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Economic Forecasts

Tightening Labor Market Will Keep Fed Raising Rates

Kiplinger’s latest forecast on jobs

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GDP 2.7% growth in ’19, down from 2.9% in ’18 More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.4% at end ’19, unchanged from end ’18 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing Price growth: 5.0% by end of ’18 More »
Retail sales Growing 4.5%% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’18 More »

Hiring rebounded smartly from hurricane season, picking up to 250,000 new jobs in October, after a gain of only 118,000 in September. All major sectors contributed, including retail. However, in 2019, expect fewer than 200,000 new slots per month because of the scarcity of workers.

Unemployment stayed at 3.7% in October. The rate should stabilize for the rest of the year but will likely edge down in 2019. The short-term unemployment rate (those unemployed for less than six months) is at its lowest level since the Korean War in 1953. Monthly initial unemployment claims this year are the lowest since 1969. Few companies are laying off in this climate.

More evidence of a tight labor market will keep the Federal Reserve raising rates: At 7.1 million, job openings set another record in August. There are now 1 million more vacancies than there are unemployed Americans. Opportunities are especially high in construction, food services, health care, retail, transportation and warehousing.

Nonsupervisory workers’ paychecks rose at an annual rate of 3.2% in October. After seeing growth of roughly just 2.5% for several years, worker bees are finally getting bigger raises, indicating a constricting labor market.

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Expect salaries to advance at a 3.5% rate by the end of 2019. Some economists worry that fatter paychecks will stoke inflation. That could happen, but not immediately, because businesses are more cautious about raising prices in today’s competitive environment. And some businesses won’t be able to charge more and will have to accept reduced profits instead.