Savannah Chamber

9 3 lower prices, spending on clothing and shoes will not increase. Among services, providers of healthcare, 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 will be sensitive to the performance of the US. stock market, which—right now—appears to be 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 1.1 percent in 2018, which is less than the 1.5 percent gain estimated for 2017. Job growth will be broadly based geographically and across the major industrial sectors. Only manufacturing will lose jobs. Venture capital—which fuels job creation—will be available in 2018. The rate of job destruction in the private sector will be quite low; thus, 2.5 percent GDP growth will generate 1.1 percent job growth. In addition, GDP growth will continue to outpace productivity growth, which will push firms to hire additional staff as end markets expand. The pace of job growth will decelerate, however, due to a tight labor market and expectations of another year of below average top-line 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 only slightly, net job creation will reduce the unemployment rate from 4.4 percent to 4.1 percent on an annual average basis, which is either full employment, or beyond. The depressed labor force participation rate will prevent wages from rising as fast as one might expect, given the low unemployment rate. The aging population, low levels of unionization, and the higher concentration of firms are additional factors that will limit workers' bargaining power. With the unemployment rate closing in on 4 percent, it is a seller's market for labor. It already is very difficult to hire workers who have very specialized skills. As the labor market surpasses 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 percent. Health insurance costs will be the primary force behind benefit cost increases. Unit labor costs will rise about 2.5 percent, which may imply that the Federal Reserve does not need to raise short-term policy interest rates sharply. 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, employers will invest more in labor-saving equipment and processes. Fourth, the outsourcing of American jobs to developing countries will continue to spread from blue-collar occupations to white-collar occupations. 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. In the coming year, natural resources and mining will post the fastest rate of employment growth, but this sector does not employ many workers. Construction companies will see the second fastest rate of job growth. Professional and business services, hospitality, education, and healthcare will see solid employment gains. Retail, transportation, utilities, information, and government will see limited, but positive job growth. Manufacturing is the only major sector expected to shed jobs. Housing Housing will continue to be a strong tailwind for U.S. GDP growth. That is primarily due to cyclical factors, but the demographic trends also are becoming more supportive. In 2018, the number of single-family home starts for new construction will climb by over 20 percent.

• Cover