The Structural Decline Of US GDP In 4 Charts

Much is made of the expected hockey-stick – any quarter now – in US GDP growth [6] (whether it’s a lower fiscal drag or rise in CAPEX or any range of miracle-driven hope factors).

 [7]

Credit Suisse is not so sure; not just in the short-term, but in the long-term of the potential for US GDP growth. They note that basic growth accounting provides links between potential GDP to the size of the labor force, its productivity, and the capital assets – both public and private – it has available to work with. The problem – longer-term for the US, is, as CS notes, the following four exhibits collectively speak to the recent slowdown in potential, and do not augur positively for future growth.

 [8]

Exhibit 1 shows that ‘trend” productivity growth has slowed significantly – perhaps to less than 1%, from a local peak of about 3½% at the height of the late 90s technology boom.

 [9]

Exhibit 2 plots the labor force participation rate, which has declined sharply. The demographics of an aging population will continue putting downward pressure on participation.

 [10]

Exhibit 3 displays net business investment – or gross investment adjusted for depreciation – as a share of GDP. Think of this as a proxy for capital accumulation. This ratio fell to multi-decade lows in the wake of the Great Recession, and the rebound since has been tepid. Slower growth in capital accumulation today is a downside factor for productivity in future years.

 [11]

Exhibit 4 shows public investment as a share of GDP, a proxy for public infrastructure spending. The 2009 federal stimulus bill supported infrastructure spending for a time in 2009 and 2010, but since then it has declined sharply as state and local finances deteriorated.

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