Approximately 10 years ago we presented our macroeconomic model explaining the evolution of real GDP per capita in the USA [1, 2, 3] and other developed countries . This model was formally tested by econometric tools for cointegration . Standard tests have proven that the underlying concept is valid.
Our model does explain the past measurements of real GDP as driven by the only population related variable – the influx of fresh blood - young people. Variations in the rate of growth for a given economy is fully defined by the change in the number of youngsters entering this economy with all their input to the future, including future credits. Some of major results were presented in this blog (e.g., here and here).
The power of our model is not in explanation of the past, but in prediction of the future. We can predict at a 9-year horizon for the USA using population measurements and at a longer horizon with population projections. In this blog, we have not been reporting on this model since 2011, however, because of no changes predicted after the 2009 recession. Today, we present a forecast of a dramatic fall in real GDP per capita in 2017. Figure 1 compares the measured rate of growth in real GDP per capita (dGDPpc/GDPpc), as obtained from the BEA’s quarterly tables, and that predicted by the change rate of the number of 9-year-olds, dN9/N9, as projected by the Census Bureau. Since the 2009 recession is well explained (actually predicted) by the same data we consider the probability of the 2017 recession as very high. In essence, it might be even deeper than in 2009.
Figure 1. The measured change in the number of 9-year-olds, dN9/N9, and that predicted from the change in real GDP per capita (0.5dGDPpc/GDPpc).