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11 5 household debt to GDP was only 76 percent, down from 99 percent a decade earlier. 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 de-leveraging was the unprecedented cycle of wealth destruction that erased 18 percent – $12.2 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 2019, on a nominal basis, households' net worth was $108.6 trillion, exceeding its pre-recession peak by 58 percent. Thus, households became comfortable about taking on more debt and did so in 2019. Due to more uncertainty and less confidence in their economic situation households will be more cautious about adding to their debt levels in 2020. Hence, consumer credit outstanding will rise only slightly, with non-revolving credit (e.g., student loans) increasing faster than revolving credit (credit cards). In 2020, recent and potentially continued 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 much 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 (and potentially negative) 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 the much slower pace of job growth will be adequate to support only 1.5 percent GDP growth, and inadequate to maintain a rate of GDP growth equal to – or above – its long-term average of 2.9 percent. Growth in compensation will support this income growth, but low productivity growth and a gradual increase in the unemployment rate will limit wage and salary increases in 2020. Consumers' outlays will increase much more slowly in 2020 than in 2019. Auto loan delinquencies are rising, 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. Automobile sales will decline in 2020. Spending for nondurable goods and services will increase faster than spending for durable goods, but more household formation and improving housing market conditions will support sales of furniture and durable household equipment and prevent overall sales of durable goods from declining. Price increases and demographic factors will cause spending on pharmaceuticals and other medical products to rise. Spending on food & beverages to rise moderately, but intense competition among retailers for grocery items will limit sales growth due to margin compression. Spending on clothing and footwear will increase slowly. Among services, providers of health care will see above average growth in spending. 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 vulnerable to further setbacks. Labor Markets The U.S. economy recently posted the longest string of consecutive monthly jobs gains in the history of the nation. In 2020, job growth will slow markedly, but it will continue. On an annual average basis, total non-farm employment will increase by 0.8 percent in 2020, which is about half the 1.5 percent gain estimated for 2019 . Job growth will not be as broad-based across industries or geographies as in recent years. For example, manufacturing and retailing will shed jobs. Manufacturing will struggle due to trade tensions, past appreciation of the dollar, and slowing global growth. Retail sales will increase, but retail jobs will be lost as market shares shift to less labor-intensive channels. Nonetheless, most economic sectors will continue to hire as demand for goods and services expands. Less positively, venture capital – which fuels job creation – will be less available. In addition, foreign direct investment will decline. The rate of job destruction in the private sector will be higher than in 2019. Thus, 1.5 percent GDP growth will only generate 0.8 percent job growth. In addition, GDP growth will not outpace productivity growth, which will discourage firms from hiring additional staff. GDP growth will sustain job creation, but the pace of job growth will decelerate sharply. The annual rate of job growth peaked four years ago at 2.1 percent. The trade war, high levels of policy uncertainty, less confidence, and lower business investment will be the main factors behind the slowdown in job growth. Assuming that the labor force participation levels off net job creation will be fast enough to keep the unemployment rate from soaring, but it will not be fast enough to keep the unemployment rate

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