The U.S. economy to 2022: settling into a new normal
From 2012–2022, BLS expects GDP to grow at a rate of 2.6 percent per year, reaching $17.6 trillion in the target year of the projections. The unemployment rate is projected to gradually decrease to 5.4 percent, accompanied by a gain in household employment of 12.3 million jobs. Productivity growth is expected to remain strong at 2.0 percent per year, helping boost output growth, despite the expected slow growth in the labor force. Housing starts are estimated to average 1.6 million per year as construction accelerates, satisfying demand for new homes and replacements for aging structures. Export growth in excess of that of imports will help narrow the trade deficit, with real net exports equal to –179.1 billion in 2022.
The object of BLS macroeconomic projections is to develop a reasonable picture of the long-term economy that can be used as a framework for the Bureau’s more detailed industry output and employment projections. As such, the focus is on the long-run economic trends, not transitory economic phenomena, such as business cycle dynamics. Presented here are the primary assumptions made in the macro model, major trends for the decade encompassing 2012–2022, and an evaluation of uncertainty in the projections.
The macro model
BLS macroeconomic projections are produced by using the MA/US model, licensed from Macroeconomic Advisers (MA), LLC.6 The 2012–2022 projections are the first to employ the new model, which was introduced in late 2012; previously, the Bureau relied on MA’s Washington University Macro Model (WUMM). MA/US has the same foundations as WUMM: consumption follows a life-cycle model and investment is based on a neoclassical model. Foreign sector estimates rely on forecasts from Oxford Economics. However, many improvements were made; most notably, the model is explicitly designed to reach a full-employment solution in the target years. Within MA/US, a submodel calculates an estimate of potential output from the nonfarm business sector, based upon full-employment7 estimates of the sector’s hours worked and output per hour. Error correction models are embedded into MA/US to align the model’s solution with the full-employment submodel.
Foundations of the model
Certain critical variables set the parameters for the nation’s economic growth and determine in a large part the trend that GDP will follow. In developing the macroeconomic projections, BLS elects to externally determine these critical variables through research and modeling and then supplies them to the MA/US model as exogenous variables. Table 1 provides a list of key assumptions made in the model.
|Exogenous variables||Billions of chained 2005 dollars (unless otherwise noted)||Annual rate of change|
Monetary policy related:
Federal funds rate (percent)
Ninety-day Treasury bill rate (percent)
Yields on 10-year Treasury notes (percent)
Fiscal policy, tax related:
Effective federal marginal tax rate on wages and salaries (percent)
Effective federal marginal tax rate on interest income (percent)
Effective federal marginal tax rate on dividend income (percent)
Effective federal marginal tax rate on capital gains (percent)
Maximum federal corporate rate (percent)
Fiscal policy, government outlays related:
Defense intermediate goods and services purchased
Defense gross investment
Nondefense Intermediate goods and services purchased
Nondefense gross investment
Federal grants-in-aid, Medicaid and other (billions of current dollars)
Federal transfer payments, Medicare (billions of current dollars)
Price of West Texas Intermediate crude oil (nominal dollars per barrel)
Price of Brent crude oil (nominal dollars per barrel)
Price of natural gas (nominal dollars per million Btu)
Domestic oil product
Total population, including overseas Armed Forces (millions)
Population ages 16 and older (millions)
|Sources: Historical data, U.S. Federal Reserve Board, U.S. Bureau of Economic Analysis, U.S. Census Bureau; projected data, U.S. Bureau of Labor Statistics, U.S. Energy Information Administration, U.S. Census Bureau.|
Demographics and the labor force. Growth in the labor force is the primary constraint on economic growth. At the beginning of the BLS projections process, detailed projections for the labor force participation rates of 136 demographic groups are modeled in-house and combined with the U.S. Census Bureau’s midrange population projections.8 The resulting labor force levels and age composition affect many key outputs of the model, such as housing starts, prices, and savings rate.
7 In a full-employment economy, the unemployment rate is equal to the nonaccelerating inflation rate of unemployment (NAIRU). Labor supply and labor demand are in equilibrium; any existing unemployment is frictional.
8 For more information on BLS labor force projections, see accompanying article, “Labor force projections to 2022: the labor force participation rate continues to fall,” by Mitra Toossi, in this projections series of the Monthly Labor Review.