The real GDP in the USA is driven by population pyramid: statistics of the economic bubble 2003-2007

In our previous post, we presented Figure 1, which displays two variables – the measured number of 9-year-olds, N9, and the same number predicted from the GDP growth rate as based on the link between real GDP per capita and N9; it was tested statistically (cointegration tests). There is a spike between 2003 and 2009 which introduce a significant disturbance in the statistical estimates of the link (both cointegration tests are still valid and Rsq=0.9.).  

The years between 2003 and 2007 are well known as the “sub-prime bubble”, i.e. the economically unsupported increase in the house price, and thus, in the imputed  rent, which gives 8% of the GDP. Figure 2 splits the GDP into 4 major components as presented by the BEA. This is the input of 4 components to the (nominal) GDP growth in a given year. The largest input between 2003 and 2007 comes from “Personal consumption expenditures” (PCE) and “Gross private domestic investment”. The latter also leads in a deep fall in 2008 and 2009, when the predicted curve comes back to the measured N9. Figure 3 splits the PCE into the components with the largest positive input. 

It is hard to distinguish between real economic growth and “bubble” in measurable parameters. However, the discrepancy between the measured and predicted N9 in Figure 1 is likely related to the growth in fictitious GDP components and the fall to the measured curve manifests the fact that the long–term GDP evolution is defined by economic factors and short-term deviations may be real or related to accounting tricks. The latter always return (with pain) to economic "normality" 

Figure 1. Lower panel: Same as in the upper panel for the period between 1960 and 2019.

 

Figure 2. Four major components of the GDP of growth. The largest input between 2003 and 2007 comes from “Personal consumption expenditures” and “Gross private domestic investment”

Figure 3. Major components of the PCE growth.