What’s being tuned out is the prospect of $85 billion in across-the-board cuts in planned federal spending that started on March 1. The reductions trim 5 percent from domestic agencies and 8 percent from the Defense Department this fiscal year.
The so-called sequestration will probably shave around 0.75 percentage point from growth in the second and third quarters, according to a forecast by economists at Goldman Sachs Group Inc. in New York.
“Right now, the onus is on the people that think the economy is going to be stuck at 2 percent” for the rest of the year, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “Really, tell me why? I just don’t get it.”
The U.S. economy managed to grow at about that pace in the first three years of the expansion while housing was contracting, state and local government agencies were cutting spending, households were trimming debt and Europe was in a recession, Dutta said.
Now at least three of those obstacles -- residential real estate, state and local government and households -- are poised to contribute more to growth, he said. In addition, companies will probably begin to spend more freely as concern over the economic outlook dissipates, according to Dutta.
“I think the real surprise is going to come at the end of the year when we realize that the first quarter was not in fact the strongest quarter for the U.S.,” said Dutta.