The Bureau of Economic Analysis (BEA) advance estimate of real GDP growth for the first quarter of 2013 is 2.5%, somewhat bouncing back from the 0.4% growth last quarter. The largest contributions to growth came from accelerating personal consumption expenditures and inventory investment. Growth was restrained by continuing declines in the government sector and a surge in imports that outpaced growth in exports.
Today’s figure was in line with our forecast of 2.6% which was predicated on a reversal of the sharp inventory pullback and no repeat of the steep decline in defense spending, the two factors that gutted growth in the fourth quarter. Unfortunately, this is likely to be strongest growth of the year. After a strong contribution in the first quarter inventories are likely to be more neutral going forward and the impact of the across-the-board spending cuts will restrain growth beginning in the second quarter and unfolding over the year. Both the federal and state government sectors will continue to be a drag on growth through the year.