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For release on delivery
12:15 p.m. EDT
May 26, 2016

Recent Economic Developments, the Productive Potential of the Economy,
and Monetary Policy

Remarks by
Jerome H. Powell
Member
Board of Governors of the Federal Reserve System
at the
Peterson Institute for International Economics
Washington, D.C.

May 26, 2016

Thank you for the opportunity to speak here today. I will begin by reviewing
recent economic developments and then turn to supply-side considerations, such as the
level of potential output and the potential growth of our economy. I will conclude with a
discussion of monetary policy. As always, the views I express here today are mine alone.
Recent Developments and the State of the Economy
The U.S. economy has improved steadily since the recovery began seven years
ago. Our economy is now 10 percent larger than at its previous peak in 2007.
Employment has surpassed its 2008 peak by 5 million workers, and the unemployment
rate has fallen from 10 percent to 5 percent, close to the level that many observers
associate with full employment.
Labor market developments remain healthy, with employers adding roughly
200,000 jobs per month so far this year--a pace similar to that of the past several years
(figure 1). Job growth continues to be substantially faster than the underlying growth of
the labor force, so the labor market continues to tighten. Despite the strong job gains, the
unemployment rate has flattened out at 5 percent over the past six months thanks to a
welcome increase in the labor force participation rate. Meanwhile, there are tentative and
encouraging signs of a firming in wages, seen most clearly in the data on average hourly
earnings, which are rising faster than inflation and productivity. All told, labor market
indicators show an economy on solid footing.
Recent spending data have been less positive than the labor market data. Growth
of personal consumption slowed noticeably in the first quarter. Business fixed
investment has fallen for two consecutive quarters, mainly because of a steep decline in
energy-related capital expenditures. As a result, gross domestic product (GDP) growth

-2over the two quarters ending in March 2016 is estimated to have averaged only 1 percent
on an annualized basis. This estimate may continue to move around as more data come
in. 1 And there are good reasons to think that underlying growth is stronger than these
recent readings suggest. Labor market data generally provide a better real-time signal of
the underlying pace of economic activity. 2 In addition, retail sales surged in April, as did
consumer confidence in May, suggesting that the pause in consumption may have been
transitory. Moreover, stronger demand would be more consistent with an environment
that remains quite supportive of growth, with low interest rates, low gasoline prices, solid
real income gains, a high ratio of household wealth to income, healthy levels of business
and household confidence, and continuing strong job creation. Indeed, current forecasts
for second-quarter GDP growth are for a rebound to around 2-1/4 percent. 3
Inflation remains below the 2 percent target of the Federal Open Market
Committee (FOMC), with total inflation as measured by the price index for personal
consumption expenditures at 3/4 percent over the 12 months ending in March and core
inflation at 1-1/2 percent, both slightly higher than a year earlier. Core inflation has been
held down by falling import prices, owing in large part to the rise in the dollar, as well as
the indirect effects of lower oil prices on core prices. As the recent financial market
tensions have eased, oil prices have increased and the dollar has weakened a bit on net. If
oil prices and the dollar remain broadly stable, inflation should move up further over time
to our 2 percent objective. Inflation expectations seem to be under some downward

1

For example, according to the Bureau of Economic Analysis, a 70 percent confidence band around the
estimate of first-quarter GDP would extend from negative 0.7 percent to 1.7 percent, which implies that the
spending data should be taken with a grain of salt.
2
Analysis by Board staff finds that lagged employment growth provides a better signal of current-quarter
GDP or employment growth than does lagged GDP growth.
3
For example, the May Blue Chip forecast for second-quarter real GDP growth was 2.3 percent, and the
Federal Reserve Bank of Atlanta’s GDPNow forecasting model predicted 2.5 percent, as of May 17.

-3pressure. Some survey-based measures are at the low end of their recent historical
ranges. Market-based measures of longer-term breakevens have declined significantly
since mid-2014 and stand near all-time lows. While I see expectations as staying
reasonably well anchored, it is essential that they remain so and that inflation return over
time to the 2 percent objective.
The easing in global financial conditions since mid-February and the associated
waning in downside risks are welcome, and in part reflect expectations that the FOMC
would move more slowly in removing monetary accommodation. However, underlying
risks will likely remain until global growth is on a stronger footing. Growth and inflation
remain stubbornly low for most of our major trading partners. In China, stimulus
measures should support growth in the near term but may also slow China’s necessary
transition away from its export- and investment-led business model. Meanwhile, the
ongoing buildup of debt there is notable. There is also some remaining uncertainty about
China’s exchange rate policy. Elsewhere, risks are posed by the upcoming “Brexit” vote,
ongoing pressures from refugee flows into Europe, and challenging conditions for
emerging economies such as Brazil, Russia, and Venezuela.
Despite these downside risks, I see U.S. demand growing at a moderate pace, the
labor market continuing to heal, and inflation returning over time to the FOMC’s
2 percent objective. The economy is on track to attain the Committee’s dual mandate of
stable prices and maximum employment.
Supply-Side Considerations
For several years after the crisis, economic activity remained far below its
potential, and the need for highly accommodative policy seemed clear. As the shortfall

-4of output from potential has narrowed, supply-side considerations such as the level and
growth rate of potential output naturally begin to matter more for policy. I will turn now
to a discussion of these issues.
The tension between labor market and spending data is not a recent phenomenon.
Throughout the recovery period, forecasters have consistently overestimated both actual
and potential GDP growth while underestimating the rate of job creation and the pace of
decline of the unemployment rate (table 1). For example, in 2007, the average
expectation for long-run GDP growth from the Blue Chip survey of 50 forecasters was
2.9 percent (table 2). After successive reductions, the estimate now stands at 2.1 percent.
Blue Chip forecasters also underestimated the decline in the unemployment rate. Other
well-known forecasts followed this same pattern, including those of the Congressional
Budget Office, the Survey of Professional Forecasters, and, yes, FOMC participants. The
pattern suggests that forecasters have only gradually taken on board the decline in
potential in the wake of the financial crisis.
Output growth can be decomposed into increases in hours worked and changes in
output per hour, or productivity growth. For the United States, much of the post-crisis
decline in estimates of potential output growth appears to reflect weak labor productivity
growth rather than damage to labor supply. Labor productivity has increased only
1/2 percent per year since 2010--the slowest five-year growth rate since World War II
and about one-fourth of the average postwar rate (figure 2). For further perspective,
productivity growth averaged 1-1/2 percent during the so-called slow productivity period
from 1974 to 1995 and 3 percent during the tech-boom decade from 1995 to 2005. The
slowdown has been worldwide and is evident even in countries that were little affected by

-5the crisis (figure 3). Given the global nature of the phenomenon, changes in factors
specific to the United States are probably not the main drivers.
One factor holding back productivity in recent years has been the meager growth
in the business sector’s capital stock (figure 4). This weakness is consistent with the
weak recovery in demand. 4 Another important factor is the marked decline in total factor
productivity (TFP) growth (figure 5). TFP is that part of productivity that is not
explained by capital investment or labor quality; it is thought to be mainly a function of
technological innovation. 5 A broad decline in the dynamism in our economy may also be
contributing to lower TFP. 6 There is strong evidence that the slowdown in TFP growth
in the United States preceded the financial crisis, particularly in sectors that produce or
use information technologies. 7

4

See Eugenio Pinto and Stacey Tevlin (2014), “Perspectives on the Recent Weakness in Investment,”
FEDS Notes (Washington: Board of Governors of the Federal Reserve System, November 21),
www.federalreserve.gov/econresdata/notes/feds-notes/2014/perspectives-on-the-recent-weakness-ininvestments-20140521.html. Their analysis indicates that investment growth over the expansion has been
consistent with a model using business output growth and the user cost of capital. In a second model, they
show that the modest increases in the capital stock are consistent with the increase in labor supply and TFP.
5
Over long periods of time total factor productivity is primarily driven by innovation, knowledge and the
efficiency with which inputs are put to use owing to the evolution of business practices as well as the
influences of public capital stock, government regulations and other factors. Over shorter periods of time
TFP will also capture the variations in the intensity of utilization of inputs, such as capacity utilization and
hours per worker. Disentangling TFP from capital deepening and hours worked can be challenging.
6
See, for example, Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda (2014), “The Role of
Entrepreneurship in U.S. Job Creation and Economic Dynamism,” Journal of Economic Perspectives,
vol. 28 (Summer), pp. 3-24.
7 See John Fernald (2014), “Productivity and Potential Output before, during, and after the Great
Recession,” NBER Macroeconomics Annual, vol. 29, no. 1 (Cambridge, Mass.: National Bureau of
Economic Research). Some have argued that part of the TFP slowdown may actually be a measurement
problem, owing to the difficulty in measuring the productivity of health care, information technology, and
other services. Others see the evidence for that claim as weak. For example, a recent paper finds little
evidence that the slowdown arises from growing mismeasurement in information-technology-related goods
and services. See David M. Byrne, John G. Fernald, and Marshall B. Reinsdorf (2016), “Does the United
States Have a Productivity Slowdown or a Measurement Problem?” Brookings Papers on Economic
Activity, March 4, www.brookings.edu/about/projects/bpea/papers/2016/byrne-et-al-productivitymeasurement.

-6The range of opinions on the future path of productivity growth is wide, and the
historical record provides ample grounds for humility. 8 A middle-ground position that
seems to underlie many current forecasts is that productivity is probably still being held
down by cyclical factors and lingering effects of the crisis. As those factors dissipate,
labor productivity growth should move up to 1-1/2 percent or so, the lower end of its
longer-run range.
In addition to productivity, the other principal factor in potential output is labor
supply, which is determined by the working-age population, the natural rate of
unemployment, and the trend labor force participation rate. Both the natural rate of
unemployment and labor force participation initially appeared to suffer crisis-related
damage. But more recent data are a bit more encouraging.
The natural rate of unemployment reflects the matching of characteristics that
employers are seeking with those of the unemployed. With the dramatic labor market
dislocations of the crisis, it was not surprising to see measures of matching efficiency
deteriorate, and many observers raised their estimates of the natural rate accordingly. But
there are other factors, such as demographic change, that may have led to a decline in the
natural rate of unemployment. 9 Blue Chip forecasters’ estimate of the natural rate have
now returned to around 5 percent, about the same as before the crisis, suggesting that

8

On the pessimistic end of the spectrum are analysts such as Robert Gordon; among the optimists are Erik
Brynjolfsson and Andrew McAfee. See Robert J. Gordon (2016), The Rise and Fall of American Growth:
The U.S. Standard of Living since the Civil War (Princeton, N.J.: Princeton University Press); and Erik
Brynjolfsson and Andrew McAfee (2014), The Second Machine Age: Work, Progress, and Prosperity in a
Time of Brilliant Technologies (New York: W.W. Norton).
9
For example, older labor force cohorts have lower participation but also lower unemployment rates.

-7these factors are roughly offsetting. Of course, estimates of the natural rate are highly
uncertain. 10
Trends in labor force participation add another element of uncertainty.
Participation has been declining since about 2000 and is estimated to have a trend rate of
decline of 20 to 30 basis points per year, driven by population aging and other longerterm trends such as the decline in participation by prime-age males. But the participation
rate fell sharply after the crisis, faster than its apparent trend. It has been important to
understand how much of the post-crisis decline is cyclical, and thus amenable to repair by
supportive policies, and how much is secular, due either to longer-run trends or to
irreversible crisis-related damage. It has been a relief to see the participation rate
improve over the past two years relative to estimates of its trend; indeed, participation is
now close to some such estimates. 11 Still, despite this relative improvement, the
performance of the U.S. economy on this dimension has been poor relative to that of
most OECD (Organisation for Economic Co-operation and Development) countries. For
example, in the prime-age group of 25 to 54, the United States experienced a 2

10

Confidence intervals around statistical estimates of the natural rate are routinely estimated to be quite
wide, reflecting both uncertainty about the correct model specification and uncertainty about the parameter
estimates given the model. The canonical paper by Staiger, Stock, and Watson puts the 95 percent
confidence interval at 1-1/2 percentage points on either side of the point estimate. See Douglas Staiger,
James H. Stock, and Mark W. Watson (1997), “How Precise Are Estimates of the Natural Rate of
Unemployment?” in Christina D. Romer and David H. Romer, eds., Reducing Inflation: Motivation and
Strategy (Chicago: University of Chicago Press).
11
For example, a paper by Stephanie Aaronson and others estimates a trend below the current participation
rate, while the Congressional Budget Office’s estimate is above the current rate. See Stephanie Aaronson,
Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher Smith, and William Wascher (2014), “Labor
Force Participation: Recent Developments and Future Prospects,” Brookings Papers on Economic Activity,
Fall, pp. 197-275, www.brookings.edu/~/media/Projects/BPEA/Fall2014/Fall2014BPEA_Aaronson_et_al.pdf?la=en; and Congressional Budget Office (2016), The Budget and
Economic Outlook: 2016 to 2026 (Washington: CBO, January 25),
https://www.cbo.gov/publication/51129. For the argument that most of the decline is related to the severity
of the recession and is likely reversible, see Christopher J. Erceg and Andrew T. Levin (2013), “Labor
Force Participation and Monetary Policy in the Wake of the Great Recession,” IMF Working Paper
WP/13/245 (Washington: International Monetary Fund, July),
https://www.imf.org/external/pubs/ft/wp/2013/wp13245.pdf.

-8percentage point decline in labor force participation from 2007 to 2014, while most
OECD countries saw an increase (figure 6). The United States now stands at the low end
of labor force participation for both men and women in this age group--above Italy, but
well below Germany, France, and Spain. 12
Lower potential growth would likely translate into lower estimates of the level of
interest rates necessary to sustain stable prices and full employment. Estimates of the
long-run “neutral” federal funds rate have declined about 100 basis points since the end
of the crisis. The real yield on the 10-year Treasury is currently close to zero, compared
with around 2 percent in the mid-2000s. Some of the decline in longer-term rates is
explained by lower estimates of potential growth, and some by other factors such as very
low term premiums.
To sum up so far, estimates of long-run potential growth of the U.S. economy
have dropped from about 3 percent to about 2 percent in the wake of the crisis, with much
of the decline a function of slower productivity growth. The decline in realized
productivity growth seems to be driven both by low capital investment that is well
explained by weak demand and by lower TFP growth. Expectations of lower
productivity growth going forward are more a function of slower gains in TFP. Lower
potential output growth would mean that interest rates will remain below their pre-crisis
levels even after the output gap is fully closed and inflation returns to 2 percent.

12

Different countries use slightly different concepts for measuring labor force participation, and therefore
cross-country comparisons may reflect some measurement issues. However, to the extent that these
differences are constant over time, comparisons of the relative performances will be little
affected. Accordingly, it is worth highlighting that the labor force participation rate in the 25-54 age group
has declined somewhat in the U.S. since 2008, while it has been relatively steady or even increased some in
other major advanced economies.

-9Over time, our understanding of the relationship between recessions and supplyside factors has evolved. 13 There is a growing body of work suggesting that recessions
can leave behind lasting damage--especially severe recessions associated with a financial
crisis. One recent analysis suggests that about one-third of the time, there is no
permanent supply-side damage; about one-third of the time, there is a reduction in the
level of potential output but not its subsequent growth rate; and about one-third of the
time, there is a reduction both in the level of output and in the growth rate. 14
Unfortunately, recent experience suggests that the United States is at risk of falling in the
last category (figure 7).
It goes without saying that economic policymakers should use all available tools
to minimize supply-side damage from the crisis. We need policies that support labor
force participation and the development of skills, business hiring and investment, and
productivity growth--policies that are, for the most part, outside the remit of the Federal
Reserve. Monetary policy can contribute by continuing to support the expansion as long
as inflation remains consistent with our 2 percent objective and inflation expectations
remain stable.

13

See, for example, Robert F. Martin, Teyanna Munyan, and Beth Anne Wilson (2014), “Potential Output
and Recessions: Are We Fooling Ourselves?” IFDP Notes (Washington: Board of Governors of the
Federal Reserve System, November 12), www.federalreserve.gov/econresdata/notes/ifdpnotes/2014/potential-output-and-recessions-are-we-fooling-ourselves-20141112.html; and Olivier
Blanchard, Eugenio Cerutti, and Lawrence Summers (2015), “Inflation and Activity--Two Explorations
and Their Monetary Policy Implications,” IMF Working Paper WP/15/230 (Washington: International
Monetary Fund, November), https://www.imf.org/external/pubs/ft/wp/2015/wp15230.pdf.
14
See Blanchard, Cerutti, and Summers, “Inflation and Activity,” in note 13. The authors argue that
damage from recessions may be caused by hysteresis or by supply shocks such as oil price spikes or
financial crises. In some cases, the link between recessions and future growth may reflect “reverse
causation,” whereby the recession is caused by the realization that future growth will be lower than had
been expected.

- 10 Strong labor markets do seem to be averting some of the damage that might
otherwise have become permanent. Improved matching is reducing the natural rate of
unemployment. Potential workers are being pulled into the labor force by rising real
wages and the recognition that jobs are becoming easier to find. Over a longer period,
stronger demand should support increased investment, driving productivity higher.
Moreover, as the economy tightens, firms will have rising incentives to get more out of
every dollar of capital and hour of work.
Real-time estimates of potential output are highly uncertain; forecasts of potential
growth even more so. We can estimate growth of the working-age population reasonably
well. Future levels of labor force participation are less certain. Least certain of all are
forecasts of TFP. If the optimists are right, then there will eventually be another wave of
high productivity growth driven by the truly remarkable evolution of technology. That
would mean higher potential growth, faster increases in living standards, and also a return
to higher interest rates over time.
What if the pessimists are right and productivity growth remains low for another
decade, or indefinitely? The consequences would include lower potential growth and
relatively lower living standards. Our longer-term fiscal challenges would be
significantly greater.
Monetary Policy
The implications for monetary policy of these supply-side issues have been
limited, but they begin to matter more as we near full employment.
For the near term, my baseline expectation is that our economy will continue on
its path of growth at around 2 percent. To confirm that expectation, it will be important

- 11 to see a significant strengthening in growth in the second quarter after the apparent
softness of the past two quarters. To support this growth narrative, I also expect the
ongoing healing process in labor markets to continue, with strong job growth, further
reductions in headline unemployment and other measures of slack, and increases in wage
inflation. As the economy tightens, I expect that inflation will continue to move over
time to the Committee’s 2 percent objective.
If incoming data continue to support those expectations, I would see it as
appropriate to continue to gradually raise the federal funds rate. Depending on the
incoming data and the evolving risks, another rate increase may be appropriate fairly
soon. Several factors suggest that the pace of rate increases should be gradual, including
the asymmetry of risks at the zero lower bound, downside risks from weak global
demand and geopolitical events, a lower long-run neutral federal funds rate, and the
apparently elevated sensitivity of financial conditions to monetary policy. Uncertainty
about the location of supply-side constraints provides another reason for gradualism.
There are potential concerns with such a gradual approach. It is possible that
monetary policy could push resource utilization too high, and that inflation would move
temporarily above target. In an era of anchored inflation expectations, undershooting the
natural rate of unemployment should result in only a small and temporary increase in the
inflation rate. 15 But running the economy above its potential growth rate for an extended
period could involve significant risks even if inflation does not move meaningfully above
target. A long period of very low interest rates could lead to excessive risk-taking and,

15

See, for example, Laurence Ball and Sandeep Mazumder (2011), "The Evolution of Inflation Dynamics
and the Great Recession," Brookings Papers on Economic Activity, (Spring), pp. 337–381,
www.brookings.edu/about/projects/bpea/papers/2011/inflation-dynamics-and-the-great-recession-ball
Blanchard, Cerutti, and Summers, “Inflation and Activity”, in note 13.

- 12 over time, to unsustainably high asset prices and credit growth. Macroprudential and
other supervisory policies are designed to reduce both the likelihood of such an outcome
and the severity of the consequences if it does occur. But it is not certain that these tools
would prove adequate in a financial system in which much intermediation takes place
outside the regulated banking sector. Thus, developments along these lines could
ultimately present a difficult set of tradeoffs for monetary policy. 16
Conclusion
To wrap up, with the support of monetary accommodation, our economy has
made substantial progress. My view is that a continued gradual return to more normal
monetary policy settings will give us the best chance to continue to make up lost ground.

16

See for example, Jeremy C. Stein (2013), “Overheating in Credit Markets: Origins, Measurement, and
Policy Responses.” https://www.federalreserve.gov/newsevents/speech/stein20130207a.htm. Tobias
Adrian and Adam B. Ashcraft (2012), “Shadow Banking Regulation” FRBNY Staff Report No. 559, and
Samuel G. Hanson, Anil K. Kashyap, and Jeremy C. Stein (2011), “A Macroprudential Approach to
Financial Regulation,” Journal of Economic Perspectives vol. 25, no. 1, both note that macroprudential
tools may not be sufficient to fully address risks rising outside of the regulated banking sector.

Recent Economic Developments, the Productive
Potential of the Economy, and Monetary Policy
Jerome H. Powell
Member
Board of Governors of the Federal Reserve System
May 26, 2016

-200

Source: Bureau of Labor Statistics.
61

1.0

Actual

3.0

1

Mar-16

3.5

Mar-15

Mar-14

Mar-13

62

Mar-12

64

Mar-11

65

Mar-10

4.0

Mar-09

Labor Force Participation Rate

Mar-08

66

12-mo. percent change

67

4.5

Mar-07

Jan-16

Jan-15

Jan-14

Jan-13

63

-100

Jan-12

0

Jan-11

200

Jan-10

300

Jan-09

Employment

Jan-08

100
Percent

400

Jan-07

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

3-mo. average monthly gain, thousands

Figure 1

Labor market is healthy
Average Hourly Earnings

Smoothed

2.5

2.0

1.5

Table 1

Projections of GDP growth have been optimistic, while
those for unemployment have been pessimistic
Recent Forecast Record for Blue Chip
GDP (4-qtr. % change)
2011
2012
2013
2014
2015

Actual
1.7
1.3
2.5
2.5
2.0

Forecast
3.3
2.6
2.5
2.7
2.8

Difference
-1.6
-1.0
.2
-.2
-.8

Unemployment rate (4th qtr.)
Actual
8.7
7.8
7.0
5.7
5.0

Forecast
9.1
8.5
7.6
6.2
5.2

Difference
-.4
-.7
-.6
-.5
-.2

Note: Forecasts were made in January/March of year indicated. GDP is gross domestic product.
Source: Wolters Kluwer Legal and Regulatory Solutions U.S., Blue Chip Economic Indicators; Bureau of Economic
Analysis; Bureau of Labor Statistics.

2

Table 2

Estimates of long-run potential GDP growth have moved down
Long-Range GDP Forecasts (percent)
Blue Chip
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

SPF

CBO

FOMC

2.9
2.7
2.6
2.6
2.6
2.5
2.5
2.4
2.3
2.1

3.0
2.8
2.6
2.7
2.8
2.6
2.5
2.6
2.5
2.3

2.6
2.6
2.2
2.2
2.3
2.3
2.2
2.1
2.1
1.9

NA
NA
2.6
2.7
2.7
2.5
2.4
2.3
2.2
2.0

Note: GDP is gross domestic product; SPF is Survey of Professional Forecasters; CBO is Congressional Budget Office; FOMC is Federal Open Market
Committee; NA is not available.
Source: Congressional Budget Office; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters; Wolters Kluwer Legal and Regulatory
Solutions U.S., Blue Chip Economic Indicators.

3

0

Source: Bureau of Labor Statistics.

2016:Q1

2013:Q1

2010:Q1

2007:Q1

2004:Q1

2001:Q1

1998:Q1

1995:Q1

1992:Q1

1989:Q1

1986:Q1

1983:Q1

1980:Q1

1977:Q1

1974:Q1

1971:Q1

5

1968:Q1

8-qtr. average

1965:Q1

1962:Q1

1959:Q1

1956:Q1

1953:Q1

1950:Q1

Percent

Figure 2

Productivity growth is low
6
Business-Sector Labor Productivity

4

3

2

1
Average

4

Figure 3

Productivity slowdown is global
GDP per hour worked in OECD countries

6
5
3
2

-4
1995-2004

Spain

Israel

New Zealand

Portugal

Switzerland

Mexico

Canada

Italy

Belgium

Australia

Germany

Chile

Denmark

Netherlands

Luxembourg

Japan

United States

France

Hungary

Iceland

Czech Republic

Turkey

Korea

Finland

United Kingdom

-3

Sweden

-2

Poland

-1

Ireland

0

Norway

1
Greece

Average percent change

4

↑
2005-14

Difference

Note: GDP is gross domestic product; OECD is Organisation for Economic Cooperation and Development.
Source: Organisation for Economic Co-operation and Development, “Growth in GDP per Capita, productivity and ULC,” https://stats.oecd.org/Index.aspx?DataSetCode=PDB_GR.

5

Figure 4

Capital deepening is anemic
Contribution of Capital Deepening to Productivity Growth
(percent change)
4
3
2
1
0

Source: John Fernald (2014), “Productivity and Potential Output before, during, and after the Great Recession,” NBER Working Paper Series 20248 (Cambridge, Mass.: National
Bureau of Economic Research, June).

2016:Q1

2014:Q1

2012:Q1

2010:Q1

2008:Q1

2006:Q1

2004:Q1

2002:Q1

2000:Q1

1998:Q1

1996:Q1

1994:Q1

1992:Q1

1990:Q1

1988:Q1

1986:Q1

1984:Q1

1982:Q1

-2

1980:Q1

-1

6

Figure 5

Total factor productivity growth has slowed
4

Business-Sector TFP
(Five-year average)

2

2011:Q1

2006:Q1

2001:Q1

1996:Q1

1991:Q1

1986:Q1

1981:Q1

1976:Q1

1971:Q1

1966:Q1

1961:Q1

0

1956:Q1

1

1951:Q1

Percent change

3

-1
Note: TFP is total factor productivity.
Source: John Fernald (2014), “Productivity and Potential Output before, during, and after the Great Recession,” NBER Working Paper Series 20248 (Cambridge,
Mass.: National Bureau of Economic Research, June).

7

100

90

Female LFPR (percent)

80

70

60

50

40

30

2014
2007

98

80
Switzerland
Czech Republic
Japan
Luxembourg
Mexico
Slovak Republic
Sweden
France
Greece
Iceland
Germany
Spain
New Zealand
United Kingdom
Slovenia
Netherlands
Estonia
Portugal
Austria
Korea
OECD countries
Hungary
Belgium
Canada
Poland
Denmark
Australia
Turkey
Ireland
Finland
Norway
United States
Italy
Israel

Slovenia
Sweden
Iceland
Portugal
Switzerland
Austria
Norway
Denmark
France
Finland
Germany
Spain
Netherlands
Canada
Estonia
Czech Republic
Luxembourg
Belgium
Slovak Republic
United Kingdom
Poland
New Zealand
Hungary
Israel
Australia
Greece
Japan
United States
Ireland
OECD countries
Italy
Korea
Mexico
Turkey

Figure 6

U.S. LFPR for ages 25 to 54 is at the lower end of the OECD
100

Male LFPR (percent)

96

94

92

90

88

86

84

82

2014
2007

Note: LFPR is labor force participation rate; OECD is Organisation for Economic Co-operation and Development.
Source: Organisation for Economic Co-operation and Development, “Short-Term Labour Market Statistics: Harmonised Unemployment Rates (HURs),” OECD.Stat, http://stats.oecd.org/index.aspx?queryid=36324.

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Figure 7

Potential GDP is lower
20,000

Actual and Potential GDP
(CBO estimates, billions of 2009 dollars)

19,000
18,000

Level of potential GDP in
2015 is 10% lower than
projected in 2007

17,000
16,000

Potential GDP growth,
2005-15:
In 2007: 2.8%
Now:
2.0%

15,000
14,000

Actual
2016 potential
2007 potential

13,000

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

12,000

Note: GDP is gross domestic product; CBO is Congressional Budget Office.
Source: Congressional Budget Office, Budget and Economic Outlook and Updates, “Potential GDP and Underlying Inputs,” data for January 2016 and January 2007,
https://www.cbo.gov/about/products/budget_economic_data; Bureau of Economic Analysis.

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