Savannah Chamber

9 3 that deleveraging is over. In 2015-2018, households slowly increased leverage and they will continue to do so in 2019. One concern is that extreme volatility in the financial markets may cause jittery consumers to push up the household savings rate very sharply, which would precipitate a recession. One factor behind deleveraging was the unprecedented cycle of wealth destruction that erased 19 percent – $13 trillion – of households' net worth. That is a huge number. Households' net worth began to recover in the second quarter of 2009, which lessened one of the pressures that caused consumers to pull back sharply on spending. By the third quarter of 2012, households recovered all of their nominal losses. As of early 2018, on a nominal basis, households' net worth surpassed $100 trillion, exceeding its pre-recession peak by 49 percent. Thus, households became comfortable about taking on more debt and did so in 2018. Households will add even more to their debt levels in 2019, but less aggressively than in 2018. Hence, consumer credit outstanding will rise by 4 percent, with revolving credit increasing much faster than non-revolving credit. In 2019, turmoil in the U.S. stock market is likely to lower consumer confidence and/or reduce financial equity wealth, but real estate wealth should continue to increase, albeit at a more modest pace. That is important to the outlook because real estate wealth tends to have a larger influence on overall consumer spending than equity-based wealth. Changes in equity-based wealth have a significant influence on spending for luxury items and on spending by retirees – or near retirees, however. With the wealth effect on the sidelines, job creation – and the income growth that accompanies it – is vital to the outlook for both consumer spending and the overall economy. The forecast anticipates that job growth will be adequate to support 2.5 percent GDP growth, but inadequate to maintain a rate of GDP growth equal to – or above – its long-term average of 2.9 percent. Growth in the number of jobs, the number of hours worked per job, and compensation will support this income growth. Low productivity growth will prevent wages from rising very rapidly, however. In addition, the labor force participation rate will rise slightly, albeit from a depressed level. Consumers' outlays will increase more slowly in 2019 than in 2018. Auto loan delinquencies are rising quickly, especially for subprime loans. Traditional lenders will tighten credit for auto loans, but non-traditional lenders will loosen credit to customers with poor credit scores. Spending for durable goods will no longer increase significantly faster than spending for nondurable goods and services, but it will increase. More household formation and improving housing market conditions will power sales of furniture and durable household equipment. Outlays for information processing equipment will grow strongly. Price increases and demographic factors will cause spending on pharmaceuticals and other medical products to rise. Higher commodity prices and population growth should cause spending on food & beverages to rise moderately, but intense competition among retailers for grocery items will limit sales growth due to margin compression. Due to price competition, spending on clothing and footwear will increase slowly. Among services, providers of health care, food services, and accommodations will see above average growth in spending. In contrast, consumers' outlays for telecommunications services will grow relatively slowly. Consumers' spending on luxury goods should expand in line with the overall economy, but such spending will be sensitive to the performance of the U.S. stock market. At the time of this writing, the U.S. stock market appears to be moderately overvalued and therefore vulnerable to correction. Labor Markets The U.S. economy recently posted the longest string of consecutive monthly jobs gains in the history of the nation. Job growth will continue. On an annual average basis, total nonfarm employment will increase by 1.3 percent in 2019, which is less than the 1.5 percent gain estimated for 2018. Job growth will be broadly based both geographically and across the major industrial sectors. One exception, however, is manufacturing, which will lose jobs. Companies will hire as demand for goods and services expands. Venture capital – which fuels job creation – will be available. The rate of job destruction in the private sector will be quite low. Thus, 2.5 percent GDP growth will generate 1.3 percent job growth. In addition, GDP growth will outpace productivity growth, which will push firms to hire additional staff as end markets expand. GDP growth will sustain job creation, but the pace of job growth will continue to decelerate – the annual rate of job growth peaked in 2015 at 2.1 percent. The very tight labor market and expectations of below average top-line growth will be the main factors behind the slowdown in job growth. More positively, a larger share of the new jobs will be full-time rather than part-time. Assuming that the labor force participation increases slightly, net job creation will reduce the unemployment rate from 3.8 percent to 3.5 percent on an annual average basis, which is beyond full employment. Increases in the labor force participation rate will vent some of the pressures on wages. Compensation therefore will not increase as much as one might expect given the

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