1Q GDP: Bleh

The US economy grew at a 1.8% annual rate in the first quarter, according to the BEA's advance estimate.  That's not good - it less than the 2.5%-ish pace needed to keep the unemployment rate stable as the labor force grows and productivity increases - and way short of what we need to significantly bring unemployment down.

The slow growth wasn't a surprise, and much the slowdown is being attributed it to temporary factors, including the severe weather in January, and a slowdown in defense purchases.

The main positive contributions came from consumption, which grew at a 2.7% rate, and inventory investment, which was something of a "bounceback" effect - the actual amount added to inventories was modest, but it was an acceleration relative to the fourth quarter, when there had been a big slowdown.

The government purchases component was a drag, falling at a 5.1% annual rate (defense fell at a 11.7% rate while state and local government declined at a 3.3% pace).

The inflation rate, measured by the GDP deflator, was 1.9%.  Personal consumption expenditures (PCE) inflation was 3.8%, but excluding food and energy - i.e., "core PCE" - was 1.5%.  If one believes that the core measure is the right one to guide monetary policy, then inflation is still low.

Disposable income was up sharply due to the payroll tax cut that took effect in January - 6.9% in nominal terms - but only 2.9% in real terms (I think that's where you see the effect from energy prices).

Meanwhile the Department of Labor says that unemployment claims are rising again...

The next revision of the GDP figures comes out on May 26.

See also: Free Exchange, Ezra Klein, Calculated Risk.