Thursday, June 12, 2014

US Secretary of The Treasury Lowers US Growth Forecast

The US economic growth rate has averaged around 3%.  The Congressional Budget Office has lowered its growth rate forecast to 2.1%.  In a recent speech the US Secretary of the Treasury agreed with that forecast.  A 30% drop in the US growth rate will have serious consequences in the US and in the global economy. 

Ordinarily, recessions are followed by a faster than normal growth rate which slows down when we reach full employment.  Some economists believe that the economy will rebound after the adverse effects of the financial crisis have been subdued.  Others argue that slower growth will be the new normal.  The ability of the economy to produce output is largely determined by population growth and growth in productivity.  We do not anticipate growth in the labor force and businesses are spending less on research and development which leads to growth in productivity.  This is a supply side argument for slower growth.  Economic growth is also determined by the demand for goods and services.  Demand is bound to remain constrained in an economy with slower growth in national income.  The CBO forecast implies that income will decline by an average of $2,500 per household through 2017.

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