April 2019 National Economic Outlook

Recession Fears Fade With Stronger March Job Growth, Retail Sales

Executive Summary

Job growth bounced back in March, with an increase in employment of 196,000. February job growth was revised higher to 33,000; the initial report of 20,000 had sparked recession concerns. But employment gains have averaged 180,000 per month so far in 2019, well above the pace needed to keep up with underlying growth in the labor force, although below the 2018 average of 223,000. 

  • The unemployment rate held steady at 3.8% in March; outside of a 3.7% rate in late 2018, this is the lowest the unemployment rate has been since 1969. Other measures also show a very tight labor market. 

  • Growth in average hourly earnings slowed a bit in March to 3.2%from one year earlier, but remains solid; competition for workers is boosting pay. Income gains in turn are allowing consumers to gradually increase their spending.

Retail sales increased 1.6% in March, the biggest one-month gain since September 2017. Higher gasoline prices and good auto sales accounted for some of the increase, but sales excluding autos and gasoline were up a strong 0.9% over the month. 

After a big 1.6% drop in retail sales in December, and weak growth in subsequent months, media reports questioned the durability of consumers given that the expansion is almost ten years old.

But with the excellent job market and consumer balance sheets in great shape, household spending will continue to push the economy forward throughout 2019. Total retail sales were up a solid 3.6% in March from one year earlier, with sales excluding autos and gasoline up by the same amount.

  • The consumer price index rose 0.4% in March, the strongest month of inflation since January 2018. 

  • Energy prices rose 3.5% over the month, including a 6.5% jump in gasoline prices, pushing the overall index higher. 

  • Core inflation, excluding food and energy, was a tamer 0.1%; it has been between 0.1% and 0.2% for more than a year. 

  • Overall inflation was 1.9% on a year-over-year basis in March, while core inflation was 2.0%.

  • Total inflation is set to increase a bit in the near term with higher energy prices, but core inflation remains tame, and businesses remain reluctant to raise prices, even with wage pressures building.

This gives the Federal Reserve room to keep interest rates low.

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April National Economic Outlook

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