2019 Economic Outlook: Commercial Banking | J.P. Morgan

From an economic
perspective, 2018 was a very good
year for the U.S. The unemployment
rate dropped to the lowest level since
the 1960s and inflation was well
behaved as it only inched back
to 2 percent. Outside of tariff
threats earlier in the year and
pressures in emerging markets
related to China’s currency
devaluation, the global picture was
mostly stable. Slower than expected
growth in Japan was a result of natural
disasters but their economy started
rebounding later in the year and as
anticipated in the U.S., growth remained
strong, supported by
significant fiscal stimulus from
last winter. Heading into 2019
the stimulus likely will start to
fade out. The big question
for the new year is whether other
factors such as tax reform or unfilled
jobs will replace the stimulus in
generating new economic energy. One of the key areas
to watch in 2019 is the labor market. According to our
annual business leaders outlook
survey, sixty percent of middle
market executives said their top
business challenge is the limited
supply of candidates available. With more than seven
million open jobs in the U.S., finding
and keeping talent continues to be a
challenge in every industry. Of course, the
character of the job market at full
employment is very different from what
it was over the last decade, some people
may be pulled back to work as
opportunities expand. Immigration reform
could also bring skilled workers to
the U.S., boosting the overall growth
potential and helping reduce the
likelihood of a slowdown as the
labor market continues to
tighten. The inflation story
is another one to watch, although the
economy is at full employment it
doesn’t appear to be overheating, as
many feared earlier this year. We’d see that with
faster inflation which hasn’t
happened yet. This also means the
Fed can continue it’s path to
normalization and eventually stop
raising interest rates, which could
happen in 2019. Although we’re in
one of the longest running expansions
in U.S. history, there
aren’t any immediate signs of an
impending recession, businesses can
be cautiously optimistic given the
strong fundamentals of the current
economy and the lack of any obvious
speculative bubbles.

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