May 2018 National Economic Outlook

Executive Summary

The U.S. economy expanded 2.3% at a seasonally adjusted annualized rate in first-quarter 2018. This was softer than the average 3% growth over the previous three quarters, but real GDP was up 2.9% from one year earlier in the first quarter, the biggest year-over-year gain since second-quarter 2015. The details were a bit weaker than the headline number.

• Inventories added 0.4% point to growth after being a big drag in fourth-quarter 2018.
  
• Final sales of domestic product, which is GDP minus the change in inventories and measures domestic and foreign demand for goods and services produced in the United States, increased 1.9% at an annual rate in the first quarter.

The United States added 164,000 jobs in April, with gains of 168,000 in the private sector and losses of 4,000 in the government sector. There was a combined upward revision to job growth in February and March of 30,000. The U.S. economy has added an average of 200,000 jobs per month so far in 2018, above last year’s pace of 182,000. The unemployment rate fell 0.2% point in April to 3.9%, down from 4.1% in the previous six months. This is the lowest unemployment rate since December 2000.

However, the unemployment rate fell because the labor force (the number of people either working or looking for work) fell by 239,000 in April. The number of jobs in the household employment survey (different from the survey of employers) rose just 3,000 in April. Still, job growth in the household survey has averaged close to 300,000 so far in 2018. The broader U-6 unemployment rate (unemployed, underemployed, and too discouraged to look for a job) fell from 8.0% in March to 7.8%, its lowest since mid-2001. Average hourly earnings in April were up 2.6% from one year earlier, unchanged from the March pace.

Productivity in the nonfarm business sector rose 0.7% at an annual rate in the first quarter. This was an acceleration from the 0.3% increase in the fourth quarter of last year but below the 1.3% pace for all of 2017. After solid gains in the middle of last year, productivity growth slowed in late 2017 and early 2018. Productivity growth has been disappointing throughout the current economic expansion. Absent an acceleration in productivity growth, we believe economic growth in the United States is likely to remain well below its long-run average.

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

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