The U.S. economy continues to improve steadily. Although gross domestic product (GDP) growth has lagged, employment is increasing at a faster pace than a year ago and consumer demand is holding up surprisingly well. The key to stronger growth will be higher levels of confidence in the business sector. Once businesses are more confident, investment spending will accelerate, as will hiring, and the economy will accelerate from today’s 1.5% to 2.0% GDP growth rate to around 3.0% to 3.5%.
The key to improving that confidence is likely to be the resolution of the second part of the “fiscal cliff” in the October/November time frame. If Congress and the Administration can put the U.S. on a more sustainable deficit trajectory, or at the very least provide some clarity about tax and spending policy, it will go a long way toward improving confidence and spending by businesses.