Daily News: June 24, 2014

TD Economics: U.S. Economy Gains Improves After Stumbling in Q1/14

Economic growth stumbled in the first three months of this year, but bounced back in the spring and will maintain momentum over the remainder of 2014, according to a report released by TD Economics.

“Despite the setback to the broader economy in the first quarter, job growth remained resilient and has picked up speed in recent months,” says TD Chief Economist Craig Alexander. “Rising job openings, increased small business confidence and the fastest credit growth since the recovery began are all reasons to remain optimistic about the prospects for the economy.”

Economic growth is expected to average over 3% through the rest of this year, but as a result of weakness in the first quarter, the economy will grow by just 2.2% on an annual average basis in 2014. Real GDP growth is forecasted to accelerate to 3.1% in 2015.

One of the factors contributing to economic weakness in the first quarter was a setback in the housing market. The downturn in housing reflected the combination of bad weather, deteriorating affordability, and tightening lending standards. Fortunately, many of these headwinds have since faded.

The housing market recovery is still in its early stages, but the path forward will not be a straight line. Nonetheless, as job growth gains speed, pent-up demand for housing should begin to re-emerge, providing a solid impetus to housing construction.

Alexander notes, “The single-most important feature of the current real estate market is not the temporary weakness in demand, but rather the general lack of supply. Given growth in the adult population and scrappage of older homes, America should be building at least 1.4 million homes a year. In May, the annual rate of housing starts was only 1.0 million, a far cry from normal.”

Besides the weak pace of economic growth to start the year, the other surprising development has been the decline in long-term interest rates.
“The fall in interest rates ran contrary to analysts’ expectations,” says Alexander. “While weak domestic economic growth was a factor, perhaps the biggest driver was the situation in Europe.”

To read the complete findings of the TD Economics report, Share on Twitter+1Share on LinkedIn Share