Academic journal article Chicago Fed Letter

Economic Outlook Symposium: Summary of 2018 Results and 2019 Forecasts

Academic journal article Chicago Fed Letter

Economic Outlook Symposium: Summary of 2018 Results and 2019 Forecasts

Article excerpt

The Federal Reserve Bank of Chicago held its 32nd annual Economic Outlook Symposium on November 30, 2018. More than 125 economists and analysts from business, academia, and government attended the conference. This Chicago Fed Letter reviews the forecasts for 2018 from the previous EOS, and then analyzes the forecasts for 2019 (see figure 1) and summarizes the presentations from the most recent EOS.

The U.S. economy entered the tenth year of its expansion in the third quarter of 2018, already having become the second-longest expansion in U.S. history. While the nation's real gross domestic product (GDP) is at its highest level ever, the rate of economic growth since the end of the Great Recession in mid-2009 has been quite restrained. During the 37 quarters following the second quarter of 2009, the annualized rate of real GDP growth was 2.3%-somewhat above what is considered the long-term rate of growth for the U.S. economy.

The economy expanded by 2.5% in 2017-a bit higher than the current expansion's average. Then, in part boosted by economic stimulus offered by the federal tax reform passed in December 2017 (the Tax Cuts and Jobs Act), the economy's growth accelerated to an annualized rate of 3.2% during the first three quarters of 2018.

The strength in economic growth in 2018 was broad-based. Consumer spending expanded at a solid pace in 2018: Real personal consumption expenditures grew at an annualized pace of 2.6% during the first three quarters of 2018-nearly the same growth rate recorded in 2017. The pace of light vehicle sales (car and light truck sales) was 17.2 million units in 2018-0.5% higher than the selling rate in 2017.

Energy prices increased sharply during the first ten months of 2018. Specifically, the average price of West Texas Intermediate oil rose from $57.90 per barrel in December 2017 to $70.76 per barrel in October 2018. Oil prices then collapsed in November, partly because of the rising global supply of oil and partly because of slowing economic growth around the world; oil prices fell to an average of $49.14 in the final month of 2018.

Even with higher oil prices for most of the year, more consumers chose to purchase larger, less fuel-efficient vehicles than in the year before: Sales of light trucks (including sport utility vehicles) were up 7.7% in 2018 compared with the previous year, while sales of passenger cars were down 12.8%. This shift in consumer demand (which continued a trend from the past couple of years) led to a record-setting share for light trucks of 69.1% of overall light vehicle sales in 2018.

Despite the slight increase in light vehicle sales, industrial production expanded at an annualized rate of 3.7% over the first 11 months of 2018-better than its growth rate of 3.0% in 2017. The improvement in industrial production was largely due to strengthening business investment. Real business fixed investment, which had already grown at a strong 6.3% pace in 2017, rose at an even better annualized rate of 7.5% over the first three quarters of 2018.

In contrast, residential investment did not fare as well. After expanding by 3.8% in 2017, real residential investment declined at an annualized pace of 2.8% during the first three quarters of 2018. That said, the annualized rate of housing starts still increased to 1.26 million units for the first 11 months of 2018-up 4.7% relative to the same period in 2017.

On an annualized basis, growth in real government spending was 2.2% over the first three quarters of 2018-well above its average annual rate of 1.2% over the past 20 years.

Against this backdrop, the U.S. economy continued to increase employment in 2018: 2.64 million jobs were added last year. Moreover, in the final quarter of 2018, the unemployment rate stood at 3.8%-below most economists' estimates of the natural rate of unemployment (i.e., the rate that would prevail in an economy making full use of its productive resources).

Inflation, as measured by the Consumer Price Index (CPI), increased from a 2. …

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