The advance estimate of first-quarter US GDP growth came in at 2.2%, less than expected, and down from 3.0% growth in the fourth quarter. The 2.2% outcome does slightly exceed our April forecast of 2.1%, but data received in recent weeks meant that going into today's report we were looking for growth in the 2.5–3.0% region. With growth in hours worked running above 3%, the implication is that productivity actually fell. Inventory rebuilding was again a plus for growth, although not as important as in the fourth quarter. Final sales (excluding the inventory effect) accelerated to 1.6% growth, from just 1.1%—but that improvement was less than anticipated.

The big downside surprises to us were the second big fall in defense spending in a row, and the drop in business fixed investment. Drilling activity fell again, while some business equipment spending may have been pulled forward into 2011 by expiring tax incentives. Business equipment and software spending rose only 1.7%, after rising 7.5% in the fourth quarter.

Consumer spending growth came in much stronger than expected, at 2.9%. We had expected consumption growth of just above 2%. Durables rose strongly, as expected, led by motor vehicles. The upside surprise was in nondurables spending, where it seems that the Commerce Department has sharply scaled back the extent of the drop in gasoline volume spending in recent months. Spending needs more income support, though—real disposable incomes rose only 0.4%, so that the saving rate fell to 3.9%, from 4.5%. Residential construction had a strong quarter, helped by the mildest first-quarter weather on record.

Foreign trade was roughly neutral, as export growth of 5.4% slightly outpaced import growth of 4.3%. Given the slowdown in growth in the rest of the world, it is encouraging that the export growth rate was the strongest in a year—although we do not yet have official export data for March, so that could change.

The rebound in the vehicles sector was very important for first-quarter growth. Rebounding vehicle sales prompted sharp increases in vehicle production. Half of the total 2.2% GDP gain came in motor vehicles—GDP excluding motor vehicle output rose 1.1%.

Looking forward to the second quarter, there are many crosscurrents affecting the growth outlook. Vehicles will surely contribute less to GDP than in the first quarter. The warm first-quarter weather helped consumer spending and residential construction, so these will probably grow more slowly in the second quarter. Inventory accumulation is likely to slow a little. But we cannot imagine another big drop in defense spending—defense will probably correct upwards.

Overall we are looking for second-quarter growth to be similar to the first—around 2%. That's uninspiring, but unless we are hit by a major external shock in the oil market or in the Eurozone, we do not expect the "double-dip" fears of mid-2011 to return.