Working Papers

2019-16 | April 2021


Aggregate Implications of Changing Sectoral Trends


We find disparate trend variations in TFP and labor growth across major U.S. production sectors and study their implications for the post-war secular decline in GDP growth. Capital accumulation and the network structure of U.S. production amplify the effects of sector-specific changes in the trend growth rates of TFP and labor on trend GDP growth. We summarize this amplification effect in terms of sectoral multipliers that, for some sectors, can exceed 3 times their value added shares in the economy. We estimate that sector-specific factors have historically accounted for approximately 3=4 of long-run changes in GDP growth, leaving common or aggregate factors to explain only 1=4 of those changes. Trend GDP growth fell by nearly 3 percentage points over the post-war period with the Construction sector alone contributing roughly 1 percentage point of that decline between 1950 and 1980. Idiosyncratic changes to trend growth in the Durable Goods sector then contributed an almost 2 percentage point decline in trend GDP growth between 2000 and the end of our sample in 2018. Remarkably, no sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.

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Article Citation

Foerster, Andrew, Andreas Hornstein, Pierre-Daniel Sarte, and Mark Watson. 2019. "Aggregate Implications of Changing Sectoral Trends," Federal Reserve Bank of San Francisco Working Paper 2019-16. Available at