The impact of the cuts was no doubt blunted because it took some time for the Internal Revenue Service to produce updated withholding tables and for payroll managers to adjust their systems. A poll of registered voters in April by Politico/Morning Consult found that only about a fifth of those surveyed had reported seeing more money in their paychecks.
As for business spending, most of the tax incentives created were aimed not at immediate investment decisions, but at those in the medium term.
Nonetheless, Kathy Bostjancic, chief United States financial economist at Oxford Economics, said both consumer and business spending were likely to get extra scrutiny in the quarterly report, the first since the tax law took effect. “There is still intense interest in seeing how those categories play out,” she said, as an indicator of “how effective the tax cuts are in the near term in boosting growth.”
She added, “I think there is a legitimate question as to how much of the tax cuts get saved to pull down debt, and how much actually gets spent.”
If consumer spending growth comes in stronger than the expected 1.1 percent, it could signal that sluggish spending in the first couple of months was transitory and that wallets opened wider in March.
For several years, first-quarter growth rates have been weaker than the longer-term trends indicated, only to rebound in later months. This year, the result could reflect a falloff in spending after an unusual surge that followed the havoc wrought by late-summer hurricanes. Severe winter weather could have also slowed consumption.
But some analysts wonder if data adjustments are part of the problem. Government economists try to account for seasonal changes, but the corrective measures may be only partly successful.
“There’s a little weakness in Q1 and then the other quarters are artificially inflated because of that,” Ms. Bostjancic said. Most forecasts show annualized growth floating around the 3 percent mark for the remaining quarters of the year.
How the Fed might react.
Friday’s report is the freshest data that the Federal Reserve will have when its policymakers meet next week. At last month’s meeting, Fed officials not only raised interest rates, they also indicated that they planned two more increases this year. Their concern is that a tight labor market will push up inflation as employers increase wages to compete for workers.
For most Americans, who have seen little income growth in recent decades, fears of steeper inflation seem overblown. That is why some economists warn against raising rates too much and too fast, arguing that the increases will choke off the recovery.
At the conclusion of the March meeting, Jerome H. Powell, the new Fed chairman, said, “We’re trying to take that middle ground.”
Michael Pearce, a senior economist at Capital Economics, said he did not expect the Fed’s outlook to change much — even if the Commerce Department’s report turned out to be disappointing. “The Fed already acknowledged some of the incoming data and that they think it could strengthen this year,” he said.
Last month, the central bank announced that it had raised its median estimate for annual growth in 2018, from 2.5 percent to 2.7 percent.
And remember …
The estimate released on Friday by the Commerce Department is not the final word on the first quarter.
The figure will be revised twice in the next couple of months. In the past, that final number has been higher or lower by as much as a percentage point.