CHERRY HILL, N.J., Sept. 22, 2016 /PRNewswire/ -- The American
economy is doing better than the headlines suggest and should
continue to add jobs at a steady pace, according to a new report by
TD Economics (www.td.com/economics), an affiliate of TD Bank,
America's Most Convenient Bank®.
"Economic growth averaged just 1.0 percent over the first half
of the year, but beneath the surface things look better," says TD
Bank's Chief Economist, Beata
Caranci. "Robust personal income growth translated into
strong consumer spending alongside a rise in the savings rate. This
suggests consumers have more gas in the tank and the economy rests
on a stronger footing."
Supported by rising incomes and low energy prices, economic
growth is expected to move higher over the next year. TD Economics
projects real GDP growth of 1.5 percent in 2016 and 2.1 percent in
2017, enough to bring the unemployment rate from its current level
of 4.9 percent to 4.5 percent by the end of 2017.
Reticent businesses, but resilient consumers
The soft spot in the economy in recent quarters has been
business investment. In addition to falling commodity prices, the
decline in investment reflects the impact of tighter financial
conditions at the start of the year and the pressure on profits
from sharply rising dollar. Both of these have recently
improved.
"Investment has already shown signs of a recovery through the
summer, which should remain supported by a sturdy domestic sales
backdrop over the remainder of this year. However, investment won't
be a growth-leader within a global environment marked by more
cautious business spending and more subdued growth expectations
relative to historical norms," says Caranci.
That leader position will be occupied by households and
spending. Consumer spending ran at a rousing rate of 4.4%
(annualized) in the second quarter. "This was exceptional, and
expect some moderation in the quarters ahead," says Caranci. "But,
a tightening labor market, solid income growth and low gasoline
prices give every reason to expect consumers to lead economic
growth."
Follow the leader, as housing responds to strong
demand fundamentals
"Housing construction is still in the early stages of recovery
with household formation having plenty of runway still in front of
it," says Caranci. "And, demand continues to improve, with new home
sales rising to a post-recession high in recent months."
The inventory of unsold homes is low, offering a good incentive
for housing starts to move higher. From an average of 1.2 million
in 2016, TD Economics expects housing starts to rise to 1.3 million
in 2017 and 1.4 million in 2018.
Another December rate increase likely from the Federal
Reserve
A modest rebound in investment in concert with solid household
spending should lift real GDP to around the 2.0 percent mark over
the next two years, enough to put further downward pressure on
unemployment and upward pressure on inflation. This is all the
progress the Fed needs to see to be comfortable in continuing to
raise its key policy rate.
"Fed speakers in recent weeks have noted that the continued
improvement in the economic outlook was likely to justify a move
higher in the federal funds rate." says Caranci. "As long as the
economic backdrop remains supportive of a 2 percent pace, we expect
them to stick to their guns."
Investors are currently pricing in greater than 50 percent odds
of a 25 basis point rate increase by year-end. Assuming relative
market calm prevails, the Fed will likely nudge up interest rates
at its December FOMC meeting.
"Still, as it has been thus far (just one rate hike per year),
the path forward is likely to be glacial," says Caranci. "We
anticipate just one hike in 2017 and one more in 2018, bringing the
Fed funds target to just 1.25 percent by the end of that year."
TD Economics provides analysis of global economic performance
and forecasting, and is an affiliate of TD Bank, America's Most
Convenient Bank®.
The complete findings of the TD Economics report are available
online at
https://www.td.com/document/PDF/economics/qef/qefsep2016_us.pdf.
About TD Bank, America's Most Convenient
Bank®
TD Bank, America's Most Convenient Bank, is one of the 10
largest banks in the U.S., providing more than 8 million customers
with a full range of retail, small business and commercial banking
products and services at approximately 1,300 convenient locations
throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas
and Florida. In addition, TD Bank
and its subsidiaries offer customized private banking and wealth
management services through TD Wealth®, and vehicle
financing and dealer commercial services through TD Auto Finance.
TD Bank is headquartered in Cherry Hill,
N.J. To learn more, visit www.tdbank.com. Find TD Bank on
Facebook at www.facebook.com/TDBank and on Twitter at
www.twitter.com/TDBank_US.
TD Bank, America's Most Convenient Bank, is a member of TD Bank
Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services
company in North America. The
Toronto-Dominion Bank trades on the New
York and Toronto stock
exchanges under the ticker symbol "TD". To learn more, visit
www.td.com.
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SOURCE TD Bank