Forecasting U.S. Productivity – Federal Reserve Bank of Richmond

Forecasting U.S. Productivity – Federal Reserve Bank of Richmond

 

U.S. Productivity Forecasts to 2030: An Analysis in the Context of the Sustainable Development Goals

This report assesses long-term forecasts for United States productivity growth through 2030, analyzing the implications for achieving the Sustainable Development Goals (SDGs). Based on postwar historical data (1947-2021), the analysis projects trend growth in aggregate labor productivity and total factor productivity (TFP), providing a sectoral breakdown to evaluate alignment with key SDG targets, particularly SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 12 (Responsible Consumption and Production).

Aggregate Productivity Trends and Implications for SDG 8

Sustained economic growth, a primary target of SDG 8, is fundamentally linked to productivity. The forecasts indicate a positive trajectory for the U.S. economy, suggesting an enhanced capacity to promote inclusive and sustainable economic development.

Key Aggregate Forecasts to 2030

  • Trend Aggregate Labor Productivity: Forecast to increase from approximately 1.4 percent in 2021 to 2.0 percent by 2030. This recovery toward the postwar average supports the potential for higher economic growth and improved living standards as outlined in SDG 8.
  • Trend Aggregate Total Factor Productivity (TFP): Projected to rise from 0.6 percent in 2021 to 0.9 percent by 2030. This growth in TFP reflects greater efficiency and innovation, which are crucial drivers for the sustainable economic growth targeted by SDG 8.

Sectoral Contributions to Sustainable Industrialization and Innovation (SDG 9)

The structural composition of the economy is shifting, with significant implications for sustainable industrialization, infrastructure development, and innovation as mandated by SDG 9. The analysis highlights a transition towards a service- and knowledge-based economy.

Innovation and Intellectual Property (IPP) Services

The performance of the IPP services sector is a direct indicator of progress toward SDG 9’s focus on enhancing scientific research and upgrading technological capabilities.

  • Productivity Growth: Average trend labor productivity growth is forecast to increase to 2.64 percent, with TFP growth rising to 1.32 percent.
  • Economic Share: The value-added share of IPP services is projected to rise to 14 percent by 2030.
  • SDG 9 Alignment: The strong growth and increasing economic importance of this sector underscore a positive trend in innovation and the development of a knowledge-based economy, which is central to sustainable industrialization.

Challenges in the Construction Sector

The construction sector’s performance presents a significant challenge to achieving SDG 9 targets related to building resilient infrastructure and fostering sustainable urbanization under SDG 11.

  • Productivity Stagnation: The sector’s trend labor productivity growth is forecast at a marginal 0.12 percent, with TFP growth projected to be negative (-0.13 percent).
  • Economic Share: The value-added share is expected to remain low at approximately 4 percent.
  • SDG 9 & 11 Implications: Persistent low productivity in construction could impede the efficient and affordable development of sustainable infrastructure, housing, and public facilities, hindering progress on both SDG 9 and SDG 11.

Sectoral Dynamics in Production, Consumption, and Social Goals

The evolution of various economic sectors reveals trends relevant to responsible production patterns (SDG 12) and the provision of essential public services like health and education (SDG 3 and SDG 4).

Trends in Goods Production and SDG 12

The durable and nondurable goods sectors are undergoing significant shifts that affect resource efficiency and production patterns, which are central to SDG 12.

  1. Durable Goods: While trend labor productivity growth remains high (forecast at 3.33 percent), its value-added share of the economy is expected to decline to 6 percent. This reflects a shift away from traditional manufacturing but also an opportunity to focus on high-efficiency, sustainable production methods.
  2. Nondurable Goods: This sector is forecast to see a significant recovery in productivity, with trend labor productivity growth reaching an average of 2.68 percent. This rebound offers a chance to implement more sustainable production processes in line with SDG 12.

The Services Sector: A Driver of Economic and Social Outcomes

The services sector is the dominant component of the U.S. economy, and its performance is critical for both overall economic growth (SDG 8) and the achievement of social development goals.

  • Overall Sector Growth: The services sector’s value-added share is projected to increase to 69 percent, making its productivity growth (forecast at 1.22 percent) a primary determinant of aggregate economic performance.

Subsector Analysis: Education, Health, and Finance

A deeper analysis of key services subsectors reveals their direct connection to specific SDGs.

  1. Education and Health Care (EHC): This subsector’s performance is directly tied to SDG 3 (Good Health and Well-being) and SDG 4 (Quality Education). Its trend labor productivity growth is forecast to be a modest 1.03 percent. While its economic contribution is growing, this limited productivity growth may pose challenges to delivering quality services affordably and equitably.
  2. Finance, Insurance, and Real Estate (FIRE): This subsector is a key enabler of economic activity under SDG 8. It is expected to see a significant increase in its trend labor productivity growth rate to an average of 2.18 percent over the decade.
  3. Professional and Business Services (PBS): As a critical input for other industries, this subsector’s health supports broad economic dynamism (SDG 8). Its productivity growth is forecast at 1.15 percent, and it is expected to increase its contribution to aggregate productivity.

Conclusion: An Integrated Outlook for the 2030 Agenda

The forecast for U.S. productivity growth through 2030 indicates a positive trajectory for achieving the economic growth targets of SDG 8. The increasing importance of the IPP services sector signals strong alignment with the innovation goals of SDG 9. However, significant challenges remain. The persistent productivity stagnation in the construction sector poses a direct threat to building the resilient and sustainable infrastructure required by SDG 9 and SDG 11. Furthermore, modest productivity gains in the Education and Health Care sector highlight potential difficulties in advancing SDG 3 and SDG 4 efficiently and equitably. A targeted policy approach will be necessary to address these sectoral weaknesses and ensure that economic development is fully aligned with the comprehensive vision of the 2030 Agenda for Sustainable Development.

Identified Sustainable Development Goals (SDGs)

  • SDG 8: Decent Work and Economic Growth

    The article’s central theme is forecasting U.S. economic productivity, which is a fundamental driver of economic growth. It analyzes labor productivity and Total Factor Productivity (TFP) growth, directly aligning with the goal of sustaining economic growth.

  • SDG 9: Industry, Innovation and Infrastructure

    The analysis heavily involves innovation and industrial sectors. It specifically discusses the “Intellectual property products (IPP) services” sector, which includes research and development, and forecasts its growth. It also examines the productivity and value-added shares of industrial sectors like durable and nondurable goods, and the construction sector, linking directly to industry and innovation.

  • SDG 3 (Good Health and Well-being) & SDG 4 (Quality Education)

    These goals are connected through the article’s analysis of the “Education and health care (EHC)” subsector. While the article focuses on the economic productivity of this sector rather than health or education outcomes, its economic performance is a critical component of the overall system that delivers these services.

Specific SDG Targets Identified

  1. SDG 8: Decent Work and Economic Growth

    • Target 8.1: Sustain per capita economic growth in accordance with national circumstances.

      The article directly addresses this by providing detailed forecasts for the drivers of economic growth. It states, “Trend aggregate labor productivity growth is estimated to be 2.5 percent at the beginning of the sample… we begin forecasting the trend growth rate of labor productivity after that point and find that it increases over the rest of the decade, reaching a growth rate of 2.0 percent in 2030.” This analysis of productivity is a core component of sustaining per capita economic growth.

    • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation.

      This target is central to the article. The text analyzes structural economic changes by examining “sectoral value-added shares,” showing a shift towards a service-based economy. It highlights innovation by focusing on the “IPP services” sector, which “encompasses activities that serve mainly as inputs into production, such as research and development, and computer system designs,” and forecasts that its “share of IPP services in GDP is also forecast to rise to 14 percent by 2030.”

  2. SDG 9: Industry, Innovation and Infrastructure

    • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and value added.

      The article provides a detailed analysis of the value added of various industrial sectors. For example, it notes that the durable goods sector “is also expected to see its trend share of GDP fall to an average of 6 percent for the 2020s.” It also analyzes the construction and nondurable goods sectors, providing data and forecasts on their “Value-Added Shares,” which is a direct measure related to this target.

    • Target 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors… encouraging innovation.

      The focus on the “IPP services” sector directly relates to this target. The article forecasts that “trend TFP growth in that sector is also expected to increase to an average rate of 1.32 percent from a postwar trend growth rate of 1.01 percent.” This increasing productivity and value-added share in a sector defined by R&D and computer systems design is a clear indicator of enhanced innovation and technological capability within the economy.

Implied Indicators for Measuring Progress

  1. Trend Aggregate Labor Productivity Growth Rate

    This is used throughout the article as a primary measure of economic health and a driver of economic growth (Target 8.1). The article provides specific historical data and forecasts, stating it is “forecast to also increase, reaching 0.9 percent in 2030.” This serves as a direct indicator for measuring progress towards sustained economic growth.

  2. Sectoral Value-Added Shares

    The article uses this indicator to measure the structural composition of the economy and its diversification (Targets 8.2 and 9.2). Table 1a and 1b explicitly list the “Value-Added Shares” for sectors like Durable Goods, IPP Services, and Construction. For instance, it forecasts the value-added share of IPP services will rise to “14 percent by 2030,” indicating a shift towards an innovation-driven economy.

  3. Productivity Growth of the IPP Services Sector

    The labor productivity and TFP growth rates for the “Intellectual property products (IPP) services” sector are used as a proxy indicator for innovation and R&D activity (Target 9.5). The article forecasts that trend labor productivity growth in this sector will increase “to 2.64 percent over the 2020s,” which can be tracked to measure progress in enhancing technological capabilities.

  4. Labor Productivity Growth of the EHC Sector

    The productivity of the “Education and health care (EHC)” subsector is analyzed, providing an economic indicator relevant to SDGs 3 and 4. The article forecasts that the trend labor productivity growth rate for EHC will go from a postwar average of “0.93 percent… to 1.03 percent on average from 2021-30.” This metric can be used to track the economic efficiency of these crucial service sectors.

Summary of SDGs, Targets, and Indicators

SDGs Targets Indicators Identified in the Article
SDG 8: Decent Work and Economic Growth 8.1: Sustain per capita economic growth.

8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation.

– Trend aggregate labor productivity growth rate (Forecast to reach 2.0% in 2030).
– Trend aggregate Total Factor Productivity (TFP) growth (Forecast to reach 0.9% in 2030).
– Sectoral value-added shares (e.g., Services sector share forecast at 0.69).
SDG 9: Industry, Innovation and Infrastructure 9.2: Promote inclusive and sustainable industrialization and raise industry’s share of value added.

9.5: Enhance scientific research and upgrade technological capabilities.

– Value-added shares of industrial sectors (e.g., Durable Goods forecast at 0.06, Construction at 0.04).
– Labor productivity and TFP growth of the IPP services sector (includes R&D).
– Value-added share of the IPP services sector (Forecast to rise to 14% of GDP by 2030).
SDG 3 & 4: Good Health and Well-being & Quality Education (Indirectly related) The economic performance and productivity of the sectors delivering these services. – Labor productivity growth rate of the Education and health care (EHC) subsector (Forecast to average 1.03% from 2021-30).
– Contribution of the EHC subsector to aggregate labor productivity growth.

Source: richmondfed.org