CBO regularly issues reports on the state of the budget and the economy, and today CBO released a study, What Accounts for the Slow Growth of the Economy After the Recession?, with an accompanying infographic providing background information that helps to explain the economic projections included in those reports.
The U.S. economy has grown slowly since the deep recession in 2008 and 2009. In the three years following the recession, the cumulative growth of the nation’s output—real (inflation-adjusted) gross domestic product (GDP)—was nearly 9 percentage points below the average seen in previous economic recoveries since the end of World War II, or less than half the average growth during those other recoveries. What explains that relatively slow rate of economic growth? CBO finds that:
- About two-thirds of the difference is from slower growth in the productive capacity of the economy, or potential GDP. That outcome reflects slower growth of all three of the major determinants of that productive capacity: the number of employed workers (adjusted for variations caused by the business cycle); the flow of services available from capital assets such as equipment, structures, inventories, and land; and the efficiency in producing goods and services. Much of the sluggishness of potential GDP since the recession is the result of long-term trends unrelated to the current business cycle, including the nation’s changing demographics.
- The remaining third of the unusual slowness in the growth of real GDP is from slower growth of output relative to the productive capacity of the economy, which, in CBO’s assessment, is attributable to a shortfall in the overall demand for goods and services in the economy—in particular, purchases by the federal government and by state and local governments, residential investment, and consumer spending. Purchases by state and local governments account for the largest portion of the unusual weakness.
Mark Lasky and Charles Whalen of CBO’s Macroeconomic Analysis Division prepared the study, with assistance from Frank Russek.