The 10-year average 10 years out

Springtime. Time for mowing the lawn every fourth day. Between that and binge-watching with the wife, who has time for blogging? Expect these posts to be intermittent ...

On the 10th I showed this graph of RGDP growth ("Gordon growth" I called it) and some other stuff:

Graph #1: Gordon Growth and Productivity -- Incremental 10-Year Periods

Today I keep the blue line and drop the rest.

In that earlier post I said

That last little tic it shows, from 2017 to 2018, is an uptick. Ooh ooh Trump.

But it isn't Trump, I said. The old data is gradually dropping out of the 10-year average. And the old data happens to be from 2007, 2008, 2009, the time of the Great Recession. The blue line shows an uptick at the end because 2007 dropped out of the 2018 average. And over the next couple years, the rest of the low numbers from the recession will drop out of the average as current data is added in. So, if current growth is at all higher than growth was during that recession, the blue line will go up more.

The RGDP data I've been using in these "Gordon growth" posts is Real Gross Domestic Product, Percent Change from Preceding Period, Quarterly, Seasonally Adjusted Annual Rate. The last data item is 2.3, for 2018Q1, preliminary and subject to change. I'll go with that number, a 2.3% annual rate of economic growth.

If the economy stays at the 2.3% growth rate, it is higher than growth during the recession. The blue line will go up. Assuming growth stays constant at 2.3% for ten years -- that's not a prediction, just a number to work with -- the blue line will follow the path shown here in red:

Graph #2: How 10 Years of 2.3% Growth Affects the Average

In the near term, at the start, the red line rises rapidly. But after a couple years it is already close to the 2.3% level, and after that there is not much change.

Point of interest: On this graph the sudden change in the red line (from mostly rising to mostly flat) occurs at 2020Q1, half a year or so before the next Presidential election. Of course, it also takes time for the data to be reported. So if the economy suddenly goes flat near 2.3% as shown here, we're not going to know about it until after the election.

In another hypothetical future, economic growth increases at 0.1% per quarter, from 2.3% in 2018Q1, to 2.4% in 2018Q2, to 2.5% in Q3 and like that, until it reaches a 3.1% annual rate, and then remains at 3.1%. Again, the red line shows the future path:

Graph #3: How 10 Years of Rising Growth Affects the Average

Here the red line rises rapidly at first, as the Great Recession falls out of the 10-year period. Then it rises more slowly, until the average approaches the 3.1% level. But there is a definite difference between this graph and the previous one.


I used the unfortunate term "prediction" to identify data on the graphs. In the spreadsheet, the word meant that some other data was the actual data. But on the graphs, it looks like a prediction. That was not my intent. I just wanted to see how the numbers affect the average as time passes.

And I missed my 4AM deadline.