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November 2005, Vol. 128, No. 11
The U.S. economy to 2014
Betty W. Su
Under the assumptions used by the Bureau of Labor Statistics in developing projections of the economy, gross domestic product (GDP) is expected to reach $14.7 trillion in chained 2000 dollars by 2014, an increase of $3.9 trillion over the 2004–14 projections span. This translates to an average annual rate of growth for real GDP of 3.1 percent, 0.1 percentage point lower than the historical rate of 3.2 percent from 1994 to 2004. A slowing in the growth of civilian household employment, from 1.2 percent a year during the 1994–2004 period to 1.0 percent annually between 2004 and 2014, is expected to result in an increase of almost 15 million employed persons over the projection horizon, about 1.5 million less than what was noted across the 1994–2004 decade. The unemployment rate is expected to slow down to 5.0 percent in 2014—0.5 percentage point lower than that in 2004.
Following an almost unprecedented decade-long expansion, the U.S. economy began to slow during 2000 and entered a relatively short-lived recession spanning March to November of 2001. A number of factors helped push the economy into the 2001 recession, including shocks to investment by businesses and households and the unexpected declines in real net exports in 2000, which likely exacerbated the shock to the capital goods sector. After the trough in the fall of 2001, the economy grew modestly through 2002 and for much of 2003, but kicked into higher gear in 2004. Despite sharp increases in oil prices, real GDP grew at a solid annual rate of 4.2 percent in 2004. This recovery has been led by strong growth in consumer spending accompanied by robust housing activity. Business investment lagged behind its pace in prior recoveries until 2004, when an inventory buildup and an upturn in equipment and software purchases allowed this component of GDP to contribute to a strengthening recovery.
For more than a decade, the United States has grown increasingly dependent on imported goods. However, growth of U.S. exports has not kept pace over the period, leading the current account balance—the broadest measure of international trade and financial flows—to hit a record deficit in 2004, rising to 5.6 percent of GDP in that year. Additionally, the costs of military operations in Iraq and Afghanistan, along with homeland security expenses, have pushed the Federal budget to a record deficit of $407 billion in 2004.
This excerpt is from an article published in the November 2005 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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