By Jon Hilsenrath 

This year will go down as one of the best of the nine-year U.S. economic expansion and, by some measures, the best in decades.

The unemployment rate, at 3.7% in November, remained at a 49-year low. Economic output rose 3% in the third quarter from a year earlier, a rate of growth exceeded in only three other quarters in the expansion. Inflation, after a long run below the Federal Reserve's target of 2%, hit the mark without shooting past it. Wage growth picked up.

Many groups often left behind economically enjoyed some of the fruits of growth. The unemployment rate for black Americans, at 5.9% in November, matched May's rate and is at a low never before seen in records going back to 1972. For high school dropouts, the July rate of 5.1% hadn't been seen before in records that began in 1992, though it ticked up a bit in November.

Federal government policy played an important role in the economy's strong performance and, as the impact of those fiscal moves fades, some experts question how long the surging U.S. economy will last.

Personal income tax cuts, together with low unemployment, boosted household disposable income and powered strong consumer spending growth. A lower corporate tax rate, combined with a continued U.S. boom in oil and gas fracking, supported business investment.

Meantime, a congressional budget deal in February led to strong U.S. military spending, while spending by state and local governments also picked up.

"You had some temporary but powerful supports to growth," said Michael Feroli, chief U.S. economist for JPMorgan.

All this convinced the Fed it needed to keep raising short-term interest rates, pushing its benchmark rate up to slightly above 2%, with one more quarter percentage point rate increase expected before year's end.

One sector hit by the Fed's moves was the interest-sensitive housing market, where sales and construction slowed in 2018.

The central bank saw the increases as necessary to ensure the economy doesn't overheat and cause an outsize jump in inflation, or lead to another asset bubble. But President Trump voiced strong opposition, saying the Fed was undermining his growth agenda.

While Mr. Trump's resistance didn't stop the Fed, his views on trade shook up the global economy.

The president imposed tariffs on steel, aluminum, washing machines and solar panels, in addition to tariffs on $250 billion worth of imports from China. He threatened tariffs on car imports globally and the rest of China's $505 billion in merchandise exports to the U.S., while pushing Beijing to buy more from the U.S. and stop subsidizing its state industries. He also persuaded Canada and Mexico to rewrite the North American Free Trade Agreement

Mr. Trump expects his tough-on-trade policies to lead to more exports and investment in the U.S. By the end of 2018, however, it helped lead to something else: a global economic slowdown.

The year began with most major economies expanding in sync. But by the third quarter, output in Germany and Japan had contracted, while China's economy and global trade volumes slowed.

"The economy started 2018 with a tax cut bang, but is ending the year with a trade war whimper," said Mark Zandi, chief economist at Moody's Economy.com.

Financial markets also started flashing ominous signs. A 2017 rally in stock prices stalled while yields on 2-year U.S. Treasury notes rose to near the yield on 10-year notes, a shift in the "yield curve" that in the past has signaled a recession.

Can the good times last next year? It will depend on how much fiscal stimulus fades, how much higher the Fed pushes interest rates and how much farther Mr. Trump continues an aggressive trade agenda meant to strengthen the U.S.'s hand on the global stage in the long run -- at the risk of destabilizing the world economy, and the U.S., in the short run.

Mr. Feroli sees growth slowing in 2019 as the government stimulus fades, but the jobless rate continuing to fall to 3.3%. It might not further a boom, but such low unemployment wouldn't be a bad sequel to a year of outsized growth.

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com

(END) Dow Jones Newswires

December 16, 2018 16:08 ET (21:08 GMT)

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