March 2018 National Economic Outlook

Job Growth Picks Up in 2018, Inflation Pressures Are Building

Executive Summary

U.S. job growth has accelerated in late 2017 and early 2018, with a very strong February jobs report. The U.S. economy added 239,000 jobs in January and 313,000 in February, compared to an average of 182,000 per month in 2017.

  • The unemployment rate was 4.1 percent for a fifth straight month in February; this is the lowest the rate has been in 17 years.
  • The broader U6 rate, which also includes the underemployed and those who would like to work but have given up looking for a job, held steady from January to February at 8.2 percent, slightly above its low prior to the Great Recession.
  • One recent positive is that labor force growth has picked up over the last few months, with the share of adults either working or looking for work jumping from 62.7 percent in January to 63.0 percent in February; stronger labor force growth allows for stronger overall economic growth.

GDP growth, adjusted for inflation, was 2.5 percent at an annual rate in the fourth quarter of 2017 according to the second estimate. This was a slowing from 3.2 percent growth in the third quarter, but the details were good. Final sales of domestic product, which is GDP minus inventories and measures demand for U.S.-produced goods and services, increased 3.2 percent in the fourth quarter, up from 2.4 percent in the third quarter; inventories were a large positive for growth in the third quarter, but a big negative for growth in the fourth quarter.

Consumer spending was up 2.5 percent annualized in the fourth quarter, while business fixed investment rose 6.6 percent. Investment in housing rose 13.0 percent, supported by rebuilding in the aftermath of Hurricanes Harvey and Irma. Government added to growth in the fourth quarter, while trade was a large drag.

Inflation is slowly picking up. Wage growth, although uneven, has accelerated in recent months as the tight job market has forced employers to increase pay; higher labor costs will spur firms to raise prices. On a year-ago basis both overall and core (excluding food and energy) inflation, as measured by the consumer price index, accelerated in February. Inflation, as measured by the personal consumption expenditures price index, remains below the Federal Reserve’s 2 percent goal, but should move toward it throughout 2018; this will lead the Federal Open Market

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March National Economic Outlook

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