Although there are some challenges ahead and potential risks, the U.S. economy appears set for moderate growth over the next few years according to our latest forecast. Here is a look at recent performance and key trends affecting the outlook.

Data from the U.S. Bureau of Labor Statistics indicate that total nonfarm payroll employment increased by 292,000 in December, following gains of 252,000 in November and 307,000 in October. The unemployment rate now stands at 5.0 percent. Particularly strong hiring has been occurring in construction, professional and technical services, and health care, while mining (which includes oil and gas drilling) and information have been losing jobs.

Despite the notable overall gains, the number of long-term unemployed (defined as persons jobless for 27 weeks or more) has remained steady at 2.1 million. The problem of long-term unemployment has been stubbornly persistent since the Great Recession, and the workforce participation rate remains low by historical standards. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) also showed little change at 6.0 million in December, though it is down by 764,000 over the year. Over time, continued improvement in the U.S. job market is expected, setting the stage for more robust conditions.

The economy should be able to maintain forward momentum even with modestly increasing interest rates associated with the normalization of monetary policy by the Federal Reserve. This normalization is necessary in order to avoid undesirable outcomes such as excessive inflation. The December decision was not unexpected; in fact, many analysts had anticipated the Federal Reserve to take action to begin to raise target interest rates at an earlier meeting. However, because inflation rates were below target levels, there was still room for improvement in the labor market, and a major world economy (China) was showing signs of instability, the Open Market Committee decided to leave target rates unchanged until December.

A potential constraint to U.S. economic growth is the fact that trillions in infrastructure investment are needed to address problems ranging from roadways and bridges to waterways to schools. In addition, progress toward alleviating judicial insufficiencies will be important to maintain adequate functioning of the U.S. court system.

Uncertainty around the world is also a source of concern. Tensions remain high in several regions around the globe. In the wake of terrorist attacks in California, Paris, and elsewhere, uncertainty has increased. Deteriorating relations among countries in the Middle East and elsewhere could affect global economies and U.S. economic performance. In addition, the refugee crisis is straining social service networks across much of Europe, and several nations are facing challenging debt levels. Major escalation of these situations could adversely affect growth in the U.S. economy.

The difficulties in the Chinese economy continue to affect global conditions, as indicated by recent stock market gyrations around the world. As one of the world’s largest economies, the growth (or lack thereof) in China sends ripple effects through world markets. In spite of data deficiencies, it is becoming clear that (1) expansion, while still present, is slowing markedly, (2) the stock market is struggling, and (3) the effects of other imbalances are intensifying. Chinese policymakers have been attempting to deal with situations that must be corrected (such as debt, a bubble in equity prices last year followed by major corrections in the fall of 2015 and early 2016, real estate overhang, troubled loan portfolios in major banks, and currency exchange issues) and continue to cause disruptions.

In spite of these challenges and the potential for short-term disruptions, I believe the U.S. economy will continue to expand.  Our latest projections call for compound annual growth in real gross product (RGP) of 3.17 percent through 2020, resulting in a gain of almost $2.8 trillion. Employment growth of 1.68 percent per year over the period is forecast, for a total increase in employment of more than 12.3 million.

Recent volatility in the U.S. stock market, oil prices at long-time lows, terrorist threats, and other bad news are increasing jitteriness and pessimism. Even so, the US economy remains on solid ground. Unless there is a major escalation of global tensions or a worse-than-anticipated meltdown in China, I think we will see job growth and economic expansion over the near-term horizon.