CHERRY HILL, N.J.,
June 15, 2017
/PRNewswire/ -- The U.S. economic expansion continues
unfettered, according to a new report by TD Economics
(www.td.com/economics), an affiliate of
TD Bank, America's Most Convenient Bank®.
"Despite a significant amount of volatility in quarterly
growth rates in the first half of the year, on the whole, the U.S.
economy is progressing largely as expected," says TD Bank's Chief
Economist, Beata Caranci. "Growth is
on track to reach its cruising altitude this year of 2.2%, and
maintain a similar outcome in 2018," says Caranci.
"An increasingly tight labor market is expected to make
its presence known on wage pressures, and inflation. The Fed
yesterday cast a vote of confidence in that process by raising
rates another quarter point," says Caranci.
"Financial markets remain skeptical of further Fed hikes,"
says Caranci. "Who can blame them? After five years of
underperforming the Fed's 2% inflation target, markets are taking
an 'I'll believe it when I see it' approach to
inflation."
In TD Economics' view, some of the factors putting
downward pressure on inflation will prove temporary, such as a
large one-time drop in the price of cell phone plans and a
bottoming in energy prices. As the disinflationary impact of the
U.S. dollar wanes, the directional pull to inflation is up. This
should enable the Fed to raise interest rates one more quarter
point later this year, while also shifting focus to reducing the
size of its balance sheet. Overall, the Federal Reserve is expected
to continue their gradual pace of rate hikes, with the funds rate
reaching 2.25% by the end of 2018.
Consumer springs back into action
A key element of the soft start to the year was a slump in
consumer spending, which grew at the slowest pace in over seven
years. Fortunately, recent data point to a strong rebound of close
to 3% in the second quarter.
Beyond the quarter-to-quarter swings, consumer spending is
likely to run in line with underlying income gains. As the economic
cycle matures, pent-up demand for big ticket purchases, like autos,
is increasingly sated. This places more emphasis on developments
within the labor market and income growth to provide a solid base
for household spending.
As expected, businesses start spending
"A key piece of last quarter's forecast was a pick-up in
business investment. This has occurred in spades, with
spending surpassing our expectations in Q1," says Caranci. "While
some of the strength came from an expected rebound in the oil and
gas sector, it wasn't solely contained within that segment, as
evidenced across a broad swath of capital goods."
Looking ahead, policies in Washington provide a two-sided risk to the
outlook for investment. We have highlighted in the past how tax
reform could provide a catalyst for stronger investment spending
(see report). But, as the working out of a tax reform
package with Congress drags on, there is a non-trivial risk that
businesses delay investment decisions until they have more clarity
on its potential tax treatment.
Risks from Washington
persist
"We have never incorporated any fiscal stimulus from the
new administration into our forecast," says Caranci. "While
President Trump continues to talk up the possibility of tax reform,
the prospects of a comprehensive package passing Congress this year
are dimming. At the same time, the White House budget contained
significant cuts to non-defense spending that would imply a slower
pace of government spending growth if enacted. Risks to our
forecast from fiscal policy are not one-sided."
Added to the mix is the risk of a government shutdown this
September. It is seemingly unthinkable that a Congress and White
House dominated by Republicans could fail to come to an agreement
to avert a shutdown; however, the President has not ruled it out,
so the risk cannot be ignored. The last chance Congress will have
to raise the debt ceiling before it runs out of cash will be before
the August recess, on July 28.
Depending on how well Congress and the White House cooperate, this
could lead to increased volatility on financial markets over the
summer months.
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/qefjun2017_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 9 million customers
with a full range of retail, small business and commercial banking
products and services at more than 1,200 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