Jim Glassman, Head Economist, Commercial Banking
From an economic perspective, 2018 was a very good year for the US—the unemployment rate dropped to the lowest level since the 1960s and inflation was well-behaved as it only edged back to 2 percent.
Outside of tariff threats earlier in the year, and pressures in emerging markets related to China’s currency devaluation, the global picture was mostly stable. Slower than expected growth in Japan was a result of natural disasters, but their economy started rebounding later in the year. And as anticipated in the US, growth remained strong, supported by significant fiscal stimulus from last winter.
Heading into 2019, the stimulus likely will start to fade out. The big question for the new year is whether other factors—such as tax reform or unfilled jobs—will replace the stimulus in generating new economic energy.
One of the key areas to watch in 2019 is the labor market. According to our annual Business Leaders Outlook survey, 60 percent of middle market executives said their top business challenge is the limited supply of candidates available. With more than 7 million open jobs in the US, finding and keeping talent continues to be a challenge in every industry.
Of course, the character of the job market at full employment is very different from what it was over the last decade. Some people may be pulled back to work as opportunities expand. Immigration reform could also bring skilled workers to the US, boosting the overall growth potential and helping reduce the likelihood of a slowdown as the labor market continues to tighten.
The inflation story is another one to watch. Although the economy is at full employment, it doesn’t appear to be overheating, as many feared earlier this year—we’d see that with faster inflation, which hasn’t happened yet. This also means the Fed can continue its path to normalization, and eventually stop raising interest rates—which could happen in 2019.
Although we’re in one of the longest-running expansions in US history, there aren’t any immediate signs of an impending recession. Businesses can be cautiously optimistic, given the strong fundamentals of the current economy and the lack of any obvious speculative bubbles.