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Nation could see strong job creation to start 2019


The latest data suggest that the economy added about 2.4 million jobs in 2018. That marks an increase from the total of 2.2 million in the prior year, at a time when a tight labor market made it seem inconceivable that job growth could further accelerate. Will job creation continue firing on all cylinders in 2019? The economy looks poised to enter the new year with substantial momentum. But later in the year, expect some headwinds to start slowing it down, including the pace at which it churns out jobs.

Let us start with the good. Despite all the recent stock market volatility, which some view as a precursor to a recession, 2019 will open on an economic high note. The current anxieties over the stock market seem overblown due to the weak correlation between the ups and downs of financial markets and actual economic activity. When it comes to job creation, actual economic activity matters more than anything else.

For example, take consumption, a tangible activity that falls within the real economy. It accounts for close to 70 percent of our gross domestic product, meaning that the economy goes where consumers take it. New survey data on retail sales suggest that in the fourth quarter of this year, consumer spending increased by about 4 percent. That marks the third quarter in a row in which consumer spending has grown by over 3.5 percent, versus the 2.5 percent average in the last two decades.

Solid progress with wage growth also helps give consumption a bright outlook in the short term. The main wage growth measures continue accelerating and will soon reach rates before the financial crisis. Faster wage growth is boosting household purchasing power and consumer confidence, which spells good news for job creation in coming months.

Also, at the onset of the new year, the Bipartisan Budget Act of 2018 will start to kick in. It significantly raises federal spending, mostly on defense but on other programs as well. Consumption and federal spending alone will contribute to strong gross domestic product growth in the first half of the year, making a dramatic slowdown in economic activity unlikely.

But as the middle of the year approaches, a few factors could put a drag on job creation. First, the tax cuts passed in 2017, which were a main driver of accelerating economic activity this year, will deliver a weaker economic punch. In 2019, their remaining impact will likely decrease due in large part to some of the provisions being one time occurrences.

Inflation also will likely contribute to a slowdown in job creation. With inflation pressures becoming more palpable, the Federal Reserve will likely continue raising interest rates. A few more hikes will start to put the brakes on housing and other parts of the economy. That could in turn hinder job creation in sectors like construction and for small business.

Moreover, factors from abroad will impact the economy. A combination of a stronger dollar, trade disruptions, and growth slowdowns in our major trading partners such as Europe, Canada, and China will hurt American exports. That would then hinder job creation in the manufacturing sector.

As a result of slower economic growth in 2019 and a historically tight labor market, the number of new additional jobs will likely come in at no more than 2 million. As the population becomes more educated while the demand for blue collar workers continues to grow, shortages in these jobs will pose a major challenge to the economy expanding in coming years.

The new year could very well bring additional twists and turns in the economy, ones that could either help or hurt job creation. But based on the current political and labor market dynamics, and those we think look likely to unfold ahead, expect a strong start followed by moderation.

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