The U.S. economy, while still vulnerable, has shown encouraging signs of progress over the last few months, according to a report released Wednesday by TD Economics, an affiliate of TD Bank.

“Financial market volatility, Europe’s dual banking and fiscal crises, and a highly polarized U.S. Congress have done little to support confidence in this recovery,” said TD Chief Economist Craig Alexander. “Yet, despite some massive headwinds, the U.S. economy has proven to be surprisingly resilient.”

There were supply chain disruptions and oil prices in the first half of the year that caused serious headwinds, but then, between July and September, GDP grew at an annualized rate of 2%—driven by consumer spending and business investment, TD Economics said. In fact, the economy is currently growing at an annualized rate of 3.2%.

For the year, TD Economics projects growth of 1.9%. The firm expects growth to remain at 1.9% in 2012 and to accelerate to 2.3% in 2013.

“This is no small feat—given the shock to consumer confidence this past summer,” TD Economics said. Cosumers’ and businesses’ pessimism is overdone, given the actual economic data, Alexander said.

He cited a number of positive factors:

  • Commercial bank lending has finally turned positive
  • Job growth is gaining some momentum
  • Some areas of the housing market, notably multi-unit residences, are picking up

“Unfortunately,” Alexander admitted, “these positive developments are being drowned out by rather significant downside risks: the specter of financial chaos in Europe and overzealous fiscal restraint in Washington.
“The U.S. absolutely needs to address its long-term deficit issues,” Alexander continued. “But there is a risk that the federal government cuts spending too much and too soon—sucking demand out of the economy at a time when the private sector is still finding its feet.”

Lee Barney writes for Money Management Executive.



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