July 2018 National Economic Outlook

Economy Continues to Expand in Mid-2018, But Trade Remains a Downside Risk

Executive Summary

The U.S. economy added 213,000 jobs in June, above the consensus expectation for an increase of 195,000. The private sector added 202,000 jobs over the month, with government employment up by 11,000.

  • May job growth was revised up 21,000 to 244,000, while April growth was revised up by 16,000 to 175,000, for a combined upward revision to job growth over the two months of 37,000.
  • The U.S. economy has added an average of 215,000 jobs per month so far in 2018, above last year’s pace of 182,000 per month.

The unemployment rate rose 0.2 percentage point in June to 4.0 percent; this was the first increase in the unemployment rate since August 2017. Outside of April and May, this is the lowest the unemployment rate has been since the end of 2000. The unemployment rate rose for a good reason. More than 600,000 people entered the labor force in June, encouraged by the tight job market. The labor force participation rate (share of adults working or looking for work) rose by 0.2 percentage point over the month to 62.9 percent; since the beginning of 2016 it has been in a narrow range between 62.6 and 63.0 percent.

The number of people employed in the household survey (different from the survey of employers) rose by an unspectacular 100,000 in June, but growth has averaged almost 260,000 per month so far this year.  Average hourly earnings rose 0.2 percent in June, a slowing from 0.3 percent growth in May. Year-over-year growth in wages was 2.7 percent in June, unchanged from May.

The U.S. and the European Union reopened negotiations to reduce tariffs on July 25, but disagree on what they are discussing: E.U. President Jean-Claude Juncker said it was “zero tariffs on industrial goods,” while President Trump said “zero tariffs on non-auto industrial goods.” Even so, both sides are refraining from adding tariffs during the negotiations, including on imported cars.

The U.S., Canada, and Mexico resumed NAFTA renegotiations after Mexico’s July election. The U.S. imposed 25 percent incremental tariffs on $34 billion of Chinese imports on July 6, and China retaliated with equivalent tariffs on U.S. exports. China’s yuan has depreciated 8 percent from its year-to-date peak in April, and the U.S. is pursuing tariffs on hundreds of billions of dollars of other Chinese imports. Further escalation of trade barriers is a major downside risk to U.S. economic growth.

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

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