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Wells Fargo’s take:

Where Is the Growth?

There is clearly more to the economy’s unexpected weak start to 2014 than the harsh winter weather that hit the east coast earlier this year and a reduction in inventory building. While both factors are apparent in the data, we are hard pressed to find much encouragement in this report. Real final sales rose at just a 0.6 percent pace and final sales to private domestic purchasers, our preferred measure of final demand, grew at just a 1.5 percent annual rate, both are 0.1 percentage points less than initially reported. Moreover, the recent shortfall in growth is not a short-term phenomenon. Real GDP growth has averaged just a 2.2 percent pace since the recession ended five years ago, which is about a third short of what was seen in previous recoveries. Final sales to private final domestic purchasers
had been rising closer to its long-term norms before the recent slowdown.

From a technical standpoint, consumer spending was a bright spot in the first quarter, with outlays rising at a seemingly respectable 3.1 percent pace. Most of that growth, however, came from services outlays, which were
driven primarily by the implementation of the Affordable Care Act that boosted payments for health insurance. While this growth does reflect actual activity, the timing reflects the political calendar and not the economy’s underlying momentum. Without the bump in healthcare
outlays, consumer spending would have risen at just a 2.1 percent pace and real GDP would have tumbled at a 2.0 percent pace. That would have been a pause that truly depressed overall economic growth.

There were a few tepid areas of activity. Consumer spending on durable goods rose at a 1.4 percent pace during the quarter, which was actually nearly twice the initial estimate, and spending on nondurable goods rose at a 0.4 percent pace, which was better than the initially reported 0.1 percent gain. Both are meager gains, however, and were helped out by a surge in spending in March, when the weather improved. That rebound did not carry over into April, as retail sales data for that month were discouraging.

Business fixed investment was also disappointing during the quarter. The revised figures show a smaller decline in equipment outlays than first reported, but spending for private nonresidential structures fell at a 7.5 percent pace, compared to an earlier reported 0.2 percent rise.
If there is a saving grace in the GDP data it is that inventories grew much less than first reported, rising by $49 billion instead of the initially reported $87.4 billion. The moderation in inventory building sliced 1.6 percentage points off of first quarter growth, which was nearly a percentage point more than first reported. Inventories are now much better aligned with final
demand and should present less of hurdle to GDP growth going forward. The only question mark is final demand, which appears to still be firmly on the slow growth track.