Everyone’s still digesting the stunning downward revision to Q1 GDP.
Growth was revised down to 1.8% from an earlier reading of 2.4%.
This was largely due to personal consumption growth, which was slashed to 2.6% from a previous reading of 3.4%.
Perhaps this is the bite from fiscal austerity that everyone was looking for. Remember, the fiscal cliff negotiations brought us payroll tax hikes, and later it gave us the sequester.
Here’s TD Securities Millan Mulraine:
The lower consumption estimate provides some indication that the impact from fiscal austerity may have been more than previously thought, and that the economy started the year on weaker footing than previous estimated. And with the pace of fiscal austerity accelerating in Q2, some of this weakness should persist in QE, when we expect the economic recovery to slow even further to around 1.5% q/q. Nevertheless, we remain constructive about the growth outlook for the second half of the year. In particular, with the pace of fiscal drag beginning to moderate and the strengthening private sector expected to reassert themselves, we expect the pace of economic growth to accelerate to an above-trend pace.
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