Relative to pre-pandemic forecasts, the U.S. economy should be able to produce today’s level of output with very little inflation: Ratio of forecasted real GDP to actual GDP and forecasted potential GDP to estimated potential GDP
| Real GDP | Potential output | |
|---|---|---|
| 2019Q3 | 100.0% | 100.0% |
| 2019Q4 | 99.9% | 100.0% |
| 2020Q1 | 98.1% | 99.9% |
| 2020Q2 | 88.8% | 97.3% |
| 2020Q3 | 95.0% | 98.0% |
| 2020Q4 | 95.5% | 97.9% |
| 2021Q1 | 96.5% | 97.8% |
| 2021Q2 | 97.7% | 98.0% |
| 2021Q3 | 97.9% | 98.1% |
| 2021Q4 | 99.1% | 98.3% |
| 2022Q1 | 98.3% | 98.9% |
| 2022Q2 | 98.4% | 99.3% |
Notes: Forecasts are from Congressional Budget Office (CBO) January 2020 Budget and Economic Outlook. To account for potential declines in potential GDP, I reduced this measure by 0.7 times the ratio of actual labor force participation (LFP) to the LFP projected by CBO. This reduces potential output substantially in the early parts of the pandemic recession, but this measure has largely recovered. I also reduce potential GDP by 0.3 times the ratio of trend growth in capital service inputs to actual growth in these inputs. The trend is based the 2000–2019 period, and both this trend and the data over the past six quarters is taken from the Fernald series on productivity growth. I don’t account for changes in total factor productivity (TFP) growth, but this would actually boost potential output relative to forecast over the past six quarters.
Source: EPI analysis of data from Congressional Budget Office (CBO) January 2020 Budget and Economic Outlook and 2009–2019 data from the Fernald series on productivity growth.
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