KEY DATA: GDP: +0.2%; Consumption: +1.9%; Structures: -23.1%/ Pending Sales (Month): +1.1%; Year-over-Year: +11.1%

IN A NUTSHELL: “The slowdown in growth was a little greater than expected and it raises the question whether this was just a normal first quarter pause or a real slowing in activity.”

WHAT IT MEANS: We knew the economy didn’t do a whole lot during the first three months of the year and now we know it did even less. Growth managed to stay positive, but not by much and the details reflected that weakness. And as usual, there were some results that raise questions. Consumers spent at a less than ebullient pace but why purchases of nondurable goods actually fell is anyone’s guess. The services component had been problematic, but that is now doing well. Since this is the largest single element in the GDP, that is good news. As the flow of spendable income from lower energy costs builds further, we should see that money being spent, so consumption is expected to rebound in the coming quarters. As for investment, a collapse in the energy sector led to a huge decline in structure spending that reduced growth by 0.75 percentage point. While the rig count is expected to decline further, the negative impact from energy investment should moderate. Residential investment was also soft, but if we believe the permit data, construction should already be picking up. There was also a major widening in the trade gap. A stronger dollar has started to slow exports but the West Coast port strike has made understanding this component impossible. The deficit may continue widening, but not at the pace we experienced this winter. We also saw that state and local government spending was down. That seems to fly in the face of almost all other reports as most governors are proposing bigger, not smaller budgets. While all of those factors argue for a lot better growth in the second quarter, there is one that could cause growth to moderate. Inventories rose much more than expected and that should turnaround this quarter. On the inflation side, consumer prices declined overall and were up only modestly even when food and energy were excluded.

Pending home sales continued its rise in March, with contract signings up solidly. With a double-digit rise over the year, it looks like sales should be increasing strongly as we go through the spring. While these are existing home data, to the extent that the new home market follows, this report buttresses the belief that housing starts will rise going forward.

MARKETS AND FED POLICY IMPLICATIONS: The Fed is finishing its two-day meeting and this report will likely cause a downgrade in the economy’s condition. But first quarter growth has been much less that the rest of the year for quite some time now. For the 2010 to 2014 period, the economy expanded at an average of 2.2% while the first quarter increases averaged only 0.6%. So before anyone panics, keep in mind that what happens in the first quarter doesn’t tell us anything about what happens in the rest of the year. But a weak first quarter allows the Fed to hold the fort, at least for another meeting. Let’s see the April and May jobs and spending numbers before we decide how further out this report pushes the Fed. June looks out, but July cannot be excluded, even if there is no scheduled press conference.