TD Economics: U.S. Economy Ready to Take Off, but Fiscal Uncertainty Is Blocking the Runway

   TD Economics: U.S. Economy Ready to Take Off, but Fiscal Uncertainty Is
                             Blocking the Runway

Economic growth expected to average 2.2% in 2012 and 1.9% in 2013; before
rising to 3.0% in 2014.

PR Newswire

CHERRY HILL, N.J. and PORTLAND, Maine, Dec. 13, 2012

CHERRY HILL, N.J. and PORTLAND, Maine, Dec. 13, 2012 /PRNewswire/ --The main
obstacle standing in the path of faster U.S. economic growth is a strong
headwind blowing in from fiscal restraint, according to a report released
today by TD Economics (, an affiliate of TD Bank,
America's Most Convenient Bank^®.


"Without fiscal drag, the U.S. economy would be headed for a growth trajectory
in the 3-4% range in 2013," says TD Chief Economist Craig Alexander. "The
worst of the consumer deleveraging cycle and its dampening effect on economic
growth appear to be over. But just as the private sector is set to provide a
welcomed tailwind to the economy, it will be met with worsening cross winds
from public sector restraint."

Alexander acknowledges that the result is likely to be a pace of economic
growth that is little changed from the past year.

TD Economics forecasts economic growth to average 1.9% in 2013 – down from an
estimated 2.2% in 2012. However, by the second half of next year, clearer
fiscal policy should lead to resurgence in private demand, placing the economy
on a stronger footing with 3.0% growth in 2014.

Still waiting for a path around the fiscal cliff
With a few weeks to go before deep spending cuts and tax hikes arrive and
hamper economic growth, a deal to avoid them between the White House and
Congress has yet to be reached.

"The fact that businesses are pulling back on investing, despite healthy
balance sheets and record low interest rates, is a sign that fiscal cliff
concerns have already taken a toll on economic growth," notes Alexander.

TD Economics estimates that if all tax hikes and spending cuts are allowed to
take place as scheduled, it would cut 3.0 percentage points from real GDP in

"Our forecast assumes a deal will be made that avoids plunging the U.S.
economy back into a recession in the first half of 2013," says Alexander.
"However, spending restraint and tax increases will still cut economic growth
by 1.3 percentage points in 2013,"

Alexander warns that until there is more clarity on the political front, the
fiscal situation represents the largest source of economic uncertainty.

As housing rebounds, faster growth is waiting in the wings
The constraint on growth posed by fiscal policy comes amid signs that housing
has entered a self-sustaining recovery. Home prices have risen consistently
through 2012 while delinquencies and foreclosures have fallen.

The rise in home prices has been substantial – prices are up 5.0% from
year-ago levels – and appears sustainable. The fall in construction activity
over the last several years has cleared the supply overhang and allowed rising
demand to pull up prices.

"A strengthening housing market recovery alongside rebounding consumer credit
markets is a good reason to expect acceleration in economic growth," says
Alexander. "The past vicious cycle in the housing market is turning into a
virtuous one, giving every reason to believe that a more familiar recovery
will spring free."

The Federal Reserve is doing everything it can to support growth
The housing market has also been the focus of the Federal Reserve, whose
latest round of quantitative easing has focused on purchases of
mortgage-backed securities.

"The Fed has pulled out all the stops to support the recovery in housing and
offset some of the drag from fiscal policy," notes Alexander. "But, as several
Fed members emphasized, monetary policy can provide some relief, but it can't
single-handedly offset the fiscal headwind."

"A clearer path to fiscal consolidation alongside continuation of
accommodative monetary policy will be the necessary cocktail for stronger
economic growth in 2014," concludes Alexander.

TD Economics provides analysis of global economic performance and forecasting,
and is an affiliate of TD Bank, America's Most Convenient Bank^®.

The complete findings of the TD Economics report are available online at


Contact: Craig Alexander, SVP and Chief Economist, TD Bank Group,
+1-416-982-8064; Beata Caranci, VP and Deputy Chief Economist, TD Bank Group,
+1-416-982-8067; James Marple, Senior Economist, TD Bank Group,
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