February 2020 National Economic Outlook

U.S. Economy Solid Ahead of COVID-19

Executive Summary

The U.S. economy (real GDP) expanded at a 2.1 percent annualized rate in the fourth quarter of 2019, according to the Bureau of Economic Analysis. This was the same pace as in the third quarter. For all of 2019, averaged across the four quarters, the U.S. economy grew 2.3 percent, down from 2.9 percent growth in 2018. 

On a year-over-year basis real GDP growth was also 2.3 percent in the fourth quarter. 

  • Growth has slowed since mid-2018, but is still running at a pace allowing for improvement in the labor market. 

  • Consumer spending growth slowed somewhat in the fourth quarter, after unsustainable gains in the middle of 2019, but continued to increase at a solid rate. 

  • A big increase in homebuilding at the end of the year was another positive for fourth quarter growth, as was a smaller trade deficit.

  • Business fixed investment spending declined for a third straight quarter, however, subtracting from growth.

The labor market is in excellent shape in early 2020. The U.S. economy added 225,000 jobs in January, besting the consensus forecast of 155,000. The private sector added 206,000 jobs over the month, while government employment was up by 19,000, supported by hiring for Census 2020. 

Goods-producing industries added 32,000 jobs, with a big gain in construction employment but manufacturing job losses of 12,000. Private service-providing industries added 174,000 jobs in January. The three-month moving average of job growth was 211,000 through January. 

Average hourly earnings rose 0.2 percent in January, and were up 3.1 percent from one year earlier. The unemployment rate rose slightly to 3.6 percent, from a 50-year low of 3.5 percent in November and December.

As expected, on January 29 the Federal Open Market Committee kept the fed funds rate unchanged in a range of 1.50 to 1.75 percent, in a unanimous decision. However, the accompanying statement was released well before the extent of the COVID-19 (coronavirus) outbreak was clear. The statement was about as uneventful as they come. 

The committee made no change to policy, made only two minor tweaks to the statement, and did not indicate where it sees policy heading in the near term.

In December the FOMC’s last Summary of Economic Projects, or “dot plot,” indicated that the committee expects the fed funds rate to remain in its current range throughout 2020; there was nothing in the January 29 statement to show anything different.

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

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