Bearish forecasts for the U.S. economy are giving way to more upbeat views of the nation’s ability to weather federal spending cuts and tax increases.
At Morgan Stanley in New York, Chief U.S. Economist Vincent Reinhart now sees a 3 percent pace of growth in the first quarter, up from 0.8 percent in December. JPMorgan Chase & Co.’s Bruce Kasman raised his forecast to 3.3 percent from 1 percent.
“What happened at the beginning of the year was a genuine surprise in terms of how well the economy held up,” Kasman, the firm’s New York-based chief economist, said in an April 5 conference call.
Gross domestic product probably climbed at a 3 percent annualized rate from January through March, according to the median forecast in a Bloomberg survey of 69 economists from April 5 to April 9. That’s up from the 2 percent gain projected last month and 1.6 percent in December.
Consumers overcame a 2 percentage-point increase in the payroll tax and higher gasoline prices to spend at the fastest pace in two years, the survey shows. The pickup, combined with sustained gains in housing and business investment, will help propel the expansion through the worst of the automatic government cuts that are projected to take effect this quarter.
“We are surprised that there wasn’t a bigger and more immediate hit to spending” by consumers, said Reinhart. “There is an underlying momentum in spending, which means that sequestration and the tax increase will only lead to a momentary pause.”
The Bloomberg survey shows the expansion will cool this quarter, to a 1.5 percent pace, then reaccelerate to an average 2.4 percent rate in the last six months of 2013.
A Commerce Department report today showed retail sales in March unexpectedly fell by the most in nine months, indicating households ended the first quarter on a softer footing.
Stock-index futures extended earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.5 percent to 1,580.2 at 8:33 a.m. in New York after the gauge closed at a record high yesterday.