The Bureau of Economic Analysis’ (BEA) ‘second estimate’ of growth in real GDP for the first quarter of this year stands at a lackluster 1.8%, a marked deceleration from the 3.1% rate of growth in the previous quarter.

The weak result can be attributed to the negative shocks from the Middle East, North Africa and Japan which the U.S. economy has been absorbing recently. A related surge in commodity prices (particularly oil) has also taken a toll.

These factors were reflected in a sharp deceleration in the rate of growth of real final sales, which was revised down to only 0.6% in the second estimate.  Negative contributions from federal defense spending (down 11.7%) and beleaguered state and local governments (expenditure down a further 3.2%) are also weighing down economic growth.

While inventory investment picked up in the first quarter (rising 0.7%), it fueled the strong growth in imports (up 7.5%), which are a subtraction in the calculation of GDP growth.

Residential fixed investment (RFI), home building’s part of GDP, fell 3.3% in the first quarter, with declines in multifamily investment and home improvement spending, while single family investment remained flat.

Deceleration in the rate of growth of personal consumption expenditure (up 2.2% compared to 4.1% in the previous quarter) and non-residential fixed investment (up 3.4% compared to 7.7% the previous quarter) also contributed to the slowing rate of economic growth in the first quarter.

Despite these recent negative developments, which have prompted some downward revisions to forecasts for the U.S. economy, we believe that a systematic economic expansion is underway. We view the various external shocks as transitory.

We expect the GDP growth to strengthen in the second quarter, rising by 3.2%, with final sales anticipated to pick up considerably, more than compensating for a cutback in inventory investment. Solid positive contributions are also expected from consumer spending, business spending on equipment and software, and net exports. Both nonresidential construction and residential fixed investment may chip in a bit as well, although the government sector most likely will continue to exert a drag on economic growth.