Why U.S. GDP growth is so "low"


Permabears really like to say “this economic expansion has seen the lowest level of GDP growth in history”. Hence they think this is a long term bearish factor. They’re wrong.
There are 2 main reasons why GDP growth is “low”, besides the often quoted “inflation is lower”. When you take these 2 factors into account, GDP growth isn’t low at all.

  1. U.S. population growth is slowing
  2. Demographics

Population growth is slowing, which hurts nominal GDP growth

GDP (nominal and real) is an aggregate number. If GDP per capita is stagnant but population growth soars, GDP soars too!
U.S. population growth has slowed down since 1990 (percentage, not nominal). This hurts GDP percentage growth (nominal and real).

Hence, a more appropriate measure is GDP per capita growth.

As you can see in the above chart, US GDP per capita growth has been falling for a very long time. There is nothing exceptional about the lower GDP growth in this economic expansion.

Changing demographics

Everyone knows that the U.S. population is aging. Hence, percentage growth in the U.S. working-age population has fallen since 2000.

This slowdown in working-age growth puts an additional strain on GDP growth. GDP is mostly produced by workers! E.g. even when a child is spending money, he is spending money that his parents earned (produced).
*Yes, it’s true that more people than ever are working past 65. But young adults are starting to work at a later age too. These 2 factors mostly cancel each other out.

The most appropriate measure for GDP

The most appropriate measure for GDP growth – to see whether GDP growth is “strong” or “weak” – is GDP-per-capita growth for the working-age population.

Hence, you can see that nominal GDP growth isn’t very low at all! Nominal GDP growth was higher in the 1960s, 1970s, 1980s, and 1990s because inflation was higher.

This is why we don’t use GDP in our medium-long term model. GDP is too broad of an indicator that takes into consideration too many different factors.

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