Daily News: March 25, 2015

TD Economics: Growth of 3% to Drive U.S. Optimism

Consumers are set to take the lead in pushing forward American economic growth, according to a report by TD Economics.

From 2.4% in 2014, TD Economics projects economic growth of 3.0% in 2015 and 2.8% in 2016. The unemployment rate is expected to fall to 5.1% by the end of 2015, from its current level of 5.5%.

“With job growth at its highest rate in 15 years and gasoline prices at the lowest in six years, conditions couldn’t be better for household spending,” says TD Bank’s chief economist, Craig Alexander. “Increases in real purchasing power give households the ability to increase spending while still meeting their saving goals.”

The job market offers the best reason for optimism over the next year, according to the report. More than 3.2 million jobs were created in 2014, the highest annual gain since 1999. Employment growth has continued to surprise to the upside โ€“ over 1.2 million jobs were created in the last four months alone.

“The strength in job growth is echoed in a significant rise in the number of job openings, new hires, and quits,” says Alexander. “The increase in labor market turnover implies a strong foundation for future job growth. Rising confidence stretches from employers who are more willing to take a chance on new hires to employees who are increasingly willing to look for new opportunities.”

The improvement in job growth, in combination with falling inflation, has led to a strong acceleration in income growth. Inflation-adjusted disposable income rose 4.2% year-over-year in January.

The improvement in economic growth and strength in job creation mean that the Federal Reserve is moving closer to raising interest rates. However, with soft inflation and the headwind from the dollar, the Fed will be measured in its approach. “The key message that came from the Fed’s last meeting was that even as the Fed begins moving rates upward, they will not go quickly,” says Alexander.

To view the complete TD Economics report, click here.