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TD Economics: Slow, But Steady Progress

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TD Economics: Slow, But Steady Progress

US economy expected to grow by 1.5% in 2016, 2.1% in 2017, and 1.9% in 2018.

The US 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, an affiliate of financial services provider TD Bank.

"Economic growth averaged just 1.0% 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. The firm projects real GDP growth of 1.5% in 2016 and 2.1% in 2017, enough to bring the unemployment rate from its current level of 4.9% to 4.5% by the end of 2017.

"Investment has already shown signs of a recovery through the summer."

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 robust 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."

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