After CBO participates in Congressional hearings, the Members of the Committees before which we have testified often send us questions that they did not have time to ask during the hearings themselves. Our answers to such “questions for the record” are ultimately included in the reported proceedings for those hearings.
In February I testified before the Senate Budget Committee on the outlook for the budget and the economy. Our answers to some of the follow-up questions may be of general interest, so starting with this blog post and running through Friday, we’ll post three of them. We also received other questions whose answers might interest you—the complete set of answers was posted yesterday— including one on the budgetary effects of the Affordable Care Act which was discussed in a recent blog post.
Today’s post will focus on a question about CBO’s projections of real gross domestic product (GDP) per capita. Below is our answer:
Many factors, including per capita GDP, affect Americans’ standard of living. Although CBO has not analyzed all of those factors or their effects, the agency projects that real GDP per capita will grow, on average, by about 2 percent per year between 2014 and 2017, when it is expected to return to its historical relationship with the economy’s potential output (see the table below). CBO projects that, after 2017, real GDP will grow at the same rate as potential GDP—by an average of about 2¼ percent per year during the 2018–2024 period—because the agency does not attempt to predict the timing or magnitude of business cycle fluctuations in the economy so far into the future. With the population expected to grow by about 1 percent per year, real GDP per capita is projected to grow, on average, by about 1¼ percent per year between 2018 and 2024—a slower rate than the annual average rate of about 2 percent since 1950. That difference reflects CBO’s projection that real GDP will grow more slowly over the latter part of the projection period than it has in the past several decades, primarily because of slower growth of the labor force stemming from the retirement of the baby boom generation.
| CBO's Projections of Real GDP Per Capita, 2014 to 2024 | ||||
| (Thousands of 2009 dollars) | ||||
| GDP Per Capita | Percentage Change From Prior Year | |||
| 2014 | 50.9 | 1.9 | ||
| 2015 | 52.0 | 2.2 | ||
| 2016 | 53.2 | 2.2 | ||
| 2017 | 54.0 | 1.6 | ||
| 2018 | 54.8 | 1.4 | ||
| 2019 | 55.5 | 1.3 | ||
| 2020 | 56.1 | 1.2 | ||
| 2021 | 56.8 | 1.2 | ||
| 2022 | 57.5 | 1.2 | ||
| 2023 | 58.2 | 1.2 | ||
| 2024 | 58.8 | 1.1 | ||
| Note: Projections are for the fourth quarter of each calendar year. Real GDP = gross domestic product adjusted to remove the effects of inflation. |
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CBO has not analyzed the effects of changes in per capita GDP on wages by income quartile. However, the projected slower-than-average growth in GDP would be expected to lead to slower-than-average growth in wages, salaries, and overall income across the economy.