After a strong start to the year, the world's largest economy is set to slow as some of the effects of government spending cuts take hold, likely leaving the central bank's extraordinary stimulus in place into at least 2014.
Still, the labor market is expected to continue healing this year, even after last month's disappointingly weak job gains, and the housing recovery should gain momentum. Both should help keep the economy from cooling too much.
Economists in a Reuters poll taken after the latest job report ratcheted up their forecasts for first quarter growth to an annualized 3 percent from the 2 percent forecast last month.
But that pace is not expected to last, slowing to 1.6 percent in the second quarter before picking up to 2 percent for the rest of the year.
While the consensus for the first quarter is the highest since polling began for that period in October 2011, the second quarter expectation in the poll is the lowest.
"We are expecting growth to slow but I wouldn't throw this into the category of another 'spring slowdown'," said Michael Gapen, senior U.S. economist at Barclays Capital.
A solid start followed by a weaker spring has been the norm for the economy in recent years, though past years have had more to do with flare-ups in the euro zone debt crisis, said Gapen.
"This year, we think it's mainly a very large fiscal policy drag in the U.S.," he said, estimating that fiscal tightening will take 1.8 percentage points off of growth this year compared to 1 percent in each of the past two years.
SPENDING CUTS STARTING TO HURT
Across-the-board government spending cuts of $85 billion went into effect at the beginning of March.
Beyond reducing spending, the hit to the economy could also show up through actions such as furloughs, job cuts or lost contracts in the private defense sector.
Truck and military vehicle maker Oshkosh Corp (OSK.N) said on Tuesday it will cut about 900 jobs in its defense business due to U.S. budget cuts.
Consumer spending could also cool after holding up surprisingly well in the first months of 2013.
Payroll taxes increased at the beginning of the year and economists expect that could prompt Americans to curb purchases. Consumer activity makes up about two-thirds of the U.S. economy.
Tighter fiscal policy and an economic recovery that is still vulnerable to setbacks suggest that the Federal Reserve will leave its stimulus efforts in place for at least another year.
"The key offset has been monetary policy. I think in this battle between fiscal drag and monetary stimulus, the Fed is winning," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.