Thursday, March 13, 2014

Real Potential GDP Growth: 75 Years of Bad Weather So Far

Real potential GDP is the CBO’s estimate of the output the economy would produce with a high rate of use of its capital and labor resources. The data is adjusted to remove the effects of inflation.

The following chart shows the annual growth in real potential GDP.

It's not all bad news. As seen in the chart, we had a nice run in the 1980s and 1990s. We also seem destined to make it back to the middle of the trend channel (before continuing our long-term decline yet again). That's assuming economists aren't "expecting too much from the economy" of course.

March 6, 2014
The GDP in 2017 Is Not Looking Good

On Feb. 28, the Congressional Budget Office revised an estimate for potential GDP for 2017 that it had made in 2007. The new estimate is 7.3 percent lower than the original forecast. This downward revision wipes out $1.5 trillion of potential output, according to Andrew Fieldhouse, fellow at the Century Foundation, a think tank. So instead of forecasting a potential GDP of almost $20.7 trillion, the CBO predicts potential output closer to $19.2 trillion. For years economists have been expecting too much from the economy.

The chart's data was last updated on February 4, 2014. Downward revisions appear to be coming.

“The assumption has always been that the U.S. economy will gain back what was lost in a recession. Academics are coming to the realization that this time is different and that those losses appear permanent and cannot be regained.” The lower potential growth indicates to many economists that the recession did permanent damage to the economy.

Big shocker. And people wonder why I am a permabear? Sigh.

This is not investment advice.

See Also:
Retail Sales: 3 Years of Bad Weather So Far

Source Data:
St. Louis Fed: Custom Chart


Troy said...

Same wall the Japanese ran into in 1990, GDP topping out.

40M of our graph is foreign-born and another 20M are children of immigrants.

The only thing I'm worried about economically is food super-abundance, both the production threats (water supply) and a weaker dollar regime forcing us to part with more of what we produce.

Together that would be a big whammy to our consumption profile.

My stupid thesis tells me that since housing has expanded to consume so much of our household budget since the 1970s, it can also contract as other inflationary pressures hit.

But that's more theory than fact, alas.

shows rents never go down; but still:

is real per-capita monthly housing expense.

It's my thesis that if taxes, food, clothing, and energy goes up $500/mo, rents will have to go down to 1960s levels.

But maybe not, LOL, since landlords tend to hold the whip hand wrt pricing power.

Troy said...

And what economists don't understand TO THIS DAY is that the 2004-2007 good times were powered by $6T consumer debt "windfall" income thanks to the mortgage fraud boom/bubble.

It wasn't a housing boom, it was a fraud boom. That reality hit me when the Casey Serin -- Mr First Cockroach -- story broke in late 2006.

Funny how Gen Y was just too young to benefit at all from the housing bubble. Serin himself was an early go-getter, and born in 1983, so he was one of the few millenials to make any money on housing in the 00s.

Boomers and the front half of Gen X scored pretty big, though.

Stagflationary Mark said...


It's my thesis that if taxes, food, clothing, and energy goes up $500/mo, rents will have to go down to 1960s levels.

The Trip to the Mall: 2 Years of Bad Weather So Far

Would you settle for falling nominal retail sales growth at department stores, clothing stores, and food and drinking places? Sigh.