Economy bears turn bulls seeing 3% GDP for U.S. few saw in 2012

Bearish forecasts for the U.S. economy are giving way to more optimistic 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% pace of growth in the first quarter, up from 0.8% in December. JPMorgan Chase & Co.’s Bruce Kasman raised his forecast to 3.3% from 1%.

“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% 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% gain projected last month and 1.6% 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.”

Shares Climb

Stocks are climbing to unprecedented levels as optimism on the outlook for earnings and the economy heartens investors. The Standard & Poor’s 500 Index rose 0.4% today to close at a record 1,593.37.

The Bloomberg survey shows the expansion will cool this quarter, to a 1.5% pace, then reaccelerate to an average 2.4% rate in the last six months of 2013.

Consumer spending, which accounts for 70% of the economy, climbed at a 3% annualized rate in the first quarter, the best reading since the same period in 2011, according to the Bloomberg survey median. Last month’s survey projected a 1.6% advance.

“We feel good about the consumer in 2013,” Karen M. Hoguet, chief financial officer of Macy’s Inc., said in a March 13 investor conference. “Every indication we’re seeing is that he and she are doing fine, still buying.”

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