ECONOMIC REPORT OF THE PRESIDENT

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History Forecast 1953:Q2 to 2015:Q3 to 2015:Q3 b 2026:Q4 1 Civilian noninstitutional population aged 16+ 1.4 1.0 2 Labor force participation rate 0.1 -0.4 3 Employed share of the labor force 0.0 0.0 4 Table 2-3 Supply-Side Components of Actual and Potential Real Output Growth, 1953–2026 Component Ratio of nonfarm business employment to household employment Growth rate a 0.0 0.0 5 Average weekly hours (nonfarm business) -0.2 0.0 6 Output per hour (productivity, nonfarm business) c 2.1 2.1 7 Ratio of real output to nonfarm business output c -0.2 -0.4 8 Sum: Actual real output c 3.0 2.4 Memo: 9 Potential real output d 3.1 2.3 10 Output per worker differential: output vs nonfarm e -0.2 -0.3 a All contributions are in percentage points at an annual rate, forecast finalized November 2015. Total may not add up due to rounding. b 1953:Q2 was a business-cycle peak. 2015:Q3 is the latest quarter with available data. c Real output and real nonfarm business output are measured as the average of income- and product-side measures. d Computed as (line 8) - 2 * (line 3). e Real output per household worker less nonfarm business output per nonfarm business worker. This can be shown to equal (line 7) - (line 4). Note: Output is the average of GDP and GDI. Population, labor force, and household employment have been adjusted for discontinuities in the population series. Nonfarm business employment, and the workweek, come from the Labor Productivity and Costs database maintained by the Bureau of Labor Statistics. Source: Bureau of Labor Statistics, Current Population Survey, Labor Productivity and Costs; Bureau of Economic Analysis, National Income and Product Accounts; Department of the Treasury; Office of Management and Budget; CEA calculations. 8, column 2), slightly faster than the 2.3 percent annual growth rate for potential real output (line 9, column 2). Actual output is expected to grow faster than potential output primarily because of the small projected rise in the employment rate (that is, the decline in the unemployment rate) as currently unemployed workers find jobs, and others reenter the labor force or shift from part-time to full-time jobs. Real potential output (line 9, column 2) is projected to grow less than the long-term historical growth rate of 3.1 percent a year (line 9, column 1), primarily due to the lower projected growth rate of the working-age population and the retirement of the baby-boom cohort. If the effects of The Year in Review and the Years Ahead | 113
Box 2-9: Stable Inflation Rate of Unemployment Economic theory generally relates inflation rates and unemployment rates under the view that very low unemployment may signal tight labor markets that generate upward pressure on wages and high demand for goods and services that put upward pressure on prices. The accelerationist Phillips curve relates the increase in the rate of inflation to the rate of unemployment, or possibly some other measure of economic slack. It can also be used in conjunction with other inflation-sector equations to derive estimates for the rate of unemployment that keeps inflation stable (NAIRU), an essential notion for maximizing growth without ever increasing inflation rates. According to the Phillips curve, an unemployment rate below the one that would keep inflation stable will result in upward pressure on price inflation. Many have noted that the fit of the Phillips curve has deteriorated (for instance, Ball and Mazumder 2011). They observed that the Phillips curve would have predicted inflation to fall much more during the Great Recession than it did. The deterioration in the ability of a simple Phillips curve model to fit the data is shown in Figure 2-x. As shown by the equation embedded in Figure 2-x, the change in the rate of inflation from its expectation (on the left hand side) is regressed against a demographically adjusted unemployment rate and a constant term. (From this regression, one can estimate the NAIRU as the ratio of the coefficient on the unemployment rate to the constant.) The measure of inflation expectations is lagged Figure 2-xiii R-Squared from Trailing 20-Year Price-Price Phillips Curve Rolling Regression, 1978–2015 R-Squared 0.6 π t – π te = α + βu t + ε t 2015 0.5 0.4 0.3 0.2 0.1 Series1 0.0 1978 1983 1988 1993 1998 2003 2008 2013 Note: Dashed line represents result from regression over entire sample period. Source: Bureau of Labor Statistics; Federal Reserve Board, Haver Analytics; CEA calculations. 114 | Chapter 2
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ECONOMIC REPORT OF THE PRESIDENT To
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C O N T E N T S ECONOMIC REPORT OF
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economic report of the president To
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when a hardworking American loses h
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the annual report of the council of
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C O N T E N T S CHAPTER 1 INCLUSIVE
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CHAPTER 5 TECHNOLOGY AND INNOVATION
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APPENDIXES A. Report to the Preside
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3.4. Percent Gap Between Actual and
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6.6. Relationship between Output Gr
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C H A P T E R 1 INCLUSIVE GROWTH IN
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To promote inclusive growth, both c
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Percent 20 15 Figure 1-1 Share of I
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Table 1-1 Increase in Income Share
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Figure 1-3 Distribution of Househol
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narrows the pool of human capital t
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over the past several decades has b
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Figure 1-6a The "Great Gatsby Curve
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Figure 1-7 Change in Employment by
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and sellers—consumer and producer
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Percent 15 10 Figure 1-9 Corporate
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Percent 30 Figure 1-11 Share of Wor
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Figure 1-12 Real Construction Costs
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promoting equality of opportunity;
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the division of rents, they can red
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C H A P T E R 2 THE YEAR IN REVIEW
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cold weather.1 The economy rebounde
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Box 2-1: Impact of Oil Price Declin
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Roughly speaking, the decline in th
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Percent of GDP 10 Figure 2-3 Federa
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Figure 2-5 Government Purchases as
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Page 70 and 71: of new purchases.2 The increase in
Page 72 and 73: Figure 2-8 Actual and Consensus For
Page 74 and 75: Figure 2-10 Rates of Part-Time Work
Page 76 and 77: less than a tenth of the overall de
Page 78 and 79: Business fixed investment grew 3.1
Page 80 and 81: Percent 10 Figure 2-14 Personal Sav
Page 82 and 83: BEA revises the official statistics
Page 84 and 85: Index* 100 Figure 2-16 Real Income
Page 86 and 87: Box 2-5: Are Official Estimates of
Page 88 and 89: of consumer surplus, which should,
Page 90 and 91: Figure 2-19 National House Price In
Page 92 and 93: Box 2-6: Constraints on Housing Sup
Page 94 and 95: and also was estimated in recent re
Page 96 and 97: market. Nevertheless, the construct
Page 98 and 99: Figure 2-23 Net Investment as a Sha
Page 100 and 101: Percent 80 Figure 2-25 Total Payout
Page 102 and 103: Figure 2-28 Foreign Real GDP and U.
Page 104 and 105: Figure 2-30 Sources of Productivity
Page 106 and 107: Figure 2-32 Nominal Wage Growth Ove
Page 108 and 109: Figure 2-35 Long-Term Inflation Exp
Page 110 and 111: Percent 18 Figure 2-36 Nominal 10-Y
Page 112 and 113: Table 2-1 Selected Interest Rates,
Page 114 and 115: are close to those projected by the
Page 116 and 117: International Economics (Petri and
Page 120 and 121: inflation up to 2007 and then expec
Page 122: Upside and Downside Forecast Risks.
Page 125 and 126: earlier forecasts. Figure 3-1 shows
Page 127 and 128: Real GDP/WAP Growth 2011-2014 Figur
Page 129 and 130: economists would expect capital dee
Page 131 and 132: Figure 3-i Actual and Forecasted Wo
Page 133 and 134: affected the demographic trajectory
Page 135 and 136: over the first three quarters of 20
Page 137 and 138: Percentage Points 35 30 Figure 3-7
Page 139 and 140: the President for a discussion of t
Page 141 and 142: Box 3-2: Market Volatility in the S
Page 143 and 144: potential for rapid spillovers betw
Page 145 and 146: absorb unexpectedly high losses. In
Page 147 and 148: Box 3-3: Commodity Prices and Infla
Page 149 and 150: In November 2015, the IMF voted to
Page 151 and 152: Billions of U.S. Dollars 250 200 15
Page 153 and 154: U.S. exports are 12.5 percent of th
Page 155 and 156: Box 3-4: The Importance of the Tran
Page 157 and 158: The challenging environment for U.S
Page 159 and 160: child’s environment. Despite the
Page 161 and 162: and Rossin-Slater 2015).5 These adv
Page 163 and 164: Figure 4-2 Official Poverty Rate fo
Page 165 and 166: Figure 4-3 Likelihood of Scoring Ve
Page 167 and 168: Percent 100 90 80 70 60 50 40 30 20
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Figure 4-7 Achievement Gap is Large
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Hours per Week 24 22 20 Figure 4-9
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Percent 65 Figure 4-11 Preschool En
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Box 4-1: Gender Differences in Earl
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Card and Rothstein 2007; Dickerson
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depend on how parents choose to inv
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y many factors, which makes it diff
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Box 4-3: Federal Early Childhood Pr
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program served over 45 million Amer
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Reauthorization Act of 2015, signed
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document that desegregation of hosp
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to alleviate hunger by supplementin
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adulthood (Hoynes, Schanzenbach, an
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of preschoolers support their child
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program and up to 15 years after co
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a longer period than is true of mos
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to be higher today than in the past
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Figure 4-18 Most Early Childhood Pr
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the preschool programs in Georgia a
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test scores by 6 to 9 percent of a
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Figure 4-20 Increase in Probability
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increased earnings by 31 percent (F
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Figure 5-1 Labor Productivity Growt
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Competition and Dynamism Play a Cri
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adopts pre-existing technology or k
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Figure 5-2 Quantity and Volume of V
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Box 5-2: Occupational Licensing One
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in consumer welfare as they erode t
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Finally, some workers may acquire s
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Box 5-3: Major Research Initiatives
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Figure 5-5 Federal and Nonfederal R
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Figure 5-7 Federal Research and Dev
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Figure 5-10 Percent of Patent Appli
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percent of all cases in 2009 to ove
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(Bloom, Sadun, and Van Reenen 2012)
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Figure 5-12 Estimated Annual Shipme
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was relatively flat through the 200
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In contrast, recent papers by Autor
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services, such as 4G LTE. At the sa
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Box 5-5: The On-Demand Economy “O
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vision of services that may not hav
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Figure 5-17 Household Income and Ho
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about half since ConnectED was laun
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C H A P T E R 6 THE ECONOMIC BENEFI
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enefits to a wide set of consumers
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Figure 6-1 Composition of Public Sp
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Age, Years 29 27 Figure 6-3 Average
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Type CAN FRA DEU ITA JPN GBR USA 20
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Box 6-1: Clean Energy and Transport
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Industry Government Investment Dire
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infrastructure investment is crucia
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Box 6-2: Elasticity of Output to Pu
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and output ignore potential inter-t
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Thus, ideas are exchanged, workers
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kilometers of road) in 1983 resulte
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Prospects for Increased Infrastruct
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Figure 6-6 Relationship between Out
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there is a clear demand for an infr
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user fees or shadow tolls.11 Throug
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to transportation facilities caused
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Tax-Exempt Bonds Transportation inf
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Recent Legislation In December 2015
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enefit freight movements. The Act a
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C H A P T E R 7 THE 70 TH ANNIVERSA
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and composition of the labor force,
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it, “[t]he CEA and its chairman h
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jected reductions in the deficit. I
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example, the Environmental Protecti
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Keyserling and the Council particip
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Countercyclical Policy in Other Adm
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In designing the Recovery Act, one
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incorporating risk and discounting
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and Freddie had lots of friends in
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(USEC). USEC was responsible for pr
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can be reported to him as the perce
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By contrast, Keyserling had activel
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goals of the government in their ar
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Gather, Analyze, and Interpret Info
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the unemployment insurance system w
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an informational basis for appropri
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had experience working in governmen
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emained. I joined forces with Budge
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Of course, relying on short-term ac
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Carson, Ann. 2015. “Prisoners in
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Kleiner, Morris M. and Alan B. Krue
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Congressional Budget Office (CBO).
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Kocin, Paul J. and Louis Uccellini.
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Fajgelbaum, Pablo and Amit Khandelw
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World Bank. 2016. “Global Economi
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Belfield, Clive R., Milagros Nores,
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Campbell, Jennifer A., Rebekah J. W
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Council of Economic Advisers. 2014.
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Eissa, Nada and Jeffrey B. Liebman.
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Hastings, Justine S. and Ebonya Was
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Kalil, Ariel, Rebecca Ryan, and Mic
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Maxfield, Michelle. 2013. “The Ef
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Olds, David, John Eckenrode, Charle
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Solon, Gary. 1992. “Intergenerati
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Wherry, Laura R., Sarah Miller, Rob
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Bloom, Nicholas, Mark Schankerman,
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Graham, Stuart JH, Cheryl Grim, Tar
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Melitz, Marc J. 2003. “The Impact
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______. 2015. “Patent Assertions:
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Congressional Budget Office. 2009.
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Peshkin, David G., Todd E. Hoerner,
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______. 2001. Designing U.S. Econom
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Krueger, Alan B. 2000. “Honest Br
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Weidenbaum, Murray L. 1983. “An E
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letter of transmittal Council of Ec
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Council Members and Their Dates of
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The Members of the Council Sandra E
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In May, the Council issued a report
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Nirupama S. Rao . . . . . . . . . .
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Jessica Schumer resigned from her p
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C O N T E N T S GDP, INCOME, PRICES
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General Notes Detail in these table
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Table B-1. Percent changes in real
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Table B-2. Gross domestic product,
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Table B-4. Growth rates in real gro
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Year or quarter Total Table B-6. Co
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Table B-8. New private housing unit
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Table B-10. Changes in consumer pri
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Table B-11. Civilian labor force, 1
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Year or month Table B-13. Unemploym
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Table B-14. Employees on nonagricul
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Year or quarter Table B-16. Product
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Table B-18. Federal receipts, outla
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Table B-20. Federal receipts, outla
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Table B-22. State and local governm
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End of month Table B-24. Estimated
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Table B-25. Bond yields and interes
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ECONOMIC REPORT OF THE PRESIDENT

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