The U.S. economy to 2010

U.S. Economy

Employment outlook: 2000?10

The U.S. economy to 2010

Domestic growth with continued high productivity, low unemployment rates, and strong foreign markets characterize the expected outlook for the coming decade

Betty W. Su

Betty W. Su is an economist in the Division of Industry Employment Projections, Office of Occupational Statistics and Employment Projections, Bureau of Labor Statistics.

The Bureau of Labor Statistics (BLS, the Bureau) projections for the U.S. economy during the 2000?10 decade reflect continued growth. Gross domestic product (GDP) is expected to reach $12.8 trillion in chained 1996 dollars by the end of the decade, an increase of $3.6 trillion over the period.1 Rising by an average annual rate of 3.4 percent, GDP is projected to grow faster than the 3.2percent annual rate of growth over the preceding 10-year period, from 1990 to 2000. Slower growth of civilian household employment, from 1.3 percent a year during the 1990?2000 period to 1.1 percent from 2000 to 2010, is expected to result in an increase of 16.2 million employees over the latter period, slightly less than the increase of 16.4 million employees between 1990 and 2000. The employment projection is accompanied by an assumed unemployment rate of 4.0 percent in 2010, the same as in 2000. To best understand how these projections relate to the U.S. economy, it is helpful to examine the effects of major economic events that took place over the past four decades.

During the decade of the 1960s, labor productivity grew at an annual average rate of 2.9 percent, spurred by the aerospace program and strong defense-related demand. During the 1970s, labor productivity growth slowed to 1.8 percent annually as businesses struggled to deal with skyrocketing petroleum prices, energy shortages, sharp cutbacks in defense spending, and a deemphasis of aerospace research programs. The

1980s were marked by even slower productivity growth--1.5 percent each year over the decade--as large expenditures by businesses on computers and other technologies seemed to have no impact on the statistics and as significant corporate restructuring (downsizing, contracting out, and so forth) worked through the economy. In the early part of the 1990s, the economy moved into a recession, further muting productivity growth, but the stage was set for the longest sustained recovery in the post-World War II economy.

At the end of the 1990?91 recession, the Federal budget faced a $215 billion deficit that increased further to $298 billion in 1992. Deficit control policies and selective economic stimulation in the 1990s resulted in a budget surplus in 1998 for the first time since 1969, an unemployment rate of 4.0 percent in 2000 (the lowest in the past three

The BLS projections presented in this issue were completed prior to the tragic events of September 11. While there have been numerous immediate economic impacts, the nature and severity of longer term impacts remain unclear. At this time, it is impossible to know how individual industries or occupations may be affected over the next decade. The Bureau will continue to review its projections and, as the long-term consequences of September 11 become clearer, will incorporate these effects into subsequent releases of the labor force, industrial, and occupational outlook.

Monthly Labor Review November 2001 3

U.S. Economy

decades), moderate inflation, and rapid productivity growth at an average of 2.5 percent a year between 1995 and 2000, an increase over the 1.5-percent figure posted between 1990 and 1995. The strong growth in production, a maturing labor force, businesses becoming increasingly successful in the global marketplace, and relatively tight labor markets unaccompanied by inflationary pressures contribute to an optimistic vision for the U.S. economy during the first decade of the next century.2

The outlook for the 2000?10 period presented in this article includes projections of demand, income growth, employment, and labor productivity. Each section of the article describes the projections in the context of trends over the previous 10-year period. The last two sections discuss the macroeconomic model, the major assumptions underlying the aggregate economic projections, and the sensitivity of BLS economic projections to those assumptions.

Real demand GDP and its components

Personal consumption expenditures. Personal consumption spending, which makes up two-thirds of economic activity, is the largest component of demand. During the past four decades, the growth of consumer spending reflected the interaction of many factors that influenced consumers' decisions. Among these factors, increasing affluence, changing demographics, technological innovations, and changing tastes and lifestyles were particularly important. Affected by the wave of baby boomers moving through the population beginning in the 1960s, consumer spending increased as a share of GDP, growing from 64.8 percent in 1970 to 65.2 per-

cent in 1980 and 66.7 percent in 1990. Rising disposable incomes during these periods supplied the resources necessary to support the expansion in consumption. As consumers got into the spending habit, however, increases in personal consumption were more often made at the expense of the savings rate, which dropped from a high of 10.2 percent in 1980 to 7.8 percent by 1990. (See tables 1 and 2.)

During the 1990?95 period, consumer spending grew at 2.6 percent per year, following a 3.4-percent annual growth rate over the 1980?90 period. Beginning in 1996, with consumers buoyed by a number of factors, including the thriving job market, steady incomes, low interest rates, low inflation, and increased wealth from rising asset prices, spending accelerated to its fastest pace in more than a decade. Consumption expenditures grew by 4.6 percent yearly from 1996 to 2000, although consumers turned cautious in late 2000, due largely to losses in wealth from stock price declines. Nevertheless, the personal consumption expenditures share of GDP increased by 0.8 percentage point within just 4 years, from 67.0 percent in 1996 to 67.8 percent in 2000. Mirroring the expansion in consumption, the annual savings rate dropped to 1.0 percent in 2000, the lowest ever in history.3

Consumer demand is projected to grow at an average annual rate of 3.5 percent from 2000 to 2010, a slight increase over the 3.4-percent rate posted during the preceding 10year period. The 3.5-percent rate is slightly greater than the projected 3.4-percent growth for GDP over the same span. As a result, consumption expenditures are anticipated to amount to 68.5 percent of GDP in 2010, a share that is 0.7 percentage point higher than in 2000. Real disposable income is projected to grow at a 3.5-percent annual rate between 2000 and

Table 1. Gross domestic product by major demand category, 1980, 1990, 2000, and projected 2010

Category

Billions of chained 1996 dollars

1980

1990

2000

2010

Percent distribution

Average annual rate of change

1980 1990 2000 2010 1980?90 1990?2000 2000?10

Gross domestic product ........... $4,900.9 $6,707.9 $9,224.0 $12,835.6 100.0 100.0 100.0 100.0 3.2

3.2

3.4

Personal consumption

expenditures ............................... 3,193.0 4,474.5 6,257.8 8,786.5 65.2 66.7 67.8 68.5 3.4

3.4

3.5

Gross private domestic

investment .................................. 655.3

907.3 1,772.9 2,953.8 13.4 13.5 19.2 23.0 3.3

6.9

5.2

Exports ......................................... 333.4

575.7 1,133.2 2,393.7

6.8

8.6 12.3 18.6 5.6

7.0

7.8

Imports ......................................... 326.3

632.2 1,532.3 3,282.7

6.7

9.4 16.6 25.6 6.8

9.3

7.9

Federal defense consumption

expenditures and gross

investment .................................. 292.7

443.2

349.0

392.7

6.0

6.6

3.8

3.1 4.2

?2.4

1.2

Federal nondefense

consumption expenditures ..........

and gross investment ................. 134.7

163.0

196.7

234.7

2.7

2.4

2.1

1.8 1.9

1.9

1.8

State and local

consumption expenditures

and gross investment ................. 595.1

781.1 1,026.3 1,307.5 12.1 11.6 11.1 10.2 2.8

2.8

2.5

.......................................................

Residual1.........................................

22.9

?4.7

20.4

49.6

.5

?.1

.2

.4

...

...

...

.......................................................

1 The residual is calculated as real gross domestic product, plus imports, less other components.

SOURCES: Historical data, Bureau of Economic Analysis; projected data, Bureau of Labor Statistics.

4 Monthly Labor Review November 2001

Table 2. Personal income, 1980, 1990, 2000, and projected 2010

Category

Billions of current dollars

1980

1990

2000

2010

Percent distribution

Average annual rate of change

1980 1990 2000 2010 1980?90 1990?2000 2000?10

Sources

Personal income ..................................... $2,323.9 $4,903.2 $8,319.2 $14,160.5 100.0 100.0 100.0 100.0 7.8

5.4

5.5

Labor income ...................................... 1,562.9 3,144.6 5,371.4 9,203.3 67.3 64.1 64.6 65.0 7.2

5.5

5.5

Disbursements of

wages and salaries ........................ 1,377.5 2,754.6 4,837.2 8,397.8 59.3 56.2 58.1 59.3 7.2

5.8

5.7

Private industries ......................... 1,116.2 2,237.9 4,068.8 7,274.2 48.0 45.6 48.9 51.4 7.2

6.2

6.0

Government ................................. 261.3

516.7 768.4 1,123.6 11.2 10.5

9.2

7.9 7.1

4.0

3.9

Other labor income .......................... 185.4

390.0 534.2

805.5

8.0

8.0

6.4

5.7 7.7

3.2

4.2

Group health contributions ...........

61.0

188.6 298.0

521.5

2.6

3.8

3.6

3.7 11.9

4.7

5.8

Other ............................................ 124.4

201.4 236.2

284.0

5.4

4.1

2.8

2.0 4.9

1.6

1.9

Business-related personal income ...... 559.3 1,368.0 2,236.4 3,547.4 24.1 27.9 26.9 25.1 9.4

5.0

4.7

Proprietors' income .......................... 177.6

381.0 715.0 1,211.2

7.6

7.8

8.6

8.6 7.9

6.5

5.4

Rental income .................................. 31.3

49.1 141.6

186.8

1.3

1.0

1.7

1.3 4.6

11.2

2.8

Personal dividend income ................

64.0

165.4 379.2

552.1

2.8

3.4

4.6

3.9 10.0

8.7

3.8

Personal interest income ................. 286.4

772.5 1,000.6 1,597.3 12.3 15.8 12.0 11.3 10.4

2.6

4.8

Transfer payments .............................. 279.1

594.4 1,069.1 1,991.0 12.0 12.1 12.9 14.1

7.9

6.0

6.4

Less social insurance

contributions ..................................... ?77.3 ?203.7 ?357.7 ?581.3 ?3.3 ?4.2 ?4.3 ?4.1 10.2

5.8

5.0

Uses

Personal income ..................................... 2,323.9 4,903.2 8,319.2 14,160.5 100.0 100.0 100.0 100.0 7.8

5.4

5.5

Personal consumption .......................... 1,762.9 3,831.5 6,728.4 11,707.2 75.9 78.1 80.9 82.7 8.1

5.8

5.7

Tax and nontax payments .................... 304.2

609.7 1,288.2 1,916.5 13.1 12.4 15.5 13.5

7.2

7.8

4.1

Personal interest payments ..................

49.4

115.8 205.3

375.5

2.1

2.4

2.5

2.7 8.9

5.9

6.2

Transfers to foreigners .........................

1.9

12.0

29.6

56.2

.1

.2

.4

.4 20.6

9.4

6.6

Personal savings ................................. 205.6

334.4

67.7

104.9

8.8

6.8

.8

.7 5.0

?14.8

4.5

Addenda

Disposable personal income ................... 2,019.8 4,293.6 7,031.0 12,243.9

...

...

...

... 7.8

5.1

5.7

Disposable personal income,

chained 1996 dollars ......................... 3,658.0 5,014.2 6,539.2 9,189.1

...

...

...

... 3.2

2.7

3.5

Per capita disposable income ................ 8,859 17,153 25,528 40,768

...

...

...

... 6.8

4.1

4.8

Per capita disposable income,

chained 1996 dollars ......................... 16,045 20,032 23,742 30,597

...

...

...

... 2.2

1.7

2.6

Savings rate (percent) ............................ 10.2

7.8

1.0

.9

...

...

...

... ?2.7

?18.8

?1

SOURCES: Historical data, Bureau of Economic Analysis; projected data, Bureau of Labor Statistics.

2010, 0.8 percentage point higher than the rate for 1990?2000.

Consumer durable goods. Consumer spending on longlasting items, such as motor vehicles, personal computers, and household furnishings, is highly cyclical. During the past two decades, particularly in the 1990s, the U.S. economy experienced the most sustained spending on big-ticket items ever, bringing household outlays for durable goods to a postwar high. Real spending on durables increased from a 5.7percent annual rate of growth in the 1980?90 period to 6.3 percent per year between 1990 and 2000. (See table 3.) Over the coming decade, with a projected rise in family income--a key to determining future spending trends--durable goods are still expected to be the fastest growth sector, increasing at an average annual rate of 5.0 percent in the 2000?10 projection horizon.

Light vehicles. Over the past 5?10 years, consumers shifted their relative preferences from cars to minivans and sport utility vehicles, and the U.S. automobile industry witnessed a dramatic change in light-truck offerings (a category that

includes sport utility vehicles and minivans, as well as small pickup trucks). Demand for light trucks jumped sharply, and the market share of the industry increased rapidly, from 34.7 percent of total light-vehicle sales in 1990 to 44.0 percent in 1995 and 51.7 percent in 2000. From 1995 to 2000, consumer spending on light vehicles grew an average of 7.9 percent per year. Over the next decade, the robust gain in auto sales is expected to ease, but remain strong. Spending on light vehicles as a whole is projected to grow at a rate of 3.5 percent yearly between 2000 and 2010, while consumer spending on light trucks is still anticipated to be well above spending on cars.

Personal computers and software. During the past decade, technological innovations resulted in a proliferation of newly available goods and services, including personal computers and software. Real personal computer spending grew at a robust 52.1 percent per year from 1990 to 2000, with about 58 percent of all U.S. homes owning at least one computer in 2000. Over the decade to come, increasing worldwide use of the Internet and interest in electronic commerce will fuel the demand for computers, although growth will likely not reach

Monthly Labor Review November 2001 5

U.S. Economy

the level of the previous decade. Expenditures for personal computers are projected to grow at an annual rate of 22.1 percent throughout the projection period, with real consumption spending on computers by households increasing from $108.8 billion in 2000 to $802.4 billion in 2010, or an increase in share from 12.1 percent to 55.1 percent of total spending on durable goods over the period.

It is probably more accurate to present personal computer sales in nominal terms, because of their price behavior. Already on the decline for more than a decade, computer prices fell by nearly one-half in the 1996?2000 period. Personal consumption expenditures on computers had grown 13.9 percent annually in nominal terms between 1990 and 2000. From 2000 to 2010, spending on personal computers is projected to increase 8.0 percent per year, and as a result, nominal expenditures on computers are expected to reach $55 billion by 2010,

up from $25.5 billion in 2000. This large discrepancy between the real (in terms of chained 1996 dollars) and nominal expenditures on computers highlights the expected substantial price deflation over the 2000?10 period, as the intense domestic and global competition and rapid technological improvement of the previous decade are anticipated to continue.

As computer prices drop and use of the Internet expands via online mass-marketing services, the increasing sales of personal computers to households will stimulate demand for consumer software. Spending on consumer software for education, family management, and entertainment purposes reached $17.8 billion in 2000, up from $500 million in 1990. By 2010, the figure is expected to rise to $36.3 billion, with a 7.4percent rate of growth per year between 2000 and 2010.

Furniture. Between 1990 and 2000, consumer spending on

Table 3. Personal consumption expenditures, 1980, 1990, 2000, and projected 2010

Category

Billions of chained 1996 dollars

1980

1990

2000

2010

Average annual rate of change

1980?90

1990?2000

2000?10

Personal consumption expenditures ...... ......................................................................

Durable goods ........................................... New light vehicles .................................. Other motor vehicles and parts ............. Personal computers ............................... Software ................................................. Furniture ................................................. Ophthalmic products .............................. Other durable goods ...............................

Nondurable goods ...................................... Food and beverages .............................. Clothing and shoes ................................ Gasoline and motor oil ........................... Fuel oil and coal ..................................... Tobacco products ................................... Drugs and medicines ............................. Other nondurable goods .........................

Services .................................................... Housing .................................................. Household operation .............................. Electricity ........................................... Natural gas ......................................... Telephone ........................................... Other .................................................. Transportation services ......................... Motor vehicle leases ........................... Other ................................................... Medical services .................................... Recreation services .............................. Personal business services .................. Financial services .............................. Other .................................................. Other services .......................................

Residual3........................................................

$3,193.0

279.8 88.3 54.1 .0 .0 95.5 6.2 53.5

1,065.8 585.4 124.0 94.8 17.7 65.6 54.5 138.9

1,858.4 541.5 202.9 66.7 31.1 40.0 66.2 124.7 -- -- 487.6 79.7 242.8 94.4 147.4 170.8

?35.6

$4,474.5

487.1 159.9

86.2 1.6 .5

160.4 16.1 80.8

1,369.6 722.4 197.2 113.1 13.1 52.0 80.3 194.3

2,616.2 696.2 259.8 83.2 29.5 62.6 85.9 173.4 5.5 168.1 710.9 145.0 363.2 154.2 209.0 267.0

?20.5

$6,257.8

895.5 218.6 129.3 108.8

17.8 294.6 20.4 152.9

1,849.9 881.3 335.3 136.6 13.8 42.8 139.9 305.7

3,527.7 850.1 377.6 103.9 32.8 141.8 100.8 251.3 37.6 213.6 903.9 227.0 554.8 222.7 332.4 362.3

?68.7

$8,786.5

1,455.4 307.3 176.2 802.4 36.3 483.2 27.7 256.1

2,635.5 1,102.8

511.0 169.8 15.5 46.5 316.6 497.5

4,784.5 1,070.2

579.2 137.7

30.8 296.2 142.5 318.5

49.1 269.2 1,174.9 408.1 759.0 292.5 467.4 488.3

?789.4

3.4

5.7 6.1 4.8 (1) (1) 5.3 10.1 4.2

2.5 2.1 4.7 1.8 ?3.0 ?2.3 4.0 3.4

3.5 2.5 2.5 2.2 ?.5 4.6 2.6 3.4 (2) (2) 3.8 6.2 4.1 5.0 3.6 4.6

...

3.4

3.5

6.3

5.0

3.2

3.5

4.1

3.1

52.1

22.1

43.7

7.4

6.3

5.1

2.4

3.1

6.6

5.3

3.1

3.6

2.0

2.3

5.5

4.3

1.9

2.2

.6

1.1

?1.9

.8

5.7

8.5

4.6

5.0

3.0

3.1

2.0

2.3

3.8

4.4

2.2

2.9

1.1

?.6

8.5

7.6

1.6

3.5

3.8

2.4

21.2

2.7

2.4

2.3

2.4

2.7

4.6

6.0

4.3

3.2

3.7

2.8

4.7

3.5

3.1

3.0

...

...

1 Undefined because of denominator with value zero. 2 Not applicable. 3 The residual is the difference between the first line and the sum of the most detailed lines.

NOTE: Dash indicates data not available.

SOURCES: Historical data, Bureau of Economic Analysis; projected data, Bureau of Labor Statistics.

6 Monthly Labor Review November 2001

furniture was exceptionally strong. Brisk home sales during that period, especially from late 1998 through 2000, contributed to strong demand. In the long run, demographics play an important role in the demand for household furniture, which is projected to continue to grow strongly, but not as rapidly as during the 1990?2000 period. Those in the 35?44 age group-- the largest segment of the population, which tends to spend the most on home furnishings--reached a peak in 2000. Estimates based on projections of the current population indicate that, beginning in 2001, the group will reverse the trend, and its spending on furniture will gradually decline. By 2010, the 45?54 age group will replace the 35?44 age group as the largest 10-year age cohort.4

The household formation rate is expected to hold at 1.1 percent annually over the projection period, the same rate experienced during 1990?2000.5 For these reasons, an annual rate of growth of 5.1 percent is projected for spending on household furniture over the 2000?10 period, compared with 6.3 percent during 1990?2000.

Ophthalmic products. Personal consumption expenditures for ophthalmic products have been increasing due to the demographic effects of an aging population that requires more eyewear than younger age groups do. In addition, growing income may allow consumers to buy multiple pairs of contact lenses or eyeglasses. Presently, laser vision corrections are used by a relatively small share of the population, but this new high-tech eye surgery is likely to become more popular in the future. In turn, laser surgery would dampen demand for eyewear, at least for some of the population. A net annual rate of growth of 3.1 percent is projected for spending on eyewear over the 2000?10 period, compared with 2.4 percent between 1990 and 2000.

Consumer nondurable goods. During the past several decades, expenditures for nondurable goods, such as food and clothing, have increased at a significantly slower pace than spending on durable goods. As family incomes rise, spending on these short-term consumable necessities also rises, up to a point, after which spending tends to increase less rapidly than rises in income, although the latter increases do enhance demand for higher quality products.

Food and clothing. Over the past 10 years, convenient prepacked food items, as well as bottled water, grew considerably in popularity. Expenditures on the largest nondurable category, food and beverages, are projected to increase 2.3 percent annually from 2000 to 2010, 0.3 percentage point faster than the annual growth rate posted for the 1990?2000 period. By contrast, spending on clothing and shoes as a share of total nondurable goods has declined over time, reflecting decreases in relative prices. As a result, demand for clothing and shoes is expected to increase at a slower rate over the projec-

tion period. A 4.3-percent annual rate of growth is projected during the 2000?10 span, compared with 4.7 percent and 5.5 percent in the 1980?90 and 1990?2000 periods, respectively.

Gasoline and fuel oil. Spending on gasoline for automobiles and on fuel oil for home heating grew at a relatively slow pace during the 1970s and early 1980s, due to high energy costs. Those same high costs led the way, however, toward energy-conserving homes, appliances, and autos, further conserving our scarce energy resources. In contrast, during the 1990s, demand for gasoline gradually increased, spurred in large part by the rosy economy and by sharply falling gasoline prices. The trend of decelerating prices for fuel lasted almost the entire decade, until recent rises driven by increasingly tight supplies. Real consumption expenditures on gasoline and oil increased at 1.9 percent yearly between 1990 and 2000, compared with a 1.8-percent average annual growth rate for the 1980?90 period.

The BLS projection has assumed a moderately downward trend in both real and nominal imported oil prices over the 2000?10 period. Oil prices are projected to decline from a nominal $27.68 or a real $25.87 per barrel in 2000 to a nominal $26.63 or a real $20.19 per barrel in 2010, far below the 1980 peak of a nominal $59.54 or a real $33.97 per barrel.6 As a result, personal consumption of gasoline and motor oil is projected to increase at a rate of 2.2 percent between 2000 and 2010, while expenditures for fuel oil and coal are projected to grow much more slowly--only 1.1 percent annually over the same period.

Drugs and medicines. People in the United States enjoy the best health care in the world, but it comes at a high price, and drugs are the fastest-growing piece of the country's medical bill. Between 1985 and 2000, drug expenditures more than doubled, from $64 billion to $139.9 billion. In the next decade, with millions of baby boomers pushing into their sixties, consumer spending on drugs is expected to provide a strong market and solid demand for both prescription drugs and over-the-counter medicines. Also, rising standards of living are expected to boost the demand for better health care and, in turn, to shift the demand toward newer and more expensive medications. As a result, demand for drugs and medicines is projected to grow rapidly, about 8.5 percent per year between 2000 and 2010, compared with the already high growth of 5.7 percent annually posted in the 1990?2000 period.

Consumer services. Over the past 30 years, expenditures for consumer services, such as housing and medical care, have represented the largest share of total consumption. For instance, the share of consumer spending allocated to services was about 55 percent in 1970 and increased to 58.2 percent in 1980 and 58.5 percent in 1990. In the past 3 years, consumer services' share of spending trimmed down slightly,

Monthly Labor Review November 2001 7

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download