Comment on Q1 GDP - Kathy Bostjancic, Director for Macroeconomic Analysis, The Conference Board

The pace of economic growth in the U.S. grew 2.5% in Q1, propelled by acceleration in personal consumer expenditures and a buildup in inventories. However, the disappointingly weak March employment and retail sales reports support our view that the moderate growth in Q1 is unsustainable due to the spending sequester cuts and delayed impact of the payroll tax rate increase. Moreover, the most recent slowdown in employment growth took place even before the sequester cuts materially impacted the economy. We anticipate that the total fiscal tightening of $225 billion for this year will dampen the recovery in the private sector starting this quarter. The drag from these spending cuts, combined with sustained weak business investment, makes it difficult to sustain strong GDP or employment growth.  Consequently, we anticipate that economic activity will decelerate sharply in Q2, struggling to register an annualized 0.8% growth rate. Economic growth will only pick up moderately in the second half of 2013, as the headwinds from the sequester continue to restrain activity, despite the ongoing revival in the housing and auto sectors.