|Title:||United States personal consumption expenditures in dollars and percent change for 1990, 2000, 2010, and forecast for 2020|
|Source:||Monthly Labor Review|
Start of full article - but without data
Personal consumption expenditures, 1990, 2000,
2010, and projected 2020
Category Billions of chained 2005 dollars
1990 2000 2010 2020
Personal consumption expenditures $X,XXX.X $X,XXX.X $X,XXX.X $XX,XXX.X Durable goods XXX.X XXX.X X,XXX.X X,XXX.X Motor vehicles and parts XXX.X XXX.X XXX.X XXX.X Other durable goods XXX.X XXX.X XXX.X X,XXX.X Nondurable goods X,XXX.X X,XXX.X X,XXX.X X,XXX.X Services X,XXX.X X,XXX.X X,XXX.X X,XXX.X Housing services X,XXX.X X,XXX.X X,XXX.X X,XXX.X Medical services XXX.X X,XXX.X X,XXX.X X,XXX.X Other services X,XXX.X X,XXX.X X,XXX.X X,XXX.X Residual (X) -XXX.X -XX.X -X.X -XXX.X
Category Annual rate of change
1990-2000 2000-2010 2010-2020
Personal consumption expenditures X.X X.X X.X Durable goods X.X X.X X.X Motor vehicles and parts X.X -.X X.X Other durable goods X.X X.X X.X Nondurable goods X.X X.X X.X Services X.X X.X X.X Housing services X.X X.X X.X Medical services X.X X.X X.X Other services X.X X.X X.X Residual (X) ... ... ...
(X) The residual is the difference of the first line and the sum
of the most detailed lines, for each first-level category.
Source: Historical data, U.S. Bureau of Economic Analysis; projected
data, U.S. Bureau of Labor Statistics.
More than two-and-a-half years after the official end of the longest and deepest recession since World War II, (X) the United States is continuing to undergo a slower-than-average recovery, similar to the experience of other countries facing financial crises. (X) The recovery started strong, with growth in the nation's gross domestic product (GDP) averaging X.X percent over the first six quarters after the official end of the recession, but slowed considerably in the first half of 2011. (X) Many analysts have referred to the recovery to date as "modest" or "disappointing." (X) The unemployment rate fell from a peak of XX.X percent in late 2009 to X.X percent by December 2011. The slow recovery of the unemployment rate has been accompanied by a X-percentage-point decline in the labor force participation rate since the onset of the recession. The long-term unemployed, those out of work for XX or more weeks, account for an unprecedented share of the unemployed. Home prices, as measured by the Case-Shiller Home Price Indexes, declined by more than XX percent from their peak in early 2006, and housing starts remain at or very near record lows.
The recovery is expected to take a stronger hold over the coming decade, with GDP growth registering X.X percent annually from 2010 to 2020, faster than the X.X-percent annual growth over the 2000-2010 period, but slower than the X.X-percent growth experienced from 1990 to 2000. The projected growth rate reflects both the relatively low starting point of GDP in 2010, still below its 2007 peak, as well as the projected behavior of the labor force and the assumption of a full-employment economy in 2020, the projection year. Real GDP is projected to increase by nearly $X.X trillion, reaching $XX.X trillion in 2020. Recovery in the housing market, increased consumer confidence, renewed business investment in both capital and labor, and expansion of exports are expected to support the projected GDP growth.
After X years of steep decline in the U.S. housing market, a sizable recovery is expected over the coming decade, though not to levels experienced during the peak of the housing boom. Improvement within the construction sector is anticipated to have reverberating effects throughout the economy. Building homes requires substantial inputs of goods and services, such as carpets, granite countertops, lumber, and the trucking of materials to the construction site. Moreover, home buyers stimulate economic growth when they furnish their homes. Home values are expected to increase somewhat over the next decade, contributing to improved consumer confidence and spending over 2010-2020, compared with the 2000-2010 period.
Corporate profits fell by more than XX percent from 2006 to 2008, but were fully recovered by 2010, surpassing the previous peak by XX percent. (X) To date, businesses have generally held onto these earnings rather than expanding their payrolls through hiring or by increasing wages. An improved housing market, increased consumer spending, and the easing of uncertainty are expected to contribute to a X.X-percent annual growth in business fixed investment between 2010 and 2020. This growth rate represents an impressive recovery from a loss of X.X percent annually over the previous decade, but is slower than the X.X-percent annual growth experienced from 1990 to 2000. The trade deficit is projected to narrow considerably between 2010 and 2020 as the United States experiences a strong export growth rate, in line with that exhibited in the 1990s. Increased consumption will stimulate imports over the coming decade, although the growth in imports will be somewhat dampened by the declining dollar and an increasing portion of consumer expenses devoted to health care.
The labor force growth rate slowed considerably, from X.X percent yearly over the 1990s to X.X percent during 2000-2010. This slowdown is explained by the aging baby boomers moving into cohorts with lower participation rates as well as by the impact of the 2007-2009 recession. As the nation continues to age and youths stay out of the labor force for longer than they used to, the labor force is projected to continue to grow more slowly, by X.X percent annually from 2010 to 2020. Household employment (X) increased by only X.X million during 2000-2010, with the slowdown in growth attributable to the elevated unemployment rate and slower growth of the labor force. Given the labor force projection and an assumed X.X-percent rate of unemployment in the projection year, BLS projects that household employment will increase by XX.X million from 2010 to 2020. This increase represents annual growth of X.X percent, a considerable improvement over the X.X-percent annual growth between 2000 and 2010, and more in line with the growth of X.X percent per year experienced over the 1990-2000 period.
Meanwhile, after years of higher-than-average growth from the 1990s through about 2005, and a couple of rapid growth years after the 2007-2009 recession, labor productivity, as measured by output per hour, is expected to settle down from X.X-percent annual growth over 2000-2010 to a rate more in line with its long-run historical behavior, growing by X.X percent annually over 2010-2020. Employment growth over the coming decade is expected to be concentrated in construction, home health care, and business services. Because these industries tend to be labor intensive, this trend is expected to hold back productivity growth somewhat in comparison to that experienced from 1996 to 2004.
BLS develops a set of XX-year projections biennially that analyzes long-term economic growth and its implications for the structure of employment by industry and occupation. The macroeconomic projections provide aggregate solutions for more detailed projections of output and employment discussed in later articles within this issue of the Review. Because of the level of detail required of the projections and the caveat that macroeconomic projections provide constraints on aggregate quantities arrived at in later steps, it was necessary for the macromodel solution to be largely completed by the summer of 2011. By the time the results are published, events will have occurred that were not incorporated into the projections.
The severity of the 2007-2009 recession and the relatively slow recovery to date have rendered the data for 2010, the jumping-off point for the 2020 projections, low in comparison to historical trend behavior. Analysis of the BLS projections focuses on a comparison of the projection of the upcoming decade relative to the nation's economic behavior over the past one or two XX-year periods. Growth rates exhibited over 2000-2010 are generally lower than average, oftentimes much lower, because of the impact of the recession on the 2010 data. Therefore, projected growth rates for the upcoming decade are frequently higher owing to the relatively low starting point. (X)
The macroeconomic model
In order to arrive at the economic projections presented herein, BLS employs a macroeconomic model provided by Macroeconomic Advisers, LLC, a St. Louis, Missouri, based forecasting group. (X) The model comprises XXX variables, XXX of which are estimated through equations that describe the U.S. economy. The remaining XXX variables are exogenous: their values must be provided to the model in order to calculate a solution for the period in question. Relatively few of the exogenous variables have a major impact on the long-term projections of the value of GDP and its demand makeup, as well as on the level of employment necessary to produce that value of GDP. This article discusses critical exogenous and target variables, such as monetary and fiscal policy, future energy prices, and demographics, including population growth. The exogenous data are provided to the model, which is subsequently solved for the XXX behavioral equations and the remaining XXX identities. Key BLS assumptions are listed in table X.
To arrive at a XX-year projection of the U.S. economy, the values of certain variables are explicitly assumed because the outcomes of those variables are greatly dependent on unforeseeable behavior. Business cycle dynamics, government legislation, and the exchange rate are examples of variables that are considered highly unpredictable, especially over the longer run. The values assumed for these variables are made explicit within the BLS macroeconomic projections and are discussed in detail next.
Unemployment assumptions. The unemployment rate more than doubled over the most recent recession, peaking at XX.X percent in October 2009 from X.X percent in November 2007. The recovery to date has been slower than usual, with the unemployment rate falling only as low as X.X percent in December 2011. The slow recovery in employment has been accompanied by a decline in the labor force participation rate, with many long-term unemployed workers having grown discouraged and dropping out of the labor force.
Because of the unpredictability of the business cycle over a XX-year period, BLS has long assumed that the economy will be at full employment in the given projection year. Labor supply that year is assumed to be equivalent to labor demand, except for a small amount of frictional unemployment, generally estimated by the nonaccelerating inflation rate of unemployment. Given the severity of labor market impacts related to the recent recession, there has been much discussion regarding the impact on the nonaccelerating rate. On the basis of literature reviews and forecasts by other agencies and firms, BLS set the unemployment rate associated with a full-employment economy in 2020 at X.X percent. (X)
Monetary policy assumptions. At the onset of the recent financial crisis, the Federal Reserve Board (the Fed) responded aggressively, loosening the federal funds rate in order to stimulate economic activity through lowering the cost of borrowing. (XX) The federal funds rate fell from about X.XX percent in mid-2007 to X.XX percent in December 2008. (XX) A Federal Open Market Committee meeting statement issued at that time informed readers that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." (XX) In August 2011, shortly after Standard & Poor's downgraded the U.S. credit rating from AAA to AA+, the Fed modified the statement as follows: "economic conditions . . . are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." (XX)
As the unemployment rate remained elevated, and with the funds rate already at its lower bound, the Fed responded by implementing several other unconventional measures to stabilize financial markets and increase the availability of credit to businesses and consumers. In response to the distress in the housing and financial markets, the Fed embarked on two large-scale asset purchase programs, or "quantitative easing efforts," driving down mortgage rates to the lowest levels since the XXXXs. As a result, the Fed's reserve holdings grew from less than $X trillion in September 2008 to $X.X trillion in May 2011. (XX) The BLS macroeconomic projections assume that no additional large-scale monetary initiatives, such as quantitative easing efforts, will occur over the projection period and that programs in place will end as planned.
In developing its projections, BLS assumes that, in the long term, the Fed will continue to set monetary policy to fulfill its dual mandate of price stability and maximum employment. (XX) On the one hand, if inflation falls below the target range, the Fed is expected to loosen monetary policy until it anticipates that inflation will rise back into the range. On the other hand, if prices rise faster than the target range, the Fed is expected to tighten monetary policy. Accordingly, over the coming decade, as the labor market and economy recover, the Fed is expected to tighten the federal funds rate back up to levels that eventually will be more consistent with historical norms. The funds rate is assumed to be X.X percent in 2020. Yields on XX-year Treasury notes are projected to grow from X.X percent in 2010 to X.X percent in 2020. Improvement in the economy and lower perceived risk in financial markets are together expected to result in a narrowing spread as yields on XX-year notes grow more slowly than the Fed funds rate.
Fiscal policy assumptions. The fiscal policy of the federal government encompasses activities in two arenas: spending and tax policy. Tax-related assumptions largely affect estimates of federal government revenues. In this regard, effective marginal tax rates--the percentage of an additional dollar of income that will have to be paid in taxes--are assumed to be constant at their 2010 levels over the 2010-2020 timeframe. (See table X.) In contrast, the average federal tax rate is projected to rise considerably over the decade, as a cyclical response to the recovery from a relatively deep recession. As incomes rise, individuals are expected to move into higher tax brackets, generating additional revenue for the federal government.
Discretionary spending is generally assumed to be at a peak in the near term, giving way to fiscal restraint over the coming decade. In response to the recent recession, several fiscal stimulus programs were enacted, including the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act (ARRA). (XX) In 2010, Congress voted to delay the expiration of the Bush-era tax cuts, extend unemployment benefits, and temporarily reduce the payroll tax. Current fiscal programs are expected to end as enacted, with no new major programs announced. The only exception to this expectation is the Bush-era tax cuts, which, according to the model, are assumed to remain in place over the 2010-2020 period, except for a sunset provision on the top tax bracket. Under the Budget Control Act of 2011, Congress agreed to make substantial reductions in federal government discretionary spending over the coming decade. Details of how the spending cuts will be implemented have not yet been decided upon and are not included in the BLS 2020 macroeconomic projections.
Trade. The broad trade-weighted exchange rate for the U.S. dollar more than doubled from the mid-1980s through 2002, but has since fallen by nearly XX percent as of 2010. (XX) As the dollar bought relatively more imported goods, the trade deficit and current account balance widened notably. Even as the exchange rate began to fall, the strength of the U.S. economy, foreign demand for U.S. securities, and heightened consumption all contributed to a further widening of the trade deficit through 2006. Since then, through the recessionary period and subsequent slow recovery, the real trade deficit has fallen by more than XX percent and the current account balance has declined from roughly X percent of GDP in 2006 to closer to X percent in 2009 and 2010.
Underlying the macroeconomic projections, the exchange rate is assumed to continue falling, although at a rate slower than that experienced between 2002 and 2010. Foreign ownership of U.S. securities is expected to put downward pressure on the value of the dollar over the long run. Foreign output growth is generally expected to follow its long-run path. The falling exchange rate is anticipated to accompany strong export growth over the coming decade, as discussed in further detail later.
Analysis of other key variables
In addition to explicit assumptions made for the variables discussed in the previous section, other key variables are solved through external models. Although their solutions are supplied as exogenous data to the macromodel, these variables are explicitly modeled rather than assumed to follow a given path from 2010 to 2020. Demographic variables, for example, are estimated through external BLS models and supplied as exogenous variables to the macromodel. Other data within the macromodel, such as oil prices, are provided by projections from other government agencies. Moreover, the BLS projections generally are prepared with certain selected endogenous variables more carefully evaluated than others within the model. Foreign trade and housing starts were two of the key variables that were carefully analyzed for the projections presented in this article. Target ranges for these variables are determined through consultation with other analysts and through external model analysis. Determining target ranges for key variables helps BLS economists define the parameters around which the aggregate projections are evaluated.
Demographics. Demographic factors play a key role in determining the growth potential of the economy over the long term. Population and labor force projections are among the most critical exogenous variables supplied to the macromodel. The growth rate of the population, changes in the composition of the population, and changes to labor force participation affect key model results, including the unemployment rate, housing starts, prices, income-related measures, and many other variables. BLS projections in these areas are based on the Census Bureau's middle-series population projection, including Armed Forces overseas. (XX) The U.S. population is projected to reach XXX.X million in 2020, up from XXX.X million in 2010, an annual growth rate of X.X percent over the decade.
Given the Census Bureau's population projection, adjusted by BLS to reflect the civilian noninstitutional population, BLS expects that the labor force will grow at X.X percent annually, from XXX.X million in 2010 to XXX.X million in 2020. The XX million baby boomers constituted nearly a quarter of the U.S. population in 2010. As the boomers move out of prime working-age groups and into brackets with substantially lower participation rates, downward pressure is expected on the overall labor force participation rate. From the onset of the 2007-2009 recession, in December 2007, the rate has declined from XX.X percent to XX.X percent in December 2011. Prior to the recession, the XX.X-percent figure was the lowest labor force participation rate since January 1984. For the projections presented here, BLS posits that the decline was largely structural in nature and expects that it will persist over the coming decade, with the labor force participation rate projected to fall further, to XX.X percent in 2020.
Energy prices. Projections of nominal oil prices are consistent with those published in the reference case scenario of the Energy Information Administration's 2011 Annual Energy Outlook. (XX) Assuming no changes in current laws and regulations, no major supply shocks, and higher production costs associated with unconventional liquid fuels, the Energy Information Administration expects that oil prices will increase to about $XXX per barrel in 2020, from $XX per barrel in 2010.
From 1986 through 2003, oil prices remained under $XX per barrel. (XX) Prices then increased dramatically, reaching $XXX.XX per barrel in June 2008. As the economic downturn became global in scope, demand for oil, and subsequently the price, fell, bottoming at $XX.XX in February 2009. Since then, the price has increased again, to $XX.XX in December 2011. Although oil prices have tended to be volatile in the short run, over the next XX years they are expected to be determined largely on the basis of long-run trends in consumption and production. The Energy Information Administration projects that world demand for oil will continue growing, with much of the increase concentrated in countries such as China, India, and Brazil. Growing demand will require increased dependence on more costly resources, putting upward pressure on prices. As world oil prices rise, the United States is expected to increase its consumption of alternative fuels and supply a higher share of its oils domestically--for example, by producing more biofuels.
Inflation. Between the early 1990s and the early 2000s, inflation, as measured by the chain-weighted GDP price index, remained relatively low, between X percent and X.X percent. Rising home, health care, and oil prices played a part in inflation, growing by more than X percent in 2005 and 2006. Since then, inflation, again as measured by GDP, has slowed to about X percent annually, in both 2009 and 2010. Over the long run, inflation is a monetary phenomenon, and BLS expects, as mentioned previously, that the Fed will attempt to keep inflation within a targeted range consistent with the Federal Open Market Committee's dual mandate of maximum employment and price stability. (XX) As measured by the chain-weighted GDP price index, inflation is expected to grow at a moderate rate of X.X percent annually over 2010-2020, in line with the X.X-percent growth registered between 1990 and 2000 and only slightly slower than the X.X-percent annual growth exhibited between 2000 and 2010.