2019 Economic Forecast

Features - the economy

The Conference Board: Tightening federal reserve monetary policy will slow but not halt growth in 2019.

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December 7, 2018

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Higher interest rates, and the intention of the Federal Reserve to keep raising them into 2019, will create a more challenging environment for business next year. On the demand side, the fundamentals remain strong. The current 3.7 percent unemployment rate is at its lowest point since the 1960s. This tighter labor market helped average wages and salaries to increase by more than three percent during the past year. Favorable labor market conditions are supporting both elevated consumer confidence and spending growth.

From a business perspective though, higher labor costs mean lower profits. Rising wages also place upward pressure on inflation, forcing the Federal Reserve to raise interest rates faster to keep inflation near its two percent target. Capital costs for businesses are increasing. Fiscal stimulus measures, both tax cuts and increased government spending, helped support growth in 2018 but are also stretching the capital and labor resources of the economy and will provide less support to growth in 2019 as their effects taper off during the year.

Recent equity market volatility, and the fall of key business confidence measures to levels signaling a slower pace of growth, demonstrate that firms will face a more uncertain business environment in 2019 relative to 2018. GDP growth is likely to fall from a high of above four percent growth during the second quarter of 2018, to 2.2 percent by the end of 2019, near its long-term trend.

An aging population means slower labor force growth, especially among workers in jobs not requiring college degrees who are retiring in large numbers. To compensate, firms will have to help workers become more productive through well-chosen investments and improved business practice. Between 2019 and 2028, the U.S. economy is likely to average 2.1 percent annual growth, a figure that can be reached only if businesses overcome demographic headwinds by finding innovative ways of boosting labor productivity.

Source: The Conference Board, www.conference-board.org, published with permission.

About The Conference Board, Inc.: TCB is a global, independent business membership and research association working in the public interest. Its mission is to provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society.

TCB assembles, analyzes and disseminates information in regard to economic conditions and management experience in the United States and other countries.