Consumers and businesses are treating higher payroll taxes and federal spending cuts as just a speed bump for a U.S. economy poised to accelerate later this year.
Americans are saving less and spending more for purchases such as new automobiles, as household net worth climbs with rising home values and stock indexes surging to record highs. Companies are ramping up hiring, adding 246,000 to private payrolls in February. They’re also expanding investment and rebuilding inventories as they put profits accumulated during the recovery to work.
“A lot of things are going the right way,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose private employment forecast was closest to the February gain among economists surveyed by Bloomberg. “The labor market is picking up momentum. Businesses are seeing demand. More people working means more people will be spending money. To a certain extent, this neutralizes the effects” of higher taxes.
Growth will pick up in the second half of the year as the fallout from the budget cuts dissipates, paving the way for even stronger spending by businesses and consumers, projections from Barclays Plc and JPMorgan Chase & Co. show. Gross domestic product will rise at a 2 percent annual average pace in the latter six months of 2013 after a 1.5 percent rate in the first two quarters, said Dean Maki, chief U.S. economist at Barclays.
“The economy is at a point where it can handle the fiscal tightening without screeching to a halt,” said New York-based Maki, who is also a former Federal Reserve board economist. “We’ll see some slowing, certainly, but the economy is not as fragile as it was.”
Shares fell today, weighed by signs foreign economies were off to a weak start in 2013. The Standard & Poor’s 500 Index declined 0.1 percent to 1,549.61 at 10 a.m. in New York.
China’s industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed, government data showed Match 9. In France, industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years.
Even as Congress is forcing Brent Phipps’s employer, the U.S. government, to reduce spending by $85 billion this fiscal year, the 25-year-old paralegal is still going shopping.