Four key structural drivers are impacting growth in the US economy, making its growth slower today than in the 1980s and 1990s, according to an essay by Robert Kaplan, president and CEO of the Federal Reserve Bank of Dallas.
The four key drivers are:
- Demographic trends
- Technology, technology-enabled disruption and education/skills training
- Globalization and trade
- The path of US government debt to GDP
Demographics. Kaplan noted growth in the US workforce is slowing as the population ages and baby boomers retire, and it will likely continue to be a headwind for the economy. In the past several decades, labor force growth has sustained the US economy.
Technology. In the second driver, Kaplan wrote that while technology has disrupted a variety of industries, measures of labor force productivity growth have been sluggish.
While some suggest technological innovation may improve productivity statistics in the future, Kaplan wrote, he believes that one reason we don’t see better workforce productivity levels is that technology innovations are being experienced differently by workers based on their education and skills.
“In particular, if you are one of the 46 million workers in this country with a high school education or less, and/or have a routine type of middle-skills job, you are likely finding your job is being either restructured or eliminated as a result of technology,” Kaplan wrote. “Many of those workers with less education may be finding that their real wages and productivity are declining in a new age in which skills training and educational achievement levels are increasingly critical to adapting to the jobs market.”
Globalization and trade. In terms of globalization and trade, integrated supply chain and logistics relationships have allowed companies to add jobs, he wrote. However, recent trade tensions have had a dampening impact on US manufacturing and investments relating to global supply chain arrangements.
Government debt. Kaplan also discussed government debt.
“US government debt is at 76% of GDP now, and the US deficit is poised to exceed $1 trillion in 2020,” he wrote.
“Structural reforms and other actions that moderate the path of future government debt growth may be advisable to keep this short-term-growth tailwind from becoming a medium- and longer-term headwind to economic growth in the US,” Kaplan wrote. “In the meantime, this historically high level of US government debt means that there will likely be less capacity to use fiscal policy in the event of an economic downturn.”
The essay also noted that right now US economic growth has been slowing as the impact of the tax cut law wanes as well as heightened trade tensions, but the strength of consumer spending — which accounts for 70% of the US economy — continues to move the economy forward.
Growth in US GDP is approximately 2.1% for 2019; that compares to 2.5% growth in 2018, according to the Dallas Fed.