Savannah Chamber

10 4 low unemployment rate. The aging of the population, low levels of unionization, and the higher concentration of firms are additional factors that will limit workers bargaining power. With the unemployment rate well below 4 percent, it is a seller's market for labor. It is very difficult to hire workers that have very specialized training or educational requirements. As the labor market remains beyond full employment, wage growth will accelerate, but low productivity growth will prevent wages from rising too rapidly. Wages and benefits will rise by about 3.4 percent. Health insurance costs will be the primary force behind benefit cost increases. Unit labor costs will rise about 2.3 percent. One implication of the slow growth of unit labor costs is that the Federal Reserve does not need to raise short-term policy interest rates or reduce the size of its balance sheet too aggressively. Although net hiring will expand, several factors will limit the gains. First, below average GDP growth limits the impetus to hire. Second, a slight pickup in productivity will slow job growth. Third, higher unit labor costs will cause employers to invest more in laborsaving equipment and processes. Fourth, the outsourcing of U.S. jobs to developing countries will continue to spread from blue-collar occupations in manufacturing to white-collar occupations in high tech and service industries. Finally, some of the new jobs that businesses will need to create will not match the skill sets of the unemployed. Fortunately, structural unemployment stemming from labor force immobility will diminish as housing markets improve. However, structural unemployment due to the skills mismatch is unlikely to diminish and probably will worsen – a legacy of cuts in spending by many state and local governments for K-12 as well as adult/technical education and training. In the coming year, construction companies will see the fastest rate of job growth. Natural resources and mining will post the second fastest rate of employment growth, but this sector does not employ many workers. Professional and business services firms will see the third fastest rate of job growth. Leisure, hospitality, education, and healthcare will see solid employment gains. Retail, transportation, utilities, information, and government will see limited, but positive employment growth. Manufacturing is the only major sector expected to shed jobs. Housing Despite fewer sales of existing homes, sales of new homes and homebuilding will be tailwinds for U.S. GDP growth in 2019. That is primarily due to cyclical factors, but the demographic trends also will support of the nation's homebuilding industry. This traditional driver of economic growth finally got traction in 2012, and gained ground in 2013-18, but improvements in homebuilding activity have been uneven both temporally and geographically. In 2019, the number of single-family home starts for new construction will increase by about 7 percent. That large percentage gain in single-family housing starts pales in comparison to the peak-to-trough plunge in activity that occurred. Single-family housing starts peaked at 1.747 million units (annualized rate) in the third quarter of 2005 and bottomed at 356 thousand units in the first quarter of 2009. Existing single-family home prices stabilized in 2012 and rose substantially in 2013-18. Existing home prices will continue to rise, but at a much more moderate rate – about 3 percent in 2019. New limits on the federal tax deductibility of state and local taxes and mortgage interest will restrain – or reverse – home price increases in areas with expensive housing markets. In 2019, the remaining pockets of home price depreciation will be spotty, reflected local imbalances rather than overall macroeconomic conditions. In many markets, home price appreciation therefore will continue to bolster the psyche of the consumer, households' net worth, and homeowners' ability to spend. As the record of home price appreciation lengthens, potential homebuyers who have been waiting on the sidelines will increasingly opt to become homeowners. Rising rents strongly reinforce this trend. Many investors pulled the trigger on home purchases in late 2011 or in 2012, but people who buy homes to live in them did so in increasing numbers in 2013-18. In 2019, the share of homes sold to people who live in them will rise and the share sold to investors will decline. Going forward, the performance of the housing market will depend primarily on the performance of the labor market, with changes in mortgage rates, and credit conditions playing secondary and tertiary roles. Employment and personal income will grow in 2019. These new jobs and bigger paychecks – plus appreciating home values – will give more people the wherewithal and the confidence to buy homes, sustaining the housing market's recovery. Mortgage rates will remain a bargain, but rates will move higher in 2019. The rise in mortgage rates will not be large enough to stop – or reverse – the housing recovery, but it will be a noticeable headwind. Home mortgages should be somewhat easier to obtain, however. Credit conditions will ease as home values and macroeconomic conditions

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