December 2019 National Economic Outlook

Blockbuster November Jobs Report; FOMC Holds Fed Funds Rate Steady

Executive Summary

November’s job report was exceptionally strong, even after accounting for the end to the GM strike. The U.S. economy added 266,000 net new jobs over the month, including 254,000 in the private sector, with combined upward revisions to job growth in September and October of 41,000. 

  • Job growth has averaged 205,000 over the past three months, the best pace since January of this year.
  • Employment in motor vehicle and parts manufacturing increased by 41,000 in November, after declining by 43,000 in October with the strike. 
  • The unemployment rate fell to a 50-year low of 3.5 percent in November, and wage gains were solid. 
  • The labor market is in great shape heading into the holiday shopping season, supporting household purchases.

As widely expected, on December 11 the Federal Open Market Committee kept the fed funds rate in a range of 1.50 to 1.75 percent. The FOMC statement was positive on the economic outlook, and described the current stance of monetary policy as “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.” 

The decision to keep the fed funds rate unchanged was unanimous. According to the Summary of Economic Projections, or “dot plot,” released along with the policy statement, the FOMC expects to keep the fed funds rate in its current range throughout 2020, with one rate increase in 2021 and another in 2022. This would take the funds rate to a range of 2.00 to 2.25 percent by the end of 2022.

In December the Trump administration announced a “Phase One” agreement with China to reduce trade tensions. With the deal the U.S. did not impose tariffs on Chinese imports scheduled to take effect on December 15, and reduced tariffs on $120 billion of Chinese imports to 7.5 percent, from 15 percent. 

Previously implemented tariffs of 25 percent on $250 billion of Chinese imports remain in place. China agreed to increase its purchases of U.S. agricultural products. While the agreement reduces some of the uncertainty over trade relations between the U.S. and China, the most contentious issues between the two economies remain, including treatment of intellectual property and restrictions on U.S. services exports to China. Negotiations on a broader trade deal continue, and while the situation has calmed, it could easily flare up again. 

PNC does not expect a substantive U.S.-China trade deal before late 2020.

Our economics team is consistently analyzing and forecasting national, regional and global economic trends.

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