January 18, 2019 | Economic Outlook

Economic Outlook - January 2019

  1. Third quarter Gross Domestic Product (GDP) came in at 3.4%, above the economy’s growth potential of 2.0%. This expansion was driven by a strong consumer, which accounts for two thirds of U.S. GDP. December saw a 0.1% downward revision from the original October estimate of 3.5%. Federal Reserve officials’ GDP estimates for the coming year are 2.3%, a normalized expectation for the world’s largest economy. Given a strong U.S. consumer, tight labor market with increasing wages, financially strong corporations, and a still low interest rate environment, 2% is an achievable growth expectation.

  2. For the fifth consecutive quarter, the Federal Open Market Committee voted to raise the Federal Funds rate target by 0.25%, moving the range up to 2.25%-2.50% for overnight bank lending. Within the meeting minutes, the Fed reduced the number of anticipated 2019 rate hikes from three, down to two. Fed Chairman Powell commented that “We will be prepared to adjust policy quickly and flexibly and use all of our tools to support the economy should that be appropriate.” These comments are consistent with the idea that the Fed will remain “data dependent,” and in line with our expectation that rate hikes should be limited in the coming year if economic growth is, in fact, impaired.

  3. U.S. non-farm payrolls grew by 312K in December, versus an estimated 180K, the largest positive employment surprise since 2009. Average hourly earnings, or wages, increased 3.2% over the year, the best year since 2008. Despite these gains, the rate of unemployment rose from 3.7% to 3.9%, which comes as a result of additional workers entering the labor pool. While only one month of results, these labor statistics are not recessionary, nor pointing in that direction.

  4. Manufacturing in the U.S. showed signs of slowing, as the Institute for Supply Management Purchasing Managers Index posted a 54.1 reading, down from 59.1 in November. A reading over 50 points to an expanding economy, however the 5% decline in December shows signs of the feared deceleration of demand. Despite the deceleration, this marks the 114th month of consecutive, positive expansion. The purchasing managers’ panel comments reflected continued expanding business strength, but at lower levels.

  5. Following a 1% increase in mortgage rates, housing starts stalled to an 18 month low. This marks the third consecutive quarter in which residential housing starts have contracted. On the other hand, multi-family construction surged for the month. The National Association of Realtors (NAR) Pending Home Sales Index declined 0.7% in November. This is an example of how an economy can slow during an increasing interest rate environment.

Sources: Bloomberg LLC, U.S. Commerce Department, Bureau of Labor Statistics, Dow Jones Inc. MarketWatch, Federal Reserve Bank, FactSet, Empirical Research Partners

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

If you would like to receive your copy of the Economic Outlook and Investment Review monthly in the mail, call Ed Sullivan, Vice President, at 617-557-9800, or email him at