The growth of a country’s labor force, the expansion of its capital stock, and the pace of its technological improvement determine its capacity for economic advancement over the long term. To be sure, calculating such a path is difficult and imprecise work. Recent estimates generally put the U.S. growth potential at 2% to 2.5% per year—somewhat below our 30-year average. Economists believe that this rate is consistent with the full employment of both labor and capital. Year by year, the actual pace of economic activity may exceed or fall short of its potential rate, but when this happens, forecasters generally expect that the deviation will be short-lived. A slowing in the pace of economic activity that brings growth into line with its potential need not upset a nation’s prosperity. In fact, it may prolong the business expansion.
Suggested citation: “Economic Activity,” Federal Reserve Bank of Cleveland, Economic Trends, no. 98-03, pp. 10-11, 03.01.1998.