While low unemployment and fast
wage growth continue to illustrate the current strength of the economy, business
conditions are becoming more challenging. As the Federal Reserve raises interest
rates, financing costs rise, which has led business confidence and investment
measures to retreat slightly in recent months to levels that still imply solid
growth. But the combination of rising interest rates and higher wages will limit
business profit growth in 2019, helping to drag GDP growth from its peak above 4
percent in the middle of 2018 to near its 2.2 percent long-term trend by the end
of 2019. Slow long-term labor force growth demonstrates that tight labor markets
will be common over the next decade, providing even greater incentive for firms
to raise productivity.