2019 Economic Outlook: A Strong Start Followed by Gradual Slowdown

 

By Pamela Babcock December 28, 2018
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​NEW YORK CITY—The global economy will continue expanding as 2019 begins, but rising labor costs and a tight labor market indicate that the growth may peak before the year's end.

The growing shortage of applicants, particularly for blue-collar jobs, is beginning to have "real, physical effects," especially in Europe and the United States, said Bart van Ark, chief economist for The Conference Board, a New York City-based business think tank.

"We are now seeing labor shortages to be very widespread," he said. "We didn't worry much about this for a long time because the assumption was that technology and widespread automation in industries such as manufacturing would help make up for labor shortages," he explained at a media briefing to introduce The Conference Board's 2019 Global Economic Outlook. Those technologies are evolving much more slowly than many had anticipated, which is hampering productivity, he said.

The global economy is expected to enter 2019 "quite strong," barring any major political or economic disruptions, but moderation will set in as the U.S. fiscal stimulus fades, monetary policy tightens and geopolitical risks accumulate, van Ark said. The Conference Board projects global growth of gross domestic product (GDP) to be 3.1 percent next year, down slightly from 3.2 percent in 2018. Meanwhile, the U.S. GDP is expected to increase to 3.2 percent in early 2019, compared to 3.1 percent in 2018, but it will gradually slow to about 2.5 percent growth by the end of the year as the effects of tax cuts and fiscal spending wane.

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U.S. Forecast

Obstacles to U.S. growth include higher interest rates and trade tensions that create a barrier for business, especially for auto industry imports from Canada and Mexico and technology firms entering the Chinese market, van Ark said. Increases in labor costs, tighter immigration rules and higher minimum wages could also hinder growth.

Housing and auto sales will be "heavily impacted" by rising interest rates, said Gad Levanon, The Conference Board's chief economist for North America. The retail industry will continue to experience a shift away from brick and mortar as online shopping grows. "We may not see an apocalypse, but we're certainly seeing much slower growth in retail employment," Levanon noted. However, he added, there has also been "a very large increase in demand for drivers and warehouse employment," reflecting the growth in online retail.

Wages are expected to grow in once unlikely places. Labor pressure and faster wage growth traditionally have been seen in highly educated white-collar positions, but they are now more visible in blue-collar and low-paid service work. "Transportation is probably the ground zero of that, but also manufacturing, construction, health-support occupations," and even occupations such as cleaning, maintenance and food service, Levanon said. That's due in part to an anticipated decline in the number of workers in those industries who are in the U.S. illegally, and efforts by some states to increase the minimum wage.

Labor turnover is increasing rapidly, making it not just harder to recruit but also to retain employees. According to the U.S. Bureau of Labor Statistics, 3.5 million employees voluntarily quit their jobs in October 2018. That's a quits rate of 2.3 percent, one of the highest since April 2001.

The bright side? Those working may be happier. Job satisfaction has been improving for seven straight years. According to The Conference Board's latest job-satisfaction survey, released in August, 51 percent of U.S. employees feel satisfied overall with their job.

"We're seeing an improvement in satisfaction especially related to labor market tightness on [dimensions] like job security and wages, and especially among lower-income households," Levanon said, adding that the trend reflects wage growth and increased opportunities for people in low-pay service occupations and blue-collar jobs.

HR Takeaways

Labor shortages are forcing companies to hire people with insufficient skills, train them and retain them once they're up to speed, said Ken Goldstein, an economic advisor for The Conference Board. For example, many programs and trucking lines offer free commercial driver's license training for prospective hires, he added.

Even if a company thinks it has all the employees it needs, Goldstein encourages those with so-called gig workers to consider hiring them for full-time roles, even if that means incurring higher costs to pay benefits. "If you find someone who is good and really can do the job, you want to grab them and hold on to them," he said. "With these kinds of shortages, even if you have all the people you need right now, there's going to be some attrition."

Pamela Babcock is a freelance writer based in the New York City area.

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