GDP: Going downhill, even relative to going downhill

Two graphs from Terms of the Times (2c)

If you take Real Potential GDP from FRED, show it as "percent change from year ago", cut it off at 2019 to eliminate the covid year and the prediction out to 2031, bring it into Excel, and put a linear trend line on it, this is what you get:

US Potential GDP Growth Rate:

Source: FRED data, Excel Graph & Trend

You say to yourself: Potential GDP growth -- best case GPD growth -- sure is going downhill. The trend line shows a drop from something over 4% annual growth in 1950, to something over 2% now. And the trend line is based on data that ends in 2007, to eliminate the downer effects of the "Great Recession" and all that came after it.

Then you start to wonder how GDP compares to this "best case" scenario.

I went back to FRED, got Real GDP and Real Potential GDP, both in billions, and made a graph of the ratio, Real GDP relative to Potential. Brought this data into Excel and duplicated the graph. I added a linear trend line (based on data thru 2019 this time), made both the plotted line and the trend line red, and erased the background and the axes to make a useful overlay.

I brought the FRED graph into Excel, put the overlay on top of it, and stretched and moved the overlay until my red plotted line lined up with FRED's plotted line. I love doing stuff like that when I should be working. Anyway, here is the result:

US Real GDP relative to Potential:

Source: FRED with Excel overlay in red

My red plotted line matches FRED's blue plotted line, within a pixel or so. That's how I know I have the trend line in the right place.

Notice that my plotted red line stops at the high point on the right, just before the covid-inspired collapse that FRED's line shows. My trend line is not influenced by the covid collapse.

The trend line is above 1.00 (Real GDP more than Potential) in 1950, and below 1.00 (Real GDP less than potential) in 2019. Real GDP used to be above potential, and now it is below. And remember what the first graph shows: In 1950, potential GDP growth was great, and now it sucks.