In possibly its most optimistic economic forecast to date the White House this week revealed that its projected rate of growth of real gross domestic product of the United States was 3.1 per cent in 2012 and 2013, after it grew at 1.6 per cent during the four quarters of 2011.
The positive numbers were part of the Annual Report, titled “To Recover, Rebalance, and Rebuild,” compiled by the Council Of Economic Advisers and submitted by the CEA to President Barack Obama, who is then due to transmit the study to the U.S. Congress.
The study also said that the Administration “expects the employment situation to continue to improve in coming years,” specifically noting that the average monthly change in payroll employment was projected to rise from 146,000 in 2011 to about 167,000 in 2012.
“At this pace, two million jobs will be created during 2012, an increase from the 1.8 million created last year,” the report said, a number that CEA Chairman Alan Krueger underscored in a conference call with media on Friday.
Notwithstanding the downside risks that could emanate from the continuing financial crisis in the European Union economic area, the CEA expressed hope that such shocks that slowed growth in 2011 would not impede “an upturn in economic growth.” With the economy now operating below its capacity and many resources still underutilised, the CEA said that it had forecasted that the recovery would continue to gain strength.
Describing consumption growth during the early 2000s as unsustainable owing to “excess leverage” and arguing that this leverage had led to the financial crisis, Dr. Krueger noted that future growth in consumption would be in line with income and de-leveraging had already occurred in the U.S. economy.
Future growth would also be consistent with the President’s goal of doubling U.S. exports by 2015, Dr. Krueger noted, indicating that he expected export growth to be strong and to play a key role in driving overall GDP growth.
Looking towards longer-term trends in growth the CEA report however admits that real potential GDP was projected to rise 2.5 percent a year in 2007–2022, which is slower than the long-term historical growth rate of 3.2 percent a year.
“The projected slowdown in real potential GDP growth reflects the lower projected growth rate of the working-age population and the aging of the baby-boom cohort into retirement,” the report explained, adding that the financial crisis and the 2007–09 recession, in contrast, were expected to have little effect on the level of potential real GDP, because they were not expected to permanently reduce any of the demographically-determined elements of long-term growth.