Economic Projections

The performance of the U.S. economy in coming decades will affect the federal government’s spending, revenues, and accumulation of debt. CBO makes its long-run economic projections by assessing trends in key economic variables, such as the size of the labor force, productivity growth, and interest rates. The agency also considers the ways in which factors like climate change and fiscal policy influence economic activity.

In CBO’s extended baseline projections, growth in potential (or maximum sustainable) GDP over the next 30 years is slower than it has been over the past 50 years. From 2020 to 2050, real potential GDP increases at an average rate of 1.6 percent per year, whereas it grew at an average annual rate of 2.8 percent from 1969 to 2019.

Size of the Labor Force. That slower growth in potential GDP is attributable to several factors—most notably, slower growth of the potential labor force (the labor force adjusted for fluctuations in the business cycle). In CBO’s projections, the potential labor force grows by 0.3 percent per year, on average, through 2050; over the past 50 years, its average annual rate of growth was 1.4 percent (see Figure 7^[13]). Slowing population growth and the aging of the population account for most of that slowdown.

Figure 7.

Average Annual Growth of Real Potential GDP

Percent

Growth in real potential GDP is projected to be slower than it has been in the past. That slowdown is driven mostly by slower growth of the potential labor force.

Source: Congressional Budget Office.

Real potential GDP is the maximum sustainable output of the economy, adjusted to remove the effects of inflation. The two contributing factors to real potential GDP growth are growth in the potential labor force and growth in potential labor force productivity. The potential labor force is the labor force (that is, the number of people in the civilian noninstitutionalized population who are age 16 or older and who are either working or actively seeking work), adjusted to remove the effects of fluctuations in the business cycle. Growth in potential labor force productivity is the growth of the ratio of real potential GDP to the potential labor force, or the growth in real potential GDP that is not explained by growth in the potential labor force.

GDP = gross domestic product.

Productivity Growth. The agency projects that real GDP per hour worked, a measure of economywide productivity, will grow at an average annual rate of just under 1.3 percent over the next 30 years. That rate is nearly 0.3 percentage points slower than the average annual rate of growth over the past 30 years. A separate measure of productivity, potential labor force productivity (that is, potential output per member of the potential labor force) is also expected to grow at an annual average rate of 1.3 percent over the 2020–2050 period (see Figure 7^[14]).