* Chronic unemployment eroded skills, investment thin, CBO
* U.S. potential GDP seen 1.5 percent lower in 2022
* Growth rate critical to negotiations on U.S. "fiscal
By David Lawder
WASHINGTON, Nov 14 The U.S. economy is
recovering at an agonizingly slow pace largely because its
potential growth rate has been stunted by structural shifts to
its workforce and a dearth of investment, the non-partisan
Congressional Budget Office said on Wednesday.
In a new report that offered a gloomy outlook for U.S.
growth prospects, the CBO said the cumulative rate of growth in
U.S. output since the end of the recession in 2009 was running
nearly nine percentage points below the average for previous
The non-partisan congressional budget referee attributed two
thirds of this phenomenon to a reduction in the potential growth
rate -- the amount that gross domestic product could expand if
conditions were right.
CBO said one third of the growth deficit was due to cyclical
factors resulting more directly from the recession itself --
chiefly lower government purchases of goods and services, lower
investment in housing and reduced consumer spending.
The structural factors cited by CBO point to a slower gear
for the U.S. economy -- the dreaded "new normal" that was hotly
debated this fall during the presidential election campaign.
Both President Barack Obama and Republican challenger Mitt
Romney had charged that the other's policies would lead to a
diminished economic future, while touting their own as laying a
foundation for brighter growth and employment prospects.
As Congress and the White House dive into high-stakes
negotiations over expiring tax cuts, automatic spending cuts and
deficit reduction plans, the future U.S. growth rate is critical
to their decisions.
Republicans maintain that sufficient new revenues could be
generated from faster growth spurred on by sweeping tax reform
that eliminates distortions caused by special tax breaks. Obama
wants to raise some $1.6 trillion in tax revenues largely by
imposing higher rates on the wealthy.
"The effects of the recession and slow recovery on potential
output will persist over the coming decade," CBO said in the
report. "According to CBO's estimates, the recession and weak
recovery will reduce the level of potential GDP in 2022 by about
Incorporating these factors, the CBO projects real GDP
growth at between 2.1 percent and 2.4 percent in 2022, depending
on fiscal choices made by Congress. U.S. GDP expanded at a 2.0
percent annual rate in the third quarter.
In the CBO's analysis, the biggest factors holding back
potential growth are worrisome trends in the U.S. workforce.
Potential employment grew by only 2.3 percent between the 2009
and 2012 second quarters, less than half the post-World War Two
Slowing population growth, retirement of workers from the
Baby Boom generation and a halt in growth of women participating
in the workforce have all contributed, but the report said
massive, long-term job losses during the recession made many
"An unusually large number of people have had their skills
and connection to the workforce erode because they have been out
of work for a long time," CBO said in the report. "Some of those
people will probably never work again, and it will take more
time than usual for the rest to find suitable jobs."
In addition, the CBO said the potential U.S. growth rate was
slammed by "unusually low levels" of business investment during
the recession that are still low by historical averages. Housing
investment also remains sharply curtailed amid a chronic slump.
And in a sign of a vicious cycle, the CBO said part of the
low investment levels are due to a lack of consumer demand and
the lower potential growth of employment.