Jim O’Sullivan, chief U.S. economist at High Frequency Economics, says he thinks the Federal Reserve’s efforts to boost growth by keeping interest rates at record lows should blunt the impact of the government spending cuts.
“What we have here is monetary stimulus vs. fiscal drag, and I think the Fed is winning,” O’Sullivan says.
So far, employers haven’t been laying off more workers because of higher taxes or government spending cuts.
In January, Social Security taxes rose two percentage points. Someone earning $50,000 has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.
Higher taxes haven’t prevented Americans from spending more. Retail sales jumped in February by the most in five months, the Commerce Department said Wednesday. Much of the increase reflected higher gas prices. But even excluding the volatile categories of gas, autos and building supply stores, so-called core retail sales rose strongly.
Economists were encouraged by the report. Many now expect much faster growth in the January-March quarter.
Strong auto sales and a healthy recovery in housing are spurring more hiring and economic growth. Builders started work on the most homes last year since 2008. New-home sales jumped 16 percent in January to the highest level since July 2008.
And home prices rose by the most in more than six years in the 12 months that ended in January, according to real estate data provider CoreLogic.
About 5.6 million people received unemployment aid in the week that ended Feb. 23, the latest period for which figures are available. That’s about 220,000 more than the previous week. The total benefit rolls aren’t seasonally adjusted and can be volatile.