December 2018 National Economic Outlook

Continued Solid Job Growth; Fed Raises Rates to Close out 2018

Executive Summary

The U.S. economy added 155,000 jobs in November, after a gain of 237,000 in October. Job growth has averaged 206,000 per month so far in 2018, up from 182,000 per month in 2017.

  • Goods-producing industries added 29,000 jobs in November, after a big increase of 53,000 in October.
  • Private service-providing industries added 126,000 jobs for the month, while there were job losses of 6,000 in government.
  • The unemployment rate held steady at 3.7 percent in November for a third straight month, the lowest since 1969. With the tight labor market employers are boosting pay.
  • Average hourly earnings were up 3.1 percent in November from one year earlier, the same rate as in October; wages are growing at their fastest pace since 2009.

As expected, the Federal Open Market Committee raised the federal funds rate by one-quarter of a percentage point on December 19, to a range of 2.25 to 2.50 percent. The decision was unanimous. This was the fourth increase this year (every other FOMC meeting).

The FOMC has been gradually raising the fed funds rate from a near-zero level since late 2015.

In its forward-looking section, the FOMC statement said that “the Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.”

The addition of the word “some” to the statement in December suggests that while the FOMC expects to continue raising the rate fed funds rate in 2019, it may be approaching the end of its tightening cycle. The language on current economic conditions was unchanged from the previous statement, on November 8, and was quite positive, despite recent stock market volatility.

Oil prices are falling at the end of 2018, down to around $45 for a barrel of West Texas Intermediate crude, from $76 in early October. Increased U.S. production in response to higher prices earlier this year, slightly slower global economic growth, and the decision by the Trump administration to grant waivers to major importers of Iranian oil have all pushed down oil prices.

The big drop in oil prices will slow inflation in late 2018 and early 2019, giving the FOMC more leeway to keep interest rates low and support economic growth.

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December National Economic Outlook

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