Daily News: March 19, 2012

TD Economics: U.S. Economy Pushing Forward

The economy is back on track, but rising energy costs mark the latest speed bump on the road to recovery, according to a report released by TD Economics, an affiliate of TD Bank.

TD Economics forecasts economic growth to average 2.2% in 2012 and 2.4% in 2013. The unemployment rate is expected to be at 8.1% by the end of the year, and average 7.5% in 2013.

“There’s a new confidence in the recovery that we haven’t seen in a while,” said TD chief economist Craig Alexander, noting recent positive developments in the labor and housing markets. “There’s a strong case for optimism.”

The report noted that 2011 also began with fanfare, but then supply-chain disruptions from the Japanese earthquake and an oil price shock knocked economic growth in the first half of that year off course.

While Alexander acknowledges that higher energy prices will still bite into economic growth, he believes the economy is better positioned to deal with the pain. For one, momentum in the labor market is more entrenched than it was a year ago. Just over half a million jobs have been created so far this year, with more jobs created in January than at any time since 2006. The unemployment rate at 8.3% is down from 9.1% last summer.

More encouraging is evidence that demand is finally returning to the housing market. Existing home sales in January rose to their highest level since early 2010, when they were buoyed by a temporary tax credit. The number of unsold single-family homes is at its lowest level in half a decade, and tighter inventory coupled with increasing demand may mean home prices could begin to stabilize later this year.

Despite TD Economics’ upbeat economic assessment, risks to the outlook remain, especially on the policy front. Fortunately, the near-term risks of a policy-induced economic shock have been substantially reduced, the report said. In Europe, leaders approved another round of aid for Greece after the country successfully negotiated what was the largest sovereign debt restructuring in modern history. Also, the ECB’s three-year long-term financing operations have improved liquidity in the continent’s banking system, lessening the risk of a financial crisis spilling over into North America.

To read the complete TD Economics report, click here.