Americans appear to have shrugged off an increase in Social Security taxes that began in January. Consumers boosted their spending in February by the most in five months.
Consumers have been aided by the Federal Reserve's efforts to keep interest rates low. That has spurred higher sales of homes and cars. Many homeowners have also refinanced their mortgages at much lower rates, freeing up more money to spend on other items.
The housing market is recovering steadily. In February, sales of previously owned homes reached the highest level in more than three years. And home prices nationwide rose by the most in seven years that month compared with the same month a year ago. Builders broke ground on new homes at the second-fastest pace in nearly five years.
Still, many economists worry that growth will slow in the spring and summer because of the $85 billion in automatic government spending cuts.Economists expect the spending reductions will shave half a percentage point off economic growth this year. Many federal workers will experience pay cuts. And government contractors will likely cut jobs. That could also drag down overall monthly hiring. Mark Vitner, an economist at Wells Fargo Securities, expects that the economy expanded at a 3.2 percent annual rate in the first quarter. But he forecasts growth will slow to a 2 percent pace in the second quarter, and then rebound after the impact of the government spending cuts fades.