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TD Economics: U.S. Economy Pushing Forward; In Better Position To Handle Pain Of Rising Energy Costs

Stocks in this article: TD

CHERRY HILL, N.J. and PORTLAND, Maine, March 19, 2012 /PRNewswire/ -- 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 today by TD Economics ( www.td.com/economics), an affiliate of TD Bank, America's Most Convenient Bank ®.

(Logo:  http://photos.prnewswire.com/prnh/20081031/NEF005LOGO-a )

"There's a new confidence in the recovery that we haven't seen in a while," says TD Chief Economist Craig Alexander, noting recent positive developments in the labor and housing markets. "There's a strong case for optimism."

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. 

A new act or deja vu?

One can't help but get the sense that the U.S. economy has been here before. 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.

Now, with average gas prices up 45 cents a gallon since January, the worry is that the economy will suffer a repeat of last year's weak-growth performance. Consumers are unable to cut their fuel consumption overnight, so the rise in prices acts as an implicit tax on earnings, forcing them to cut back spending in other areas. 

Alexander is confident that higher prices, which he views as temporary, won't be as economically disruptive this time around.

"While it's an ongoing process, we've been here before with high gas prices, and households do adapt by cutting back gasoline consumption," says Alexander.  "Resurgent auto demand is also helping. During the recession, many consumers put off purchasing new vehicles. Now that they are returning to dealerships in droves, some are using the occasion to switch to more fuel-efficient models."

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