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Economic Forecasts

Fed Will Keep Raising Rates amid Tight Labor Market

Kiplinger’s latest forecast on jobs

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GDP 2.5% growth in '19, down from 2.9% in '18 More »
Jobs Unemployment rate will decline to 3.4% by end '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.3% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing 5.35 million existing-home sales in ’19, down 0.4% More »
Retail sales Growing at least 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Hiring surged in December, with 312,000 jobs created after a moderate gain of 176,000 in November. All major sectors contributed, including retail. Health care and food services added jobs at an especially strong clip. However, in 2019, expect fewer than 200,000 new slots monthly because of the scarcity of workers.

Unemployment rose to 3.9% in December as more people began looking for work. The rate should drift down to 3.4% by the end of 2019. Hiring demand will likely outstrip the number of new entrants to the labor force. The short-term unemployment rate (those unemployed for less than six months) is close to its lowest level since the Korean War in 1953.

More evidence of a tight labor market will prompt the Federal Reserve to keep raising rates: At 7.1 million in October, there are now 1 million more vacancies than unemployed Americans. Opportunities are especially high in construction, food services, health care, retail and durable goods manufacturing.

Nonsupervisory workers’ paychecks rose at an annual rate of 3.3% in December. 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 swell 3.5% 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.