"Job growth is gaining speed and confidence is rising," said Craig Alexander, chief economist at TD. "The strength in job growth will support consumer spending and energize housing demand, shifting the economy into third gear."
Despite slower growth early in the year and a disappointing showing in August, the labor market managed to add more than 1.7 million jobs in 2014's first eight months, coming in at 300,000 more than average over the previous three years as payrolls kept up a steady streak of monthly gains above 200,000.
At the same time, businesses continue to report increased job openings and growing confidence in the economic recovery.
"This bodes well for future job and income growth," Alexander said. "Over time, the level of job openings will translate into higher wages and higher employment. We expect average monthly job growth to exceed 200,000 over the next year, continuing on the strong trend observed so far this year."
With improvements in labor and income expected to continue, TD says both consumer spending and household formations are set to benefit, especially as homeowners shake off the shock of the housing crash and financial meltdown.
TD's forecast comes the same week as Fannie Mae's more subdued September outlook, which calls for GDP growth at an annual rate of 2.0 percent this year and 2.5 percent in 2015. The mortgage giant is also slightly less bullish on employment, predicting an unemployment rate of 5.8 percent by the end of 2015 compared to TD's 5.5 percent estimate.
TD also gave its view on the direction of the Federal Reserve's short-term rate policy, predicting the central bank will begin its hiking cycle by mid-2015, bringing the federal funds rate up to 0.75 percent by the end of the year—in line with investor projections but in contrast with the Fed's expectation of 1 percent.