A remarkable thing happened today. For the first time in two years the estimate of United States economic growth was lower than our forecast. Despite weak fundamentals, U.S. GDP growth had been more rapid than our forecast due in part to temporary Government stimulus programs.

The preliminary estimate of U.S. real GDP growth during January through March is 1.8 percent. Our forecast was 2.8 percent. The recent Bloomberg consensus, which incorporated more recent high-frequency data, was 2.0 percent.

One thing that did not happen during the first quarter of this year was four percent consumption growth, which is what had occurred in the final quarter of 2010. Four percent consumption growth does not align with fundamental measures of the average household’s financial well-being. Mortgage and credit card debt are still too high. The preliminary estimate is 2.7 percent. This result is more in line with what is appropriate given the consumer’s financial situation.

Government expenditures fell 5.2 percent, down from a fall of 1.7 percent the previous quarter. This was driven by a dramatic fall in Federal expenditures, and a continuing deterioration in state & local spending. The Federal expenditure fall surprises us and was driven by a drop in defense spending. The state & local spending estimate is close to our forecast. We expect that the Federal expenditure weakness will be transitory and rebound in quarter 2.

Investment expenditures are roughly similar to our forecast with real estate investment relatively weak and inventory investment relatively strong.

Trade was close to our forecast with the unusual fall in imports of last quarter reversing itself and growth in exports was similar to growth in imports.

This new data release confirms what I have been thinking about the economy, that four percent consumption growth is unsustainable, that real estate investment expenditures will be weak, that state & local government expenditures will be weak, and that the trade impacts on GDP should be neutral. Based on this, a reasonable, (but not model-driven), forecast for next quarter is 2 percent.