Budget Cuts

The job market slowed progress just as $85 billion in automatic across-the-board government budget cuts, known as sequestration, started March 1. The reductions in planned spending, which began because Congress couldn’t compromise on a debt-reduction strategy, trim 5 percent from domestic agencies and 8 percent for the Defense Department this fiscal year.

“Sequestration is going to have an adverse effect” on the economy, Alan Krueger, chairman of the White House Council of Economic Advisers, said on Bloomberg Television. “That’s one of the headwinds we’re facing.”

He cited a Congressional Budget Office estimate that the enforced budget cuts will reduce employment by 750,000 by the end of the year.

Krueger repeated President Barack Obama’s call to replace the across-the-board cuts with a deficit-reduction package that includes raising more revenue from taxes in addition to trimming spending. The U.S. needs to continue spending on infrastructure and education to ensure future growth, he said.

Former Treasury Secretary Lawrence Summers said he expects healthy economic growth in the U.S. this year and next and doesn’t see a “need to panic” over the employment report.

Growth Forecasts

Summers, who directed Obama’s National Economic Council for the administration’s first two years, said the economy should expand this year at a rate “north of 2.5 percent.” Next year, there’s “a good chance for above 3 percent” growth, he said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

With consumers maintaining their spending and the housing market on the rebound, the economy is well-placed to withstand the impact of federal budget cuts, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

“There has been real fundamental improvement in some sectors of the economy,” Stanley said. “We’ve seen some surprises from the consumer, who is handling some of the stresses thrown at him at the start of the year a little bit better than expected, which gives businesses a little bit more confidence about how things are likely to play out, a little more reason to hire.”