth Projections
G ross domestic product (GDP) contracted significantly during the Great Recession and has grown at a considerably slower pace than its historical average during the subsequent recovery. Both GDP and GDP per capita have diverged noticeably from their prerecession trends: As of 2015:Q4, they are 19 percent and 16 percent below their 1955-2007 trends, respectively. In this essay, I use the most recent data to review the performance of a previous GDP forecast and present new projections up to 2024.
... ections up to 2024. In a previous essay, I proposed using trends in labor force participation to project GDP for 2014-22. 1 This projection relied on two main elements: the fact that GDP per labor force participant appeared to be converging back to its pre-Great Recession trend and the high accuracy of Bureau of Labor Statistics (BLS) labor force projections, which are largely based on predictable demographic trends. Since publication of that essay, there have been five new releases of quarterly GDP, updates to previously released data, and a new BLS labor force projection. Instead of expressing GDP per capita, which corrects for the effects of a growing population, one can divide GDP by the labor force. Doing so accounts for the effects of changing demographics and labor force attachment. Although GDP per labor force participant also contracted severely during the Great Recession, it has nevertheless been converging back to its pre-recession trend. Since 2010, it has grown at an average annual rate of 1.8 percent-higher than its trend annual growth rate of 1.5 percent between 1955 and 2007. The decline in labor force participation rates explains the difference in performance between GDP and GDP per capita on the one hand and GDP per labor force participant on the other. After the labor force participation rate peaked at 67.3 percent in 2000:Q1, it has steadily declined: As of 2015:Q4, it was 62.5 percent. The most recent BLS projections estimate it will reach 60.9 percent in 2024. 2 This projection is based on estimating that the labor force will grow at an average annual rate of 0.5 percent