The U.S. economy in 2020: Recovery in uncertain times

Monthly Labor Review

Volumn 135, Issue 1, 2012, Pages 21-42

  Byun, Kathryn J ^a   Frey, Christopher ^a  

^a BUREAU OF LABOR STATISTICS   (United States)

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EID: 84861216979     PISSN: 00981818     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (51)

1. According to the National Income and Product Accounts published by the Bureau of Economic Analysis (BEA) at the time of this publication, the recession was the deepest in the postwar period, as measured by the decline in gross domestic product. The National Bureau of Economic Research, the arbiter of beginning and ending dates of U.S. recessions, has determined that the recession of 2007-2009 lasted 18 months. The 1973-1975 and 1981-1982 downturns each lasted 16 months.
2. (See "US Business Cycle Expansions and Contractions," (Cambridge, MA, National Bureau of Economic Research, Jan. 19, 2012, updated daily), http://www.nber.org/cycles/cyclesmain.html).
3. See Carmen M. Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ, Princeton University Press, 2009).
4. Estimates of levels cited in this article are chain-weighted measures based on constant real 2005 dollars unless stated otherwise
5. For a discussion of the chain-weighting methodology, see J. Steven Landefeld and Robert P. Parker, "BEA's Chain Indexes, Time Series, and Measures of Long-Term Economic Growth," Survey of Current Business, May 1997, http://www.bea.gov/scb/pdf/national/nipa/1997/0597od.pdf.
6. See, for example, "American Economic Policy: Running Out of Road," The Economist, June 16, 2011, http://www.economist.com/node/18834323.
7. Andrew Tilton, "The Outlook for the U.S. Economy," white paper (New York, Goldman Sachs Asset Management, October 2011), http://www2.goldmansachs.com/gsam/docs/fundsgeneral/general_education/economic_and_market_perspectives/wp_economic_outlook.pdf.
8. Monetary Policy Report to the Congress, submitted pursuant to section 2B of the Federal Reserve Act (Board of Governors of the Federal Reserve System, July 13, 2011), http://federalreserve.gov/monetarypolicy/files/20110713_mprfullreport.pdf.
9. As measured by corporate profits with inventory valuation and capital consumption adjustments within BEA's National Income and Product Accounts
10. (See Table 1.16, "Sources and Uses of Private Enterprise Income" (Bureau of Economic Analysis, Dec. 23, 2011), http://www.bea.gov/national/index.htm#gdp.)
11. As measured by the Current Population Survey (CPS), a monthly survey of about 60,000 households conducted by the Census Bureau for the Bureau of Labor Statistics. The CPS provides a comprehensive body of data on the labor force, employment, unemployment, persons not in the labor force, hours of work, earnings, and other demographic and labor force characteristics.
12. The overview article in this issue of the Review presents a detailed discussion of the impact of the recession on the BLS projections
13. (See Dixie Sommers and James C. Franklin, "Overview of projections to 2020," this issue, pp. 3-20, http://www.bls.gov/opub/mlr/2012/01/art1full.pdf.)
14. Macroeconomic Advisers developed, and continues to support, the Washington University Macro Model, used as a central analytical tool for both short- and long-term forecasts of the U.S. economy. BLS has relied on this model to prepare its economic projections since May 2002.
15. BLS arrives at the target unemployment rate associated with a fullemployment economy on the basis of an extensive literature review, as well as a consideration of both the nonaccelerating inflation rate of unemployment and unemployment estimates by a number of other agencies and firms, such as the Congressional Budget Office, the Federal Open Market Committee (which submits a monetary policy report to Congress), the Council of Economic Advisors (whose chairperson writes the Economic Report of the President), and Blue Chip
16. Among the research works reviewed were Mary Daly, Bart Hobijn, and Rob Valletta, "The Recent Evolution of the Natural Rate of Unemployment," IZA discussion paper no. 5832 (Bonn, IZA, July 2011), http://ftp.iza.org/dp5832.pdf.
17. Rob Valletta and Katherine Kuang, "Is Structural Employment on the Rise?" FRSBF Economic Letter (San Francisco, Federal Reserve Bank, Nov. 8, 2010), http://www.frbsf.org/publications/economics/letter/2010/el2010-34.html.
18. The first paper concludes that, although there has been a sizable short-term impact on the natural rate, considerable slack remains in the labor market and only about 0.5 percent will persist in 5 years, at which time the nonaccelerating inflation rate of unemployment will be 5.5 percent. The second paper finds that the recent uptick in the nonaccelerating inflation rate of unemployment can likely be explained by (1) Congress' extending the number of weeks a worker may receive unemployment insurance and (2) unemployed construction workers needing to find work in other sectors of the economy. As the authors state, "The effects of both of these factors are likely to be transitory rather than permanent."
19. The federal funds rate is the Fed's target for the rate that banks charge other banks for overnight loans
20. (For more information, see "Open Market Operations" (Board of Governors of the Federal Reserve System, Jan. 26, 2010), http://www.federalreserve.gov/monetarypolicy/openmarket.htm.)
21. Based on monthly data on the effective federal funds rate reported by the Federal Reserve Bank of St. Louis.
22. (See "Effective Federal Funds Rate (FEDFUNDS)," Economic Research (St. Louis, Federal Reserve Bank, Jan. 10, 2012), http://research.stlouisfed.org/fred2/series/FEDFUNDS.)
23. See "Press Release" (Board of Governors of the Federal Reserve System, Dec. 16, 2008), http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm.
24. See "Press Release" (Board of Governors of the Federal Reserve System, Aug. 9, 2011), http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm.
25. See "Table 2, Factors supplying reserve balances: overview," http://www.federalreserve.gov/releases/h41/hist/h41hist2.pdf.
26. See "Monetary Policy Report to the Congress, submitted pursuant to section 2B of the Federal Reserve Act (Board of Governors of the Federal Reserve System, Mar. 1, 2011, http://www.federalreserve.gov/monetarypolicy/mpr_20110301_part4.htm.
27. The Troubled Asset Relief Program (TARP), established in late 2008, initially authorized $700 billion in funds for the Treasury Department to purchase "troubled assets" in order to stabilize the financial system. As of March 2011, the Congressional Budget Office (CBO) estimated that $432 billion had been disbursed through the program. Already, $244 billion has been repaid, and CBO estimates that the final cost of the subsidy will be less than $20 billion.
28. (For more information, see Report on the Troubled Asset Relief Program (Congressional Budget Office, March 2011), http://www.cbo.gov/ftpdocs/121xx/doc12118/03-29-TARP.pdf.)
29. The American Recovery and Reinvestment Act (ARRA) followed TARP as a fiscal stimulus measure. The act was originally estimated at nearly $800 billion, including tax cuts, increased spending on entitlement programs such as an extension of unemployment benefits, and spending on contracts, grants, and loans.
30. (For a more detailed discussion of ARRA, see The Economic Impact of the American Recovery and Reinvestment Act of 2009: Seventh Quarterly Report (Executive Office of the President, Council of Economic Advisers, July 1, 2011), http://www.whitehouse.gov/sites/default/files/cea_7th_arra_report.pdf?wwparam=1323202656.)
31. Historical data for the broad trade-weighted exchange rate for the U.S. dollar appear in Macroeconomic Advisers' database, where this variable corresponds to the Federal Reserve Board's broad nominal exchange rate index.
32. For a further discussion of population and labor force projections, see Mitra Toossi, "Labor force projections to 2020: a more slowly growing workforce," this issue, pp. 43-64, http://www.bls.gov/opub/mlr/2012/01/art2full.pdf.
33. For more information, see Annual Energy Outlook 2011 (U.S. Energy Information Administration, Apr. 26, 2011), http://www.eia.gov/forecasts/aeo/index.cfm.
34. See "Petroleum & Other Liquids: Monthly Cushing. OK WTI Spot Price FOB" (U.S. Energy Information Administration, Jan, 11, 2012), http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M.
35. Under U.S. law, the Federal Open Market Committee, an arm of the Federal Reserve System, is charged with overseeing the Fed's buying and selling of United States Treasury securities.
36. David Leonhardt, "We're Spent," The New York Times, July 16, 2011
37. In the National Income and Product Accounts, the personal savings rate is defined as the percentage of personal after-tax income that is neither spent on consumption, nor paid as interest, nor given to foreigners. The savings rate does not take into account gains from rising stock prices or the appreciation of owned homes. Thus, people's assets could be growing even as they spend more of their pay.
38. See "The October 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices" (The Federal Reserve Board, Nov. 7, 2011), http://www.federalreserve.gov/boarddocs/snloansurvey/201111/default.htm.
39. See "Employment Situation Summary," Economic News Release (U.S. Bureau of Labor Statistics, Jan. 6, 2012), http://www.bls.gov/news.release/empsit.nr0.htm.
40. On the basis of national accounting identities, the national savings rate is calculated by adding the current-account balance (exports less imports, with net factor income added) to gross investment and dividing the resulting sum by GDP. In other words, the current-account balance is the mathematical difference of national savings and domestic investment. Thus, a decrease in the national savings rate reflects a widening of the external deficit.
41. See The Budget and Economic Outlook: An Update (Congressional Budget Office, August 2011), p. 16, http://cbo.gov/ftpdocs/123xx/doc12316/08-24-BudgetEconUpdate./pdf.
42. The macromodel assumes that current policy will be left in place during the next decade. Changes to law based on the outcome of the Budget Control Act's Committee on Deficit Reduction may alter the course of spending and cost growth for health care and other social programs.
43. See "Testimony (Statement of Douglas W. Elmendorf, Director), CBO's Analysis of the Major Health Care Legislation Enacted in March 2010, before the Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives" (Congressional Budget Office, Mar. 30, 2011), p. 2, http://www.cbo.gov/ftpdocs/121xx/doc12119/03-30-HealthCareLegislation.pdf.
44. Current military force levels are anticipated to continue over the next 10-year period. Current data appear in National Defense Budget Estimates for FY 2012 (Office of the Under Secretary of Defense (Comptroller), March 2011), p. 45, http://comptroller.defense.gov/defbudget/fy2012/FY12_Green_Book.pdf.
45. The consumer sector of the macromodel is built on a life-cycle model of household consumption and saving
46. Historical data on civilian household employment are a count of persons supplied by the CPS. Payroll employment data are a count of jobs and are based on the Current Employment Statistics (CES) survey, a BLS survey of establishments. Although the employment measures from the two surveys show similar trends over the long term, shorter term differences have arisen.
47. (For further information, see Mary Bowler and Teresa L. Morisi, "Understanding the employment measures from the CPS and CES survey," Monthly Labor Review, February 2006, pp. 23-28, http://www.bls.gov/opub/mlr/2006/02/art2full.pdf.
48. BLS maintains a monthly update on CES and CPS employment trends; see "Employment from the BLS household and payroll surveys: summary of recent trends" (U.S. Bureau of Labor Statistics, Jan. 6, 2012), http://www.bls.gov/web/empsit/ces_cps_trends.pdf.)
49. See, for example, Dale W. Jorgenson, Mun S. Ho, and Kevin J. Stiroh, "A Retrospective Look at the U.S. Productivity Growth Resurgence," Staff Report no. 277 (New York, Federal Reserve Bank, February 2007), http://www.newyorkfed.org/research/staff_reports/sr277.pdf.
50. See Edouard Schaal, "Uncertainty, Productivity and Unemployment in the Great Recession" (Princeton, NJ, Princeton University, Oct. 7, 2010), http://www.princeton.edu/economics/seminar-scheduleby-prog/macro-f10/pdfs/schaal_job_market.pdf.
51. Sommers and Franklin, "Overview of projections."