Federal Reserve Economic Data

At the July 31 FOMC press conference, Chair Powell said “recent indicators suggest that economic activity has continued to expand at a solid pace,” even in the face of a labor market that appears to be normalizing.

Real GDP growth picked up significantly in the second quarter of 2024, according to the BEA’s advanced estimate, at an annualized rate of 2.8%. While this output growth is an important measure of activity on its own, many policymakers also pay attention to actual output growth with respect to potential output growth, the economy’s estimated maximum sustainable output.

The FRED graph above shows the output gap, which is the difference between actual and potential real GDP. Output has been above potential for the past year; most recently, it appears to have exceeded potential output by about 1% in the second quarter, up from approximately 0.9% in the first quarter. This is an improvement over 2022 and early 2023, when the output gap was slightly negative, and is roughly in line with the second half of 2019, when economic growth was relatively high compared with its 2010-2018 average.

The graph also shows the output gap tends to be negative after recessions, but then eventually returns to a positive gap after a recession. For example, the 2008-2009 financial crisis was deep and long enough to keep actual output below potential all the way through 2017. It wasn’t until late 2019 that the gap became firmly positive around levels not seen since 2007.

One signal of the economy’s resilience is that output returned to potential within two years of the initial COVID shock in 2020 despite a precipitous decline. Another signal is that the output gap has continued to become positive even as potential output has continued to grow at a stable pace: Annualized quarterly growth rates of potential output have hovered around 2% since 2018. By comparison, growth rates of GDP have averaged 2.8% over the past eight quarters. This also has implications for monetary policy, referred to in this FRED Blog post about the Taylor Rule.

An important caveat: Potential output cannot be observed, so policymakers contend with considerable uncertainty here, including frequent and unpredictable revisions to the estimate of potential output. A good illustration of these revisions over time was delivered by Larry Summers in the 2016 Homer Jones Memorial Lecture.

How this graph was created: In FRED, search for and select “Real Potential Gross Domestic Product.” From the “Edit Graph” panel, use the “Customize data” section in the “Edit Line 1” tab to search for and select “Real Gross Domestic Product.” You should see two series on the “Edit Line 1” tab listed as (a) and (b). In the “Customize data” section again, enter and apply (b/a – 1) * 100 in the formula bar.

Suggested by Kevin Kliesen and Joseph Martorana.

Today we look at total factor productivity, which is a measure of economic efficiency that captures how effectively an economy uses its inputs to produce outputs. TFP reflects technological progress through innovation and adoption of new technologies, allocation of resources, and other factors that boost the overall economic product beyond just increases in labor and capital.

Improvement in TFP is crucial because it drives long-term economic growth and raises living standards. The FRED graph above shows two interesting observations related to this.

First, over the long run, US TFP has grown significantly: Between 1955 and 2015, it improved by about 55%. This increase represents a substantial improvement in the nation’s ability to generate economic output from its resources.

However, the rate of TFP growth has slowed noticeably in recent decades. Particularly since 2005, TFP has increased by only about 5%. This slowdown is a concern for economists and policymakers because it suggests a potential decline in the pace of innovation or the economy’s ability to adopt new technologies.

Second, the graph also clearly shows that TFP tends to significantly drop during recessions, indicated by the shaded areas. This doesn’t necessarily mean that the economy literally “forgets” how to produce goods and services efficiently. Instead, these dips reflect several economic realities during downturns: For example, capacity utilization often decreases, leading to less-efficient use of existing resources. As the economy recovers, TFP typically rebounds, suggesting that these efficiency losses are generally temporary rather than permanent losses of productive knowledge or capability.

How this graph was created: Search FRED for “total factor productivity” and click on the series for the United States.

Suggested by Aakash Kalyani.

The FRED Blog has discussed the impact that shortages in childcare services had on women’s employment during and immediately after the COVID-19 induced recession. Today we discuss the potential role that either remote or hybrid work might play in boosting the participation of women in the labor force.

The FRED graph above shows the labor force participation rate of three groups of women: White women (the solid blue line); Black or African American women (the solid red line); and Hispanic or Latino women (the solid green line). The data are reported by the U.S. Bureau of Labor Statistics and currently do not include information on any other racial or ethnic groups. We limited the date range of the data between Q1 2014 and Q1 2024 and added custom (dotted) lines anchored at the pre-recession peak of Q4 2019 to make the analysis easier.

The bounce-back in the labor force participation rates of women was gradual and, in the case of Black or African American women and Hispanic or Latino women, it exceeded its 2019 peak value. Recent research by Maria Tito at the Board of Governors of the Federal Reserve System may provide a potential explanation.

Her analysis suggests that women between the ages of 25 and 54 have been capitalizing on the ability to work remotely some or all of the time. Their flows in and out of the labor force and from unemployed to employed status changed after the COVID-19 pandemic. However, the recent rise in the overall labor force participation rate of women mostly reflects gains in occupations that cannot be performed remotely. Thus, even though labor markets are likely to be permanently influenced by remote and hybrid work options, more research into the impact of those options is needed.

How this graph was created: Search FRED for and select “Labor Force Participation Rate – 20 Yrs. & over, White Women” Click on the orange button “Edit Graph.” Select the tab “Add Line” and search for “Labor Force Participation Rate – 20 Yrs. & over, Black or African American Women.” Click on “Add data series” and repeat the previous step to add “Labor Force Participation Rate – 20 Yrs. & over, Hispanic or Latino Women” to the graph. Next, use the “Create user-define line” option to add the horizontal lines. Last, use “Format” tab to customize the line styles.

Suggested by Christina Charie and Diego Mendez-Carbajo.