Bank of the West Chief Economist Scott Anderson released today the Bank’s 2019 Economic Outlook Report: An Aging Expansion, projecting a United States and global economic forecast for the year ahead.
The report covers a wide range of key economic issues including the anticipated slowing of U.S. job growth, the housing cycle’s peak across the country and in California, the impact of the ongoing U.S. trade wars with China, the consumer spending slowdown, and projected Fed rate hikes.
Key takeaways include:
U.S. GDP growth is forecast to decelerate to 1.9% by Q4/Q4 2019 from 3.1% Q4/Q4 2018. Tightening monetary policy and financial conditions, fading fiscal stimulus, slowing global growth, and emerging market currency crises are all downside factors weighing on the forecast. Adding to the downside risks for 2019 and beyond is the potential for financial instability, an escalating trade war between the U.S. and China, a China economic slump, and high corporate and global debt levels as a share of GDP.
Labor market conditions are expected to deteriorate in the second half of 2019. The U.S. labor market has been a clear bright spot for the U.S. economy in 2018 with 2.5 million jobs created over the past twelve months through October. The unemployment rate is expected to drop to 3.5% by the second quarter but begin to rise again by the fourth quarter of 2019.
Consumer inflation pressures will prove fleeting. Oil and commodity prices have already begun to fall, helping to offset upward pressure on consumer prices from China tariffs and rising nominal wages.
The Federal Reserve will raise the Fed funds target rate range by a quarter percentage point three more times before pausing. We forecast the next hike in December and two more in 2019 (March and June). By March 2020, the Federal Reserve is forecast to start cutting the Fed funds rate again as economic growth softens materially.
The best days are probably behind us for this economic growth cycle. U.S. economic growth in 2018 was the strongest for this expansion so far (3.1% Q4/Q4). The unemployment rate dropped to a 49 year low of 3.7%, consumer confidence hit an 18-year high, and the stock market hit record highs as icing on the cake.
The global economy has been losing momentum throughout 2018. The emerging market currency crisis, China credit tightening, the escalating trade war, and U.K. Brexit have all weighed on global growth this year. We forecast continued deceleration in the U.S., China, Japan, and the European Union in 2019.
Scott Anderson has broad expertise in United States and California macro-economic topics, including: monetary policy and the Fed; employment and labor market trends; international economics; and the housing market. He is recognized as one of the nation’s top economic forecasters by Bloomberg and MarketWatch and was ranked ninth on Bloomberg’s list of Top Forecasters in the U.S. Economy over the past two years. The Wall Street Journal also named Scott as one of the most accurate economic forecasters last year.
To view Scott Anderson’s full report and daily economic commentary from Scott, please visit the Bank of the West Blog.
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