The Puzzling Slowdown of the U.S. Economy

One of the most important economic facts of today is that the rate of growth for the U.S. economy has slowed down dramatically. I don’t know why this is and I’m sure economists will be debating it for a long time. The change started with the onset of an unusually deep recession ten years ago. On top of that, the recovery has been the weakest on record.

Political partisans of various stripes get very upset with these facts, but the facts are stubbornly unswayed. Mind you, the U.S. economy is still growing. It’s just that the rate of growth is much lower.

Even if we look at GDP adjusted for inflation and population, we still see a slowdown. (You can see the data here.)

Here’s what I find fascinating: For 40 years, beginning in the mid-1960s, real U.S. GDP per capita tended to grow at an annualized rate of about 2.1%. Sure, during recessions, it would deviate from 2.1%—but not by much. The recoveries tended to bring it right back in line.

With the tweet above, there’s some cherry-picking, but only slightly. The figures are right for the first period (1953 to 1966), but that includes a slow-growth period until 1960 and a fast-growth period after. Outside that, the 2.1% trend holds up pretty well.

Here’s another way to make the same point. The chart below is real GDP per capita in black. The red line is a simple trend line growing at 2.1% per year.

Notice how closely the two lines track each other for 40 years — and how sharply they’ve parted ways recently.

Posted by on August 21st, 2017 at 3:41 pm

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