Most recently, the pace of decline has quickened, with the participation rate declining 1/2 percent per year, on average, over the recovery.11 Productivity growth has also slowed, averaging just 1 percent per year over the recovery, about half the pace over the 50 years prior to the financial crisis.12 Given this data, the Congressional Budget Office now estimates that the growth rate of potential output is only 1.7 percent currently, less than half the rate during the 50 years before 2008.
Nevertheless, although there is evidence of a connection between low potential output growth and a low neutral rate, as pointed out by Hamilton and others, the relationship is not precisely estimated, which leaves considerable uncertainty about the magnitude of the effect.13 Finally, investors' risk sensitivity appears to have been altered by the experience of tail risks during the crisis, which could have a persistent depressing effect on the neutral rate.