Pethokoukis, Economics, U.S. Economy

Citigroup: US economy will never be what it once was. Probably


In real terms, the US economy has grown at 3.2% a year since World War II, or 2% per person. But those days are likely over, says Citigroup in a new report. The bank’s econ team predicts US GDP growth will average 1.6% to 2.2% between now and 2030, and 0.8% to 1.5% on a per capita basis.

Call it the Big Downshift. And blame, mostly, demographics:

1. An acceleration in the pace of aging means rising elderly dependency ratios and likely a declining share of workers relative to the overall population. … Our resulting projections indicate that labor force participation in the United States is likely to stay broadly constant near current levels until the mid-2020s.

2. There are also indirect effects. For example, aging also means that the average worker who remains in the labor force is likely older than was the case a decade or two before, and older workers typically have chosen to work fewer hours than their younger counterparts.

3. Pressures associated with aging populations are already exerting stress on government fiscal positions and stoking uncertainties about medium-term debt sustainability. The political economy of this situation is thorny. An aging population means that older voters are a rising share of the electorate, and it may very well be difficult to convince them to cut their own benefits.

Economic growth is nothing more than how many workers you have and how much output they can produce per hour. And the aging of our society (and of Europe’s and Japan’s) will drive down the share of the working-age population and restrain labor force participation and hours per worker. But Citi also sees a slight slowdown in productivity growth historical rates. Put them together and you have an economy that won’t grow like it used to.


This is also the message from the Obama White House, which warned in its recent budget that in “the 21st century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post–World War II baby boom generation, and later due to a decline in the growth of the working age population.” Obama economists are looking for real GDP growth of 2.3% in the final years of its budget projection.

1. The US is projected to grow twice as fast as the EU and Japan. So we got that going for us, which is nice.

2. Americans would still, as Scott Winship has pointed out, experience large absolute gains in income and wealth despite lower rates of economic growth. If per capita income is 50,000 a year, a 2.2% gain would be $1100, while a 3.2% gain off a 25,000 income — roughly what US per capita GDP was 30 years ago — equals just $800.

3. Demographics are not destiny. Citi: “None of the adverse effects of aging are predetermined, and we believe that the risks to our projections are probably skewed to the upside.”

We can change tax and entitlement incentives to keep older Americans working longer, and put in place structural reforms (tax, immigration, education, regulation) to boost productivity. Also, Citi suggests that “pressures associated with demographics will likely fuel further advances in automation, computerization, and robotics.” (But can workers win the “race against the machines?”) That echoes a recent study coauthored by AEI’s Stephen Oliner, which raises “the possibility of a second wave in the IT revolution, and we see a reasonable prospect that the pace of labor productivity growth could rise to its long-run average of 2¼ percent or even above.”

27 thoughts on “Citigroup: US economy will never be what it once was. Probably

  1. there are a TON of elderly that WOULD WORK if they could but the labor market does not want or need them unless they work for less than minimum wage.

    that’s the fundamental problem – the are not enough jobs.

  2. “Call it the Big Downshift. And blame, mostly, demographics:”

    You left out immigration. Our utterly retarded defacto immigration policy amounts to allowing in millions of unskilled, non-English speaking peasants from Mexico at the expense of, say, electrical engineers from Colombia. Those Colombian engineers end up going to places that value their skills, like Canada. The unskilled peasants usually end up getting welfare to supplement their peasant wages in the not exactly cutting edge lettuce picking industry.

    We are lowering the curve when we could easily be raising it.

    • And those peasants are 50-years old and can trade their Mexican social security for ours and never pay-in 40 quarters of earnings.

      Those peasants can claim asylum for fear of death by Mexican drug cartels and ICE agents escort them to a paid hotel room.

      How stupid are we – really, really, really stupid!

      Illegal aliens, green card holding immigrants have no rights in America until they are earned the old fashioned way – change your name to Smith or Jones, learn English, get a job and pay your taxes.

      Rich Americans are leaving the US in droves; why, because they can afford to and thus collectively avoid $100 billion in annual taxes.

      The whole mess makes me sick and there is nothing the middle class can do; except, start an American Revolution II against a truly corrupt and self-serving government that cares nothing about, “We the People of the United States,…”

      Why else would every U.S. Agency be arming itself and at the same time via the United Nations trying to disarm Americans – ‘If American’s guns are outlawed, only our outlaw Federal government will have guns.’

      “I’ll give you my gun when you pry (or take) it from my cold, dead hands.”

  3. Poor economic policy and massive intervention/interference is killing the economy. Remove most of those, we will have 6% growth almost instantly.

    The hilarious part (except for the catastrophic effect it is having on retirement savings and entitlement solvency) is watching morons like Larry and Toad Manson whine and flail and scream for more interventionism and rules, to fix it, thereby making it even worse.

      • Awesome retort Larry, did you come up with that all by yourself?

        Don’t feel bad; we already know you’re deficient, so living up to your shortcomings is expected.

      • “about the only thing worth screaming about is the self-delusional types who nest here in CD and Coyote.”

        Well then by all means, Larry, go inflict your stupidity on some other blogs instead and you can stop the screaming.
        You won’t be missed.

  4. Obviously the problem with these forecasts is that it isn’t possible to predict what the impact of future innovations will be, some new discovery could supercharge growth again. However it is important for the government (and populace) to plan for the worst case. Although people talk about X% growth per year as if it were expected to by default be exponential, if you actually look at the data the growth rate hasn’t been exponential for the time BEA provides GDP data. It may come close to matching an exponential trend, but it matches a slower growth trend better, as this page explains:

  5. Due to the potential for slower growth, longterm government debt forecasts like the CBO and GAOs should consider their scenarios with slower growth scenarios. The Social Security Administration does, their slower growth GDP is similar to Citigroup’s. This page updates the GAO long term forecast with conservative figures (and has an interactive graph letting you change various options):

    It also links to a page pointing out that the Social Security Administrations forecasts may be too optimistic as well.

  6. Oh, also it is not clear where the labor force participation rates are coming from, the last BLS long term report I saw shows them continuing to head down:
    It estimated by 2020 the male participation rate would decline to 70% and by 2050 it would decline to 66%, and expect the female participation rate to reach 59.4% in 2020 and drop to 55.1% by 2050. I don’t have a note on the total labor force participation rate they project and don’t have time to check the link now for it, just wanted to pass that along before going offline.

  7. Oh, also, that was the last very long term projection they did, they did another one last year just through 2020 that showed the rate going down even faster than their prior long range forecast had shown, the paper can be found on the BLS site, I don’t have time to track the link down now.

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