Economic Outlook Through 2014
Source: Bureau of Labor Statistics, Monthly Labor Review, Nov. 2005, www.bls.gov/opub/mlr/mlrhome.htm
Every two years the Bureau of Labor Statistics (BLS) publishes its latest projections on the structure of the economy, labor force demographics, and future job growth. The following is a summary of the most recent BLS projections, which were released in Nov. 2005.
Slow and Steady Expansion
Following very strong growth over the latter half of the 1990s, U.S. economic performance slowed in 2000 and tipped into a recession in 2001. During the 3-year period ending in mid-2003—a period including the bursting of the high-tech bubble, the terrorist attacks of 9/11, significant losses of stock market wealth, the continuing reports of corporate accounting scandals, and the wars in Iraq and Afghanistan—the economy struggled with below-trend growth, accompanied by a rising unemployment rate.
Following the second quarter of 2003, the U.S. economy once again began to grow more strongly. The BLS expects the gross domestic product (GDP) to reach $14.7 trillion in chained 2000 dollars by 2014, an increase of $3.9 trillion over the 2004–14 span. This translates to an average rate of growth for real GDP of 3.1% per year over the period, a tenth point lower than the historical rate of 3.2% from 1994 to 2004.
Boomers Start to Retire
The U.S. labor force is projected to reach 162.1 million in 2014, an increase of almost 15 million employees from the 2004 labor force. This represents an annual growth rate of 1.0%, down from 1.2% in the previous decade. The aging of the baby boomers—the generation born between 1946 and 1964—will have a profound effect. The labor force will continue to age, with the annual growth rate of the 55-and-older group projected to be 4.1%.
By contrast, the annual growth rate of the 25-to-54-year-olds in the labor force will be 0.3%. While the labor-force participation in this age group is expected to rise during this period, this will be offset by the lower population of the generations following the baby boom. The 16-to-24-year-old labor force will be essentially flat, with its participation rate actually decreasing. This is largely because more young people than ever are continuing their educations—in high school, summer school, and college—rather than entering the labor force.
In addition to growing older, the labor force is projected to become more diverse. The BLS expects increases in black, Asian, and especially Hispanic workers; the last is expected to jump from 13.1% of the labor force in 2004 to 15.9% in 2014.
Spending and Saving
Personal consumption spending is expected to grow at an average annual rate of 2.8% from 2004 to 2014. As a percentage of personal income, however, it will drop from 84.6% in 2004 to 82.0% in 2014. The BLS expects that the personal savings rate will slowly rise from 1.8% to 3.4% over the decade, though this is still far short of the average 10.0% rate found in the 1974–84 period.
Among consumer purchases of services, a major contributor to growth is health-care expenditures. The growing number of elderly in the population, as well as advances in medical technology, has resulted in a greater demand for health services. Spending on medical services increased 3.4% per year during the 1994–2004 period. Over the following 10 years, due to the importance of the demographic factors, spending on medical services is expected to continue to post solid gains at a growth rate of 3.4% annually.
In the realm of nonresidential investment, the standout numbers are in equipment and software, expected to grow at an annual rate of 7.6% from 2004 to 2014. Residential investments, on the other hand, are expected to settle down as the baby boomers do, with a more modest—but still healthy—average annual growth rate of 1.7%.
Continued Trade Deficit
Globalization and international competition have played an important role in U.S. economic activity. In 2004, imports exceeded exports by a record $601.3 billion in real terms, up from $79.4 billion in 1994. Over the 1994–2004 period, exports grew at an annual rate of 4.7%, while imports had an 8.1% growth rate. The trade gap—due both to the nation's appetite for foreign-made goods and to the rise in imported oil prices—has grown to a level economists are beginning to describe as “unsustainable.”
The BLS believes that the share of GDP accounted for by both exports and imports will grow over the projected decade, and that a continued decline in the exchange rate will stimulate U.S. exports abroad and increase international competitiveness. Real exports are expected to grow at a 6.7% annual rate between 2004 and 2014, with the largest increases being in exported services. Imports are projected to grow at a slower 3.9% annual rate. Although the bureau projects a continued increase in the trade surplus in services, this still will not offset the even larger deficit in goods.
Disposable Income on the Rise
On a per capita basis, nominal disposable income is expected to increase at an average annual rate of 4.0% from 2004 to 2014, reaching a level of $43,500 in the latter year—a gain of more than $14,000 over the projection span. In real terms—that is, chained 2000 dollars—per capita income is projected to grow 2.0% per year from 2002 to 2012. In other words, real standards of living will continue to rise, at least as measured on the basis of growth of disposable personal income.
The population 16 and older is projected to increase by an average of 1.0% per year from 2004 to 2014. The civilian household employment rate will similarly rise 1.0% per year. These are lower than the annual rate gains of the previous decade—1.3% population growth and 1.2% employment growth—but the gap between the two is closing. The unemployment rate is expected to slow to 5.0% in 2014, down from 5.5% in 2004.
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