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While trend GDP growth in the US averaged 3.3% from 1950 to 2016, it has dropped to 1.7% since the 2000s. This article explores whether specific sectors are to blame. The authors especially focus on spill-over effects and ask, if productivity falls in one sector, to what extent does that indirectly hinder other sectors too? They find three culprits: construction, which is the biggest negative contributor due to its extensive links with most production; nondurable goods; and professional services. Taken together, these account for about 60% of the total decline in trend growth.
Why does this matter? The centrality of construction for trend growth helps explain why the 2007-2008 housing and banking crisis has cast such a long shadow over growth. For the future, it is worth picking growth index measures apart and focusing on re-booting the correct sectors.
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