For the US economy, growth in the 2-3% range is consistent with stable unemployment. If the unemployment rate was 5%, this report would have been fine, but since the unemployment rate is still above 8%, its quite disappointing.
Things looked better on the consumer side - durable goods purchases rose at a 15.3% rate. But businesses are still holding back on investment - equipment and software investment rose at a weak 1.7% pace. Investment in housing is finally growing a little bit, but from a very low base. This chart shows three sub-components of investment as shares of GDP since 1970 - equipment and software (blue), residential housing (orange) and nonresidential structures (green).
The inflation rate, measured by the GDP deflator, was 1.5%. However the personal consumption expenditures (PCE) deflator rose at a 2.4% rate and core (excluding food and energy) PCE inflation was 2.1%. Given the apparent emphasis by the Fed on keeping PCE inflation below 2%, that doesn't give them room to maneuver - i.e., it makes it even tougher for the "doves" on the FOMC, alas.
More reactions: Ryan Avent, Brad Plumer, Paul Krugman.
Update: More from Calculated Risk, Jim Hamilton, and me, in a story by Kevin Hall of McClatchy Newspapers:
“Given corporate profits, you might have hoped for more investment growth,” Craighead said. The economy continues to “hit the snooze button. … It’s acceptable growth in the normal economy, but given how many people are unemployed it is disappointing.”