This morning, the Commerce Department reported that 1Q GDP fell considerably more than expected, down a full 1.0% (annual rate). In the advance estimate at the end of last month, the government reported that 1Q GDP rose a mere 0.1%. Now, in the second estimate, the Commerce Dept. says the economy decreased 1.0% in the first three months. That’s down from a gain of 2.6% in the 4Q of last year.

Today’s report was even weaker than the pre-report consensus of -0.5%. As you may recall, there was considerable inventory rebuilding in the 4Q of last year, well above expectations. Businesses chose to sell down those inventories in the 1Q, and this reduced GDP. This was the main driver that sent GDP growth into negative territory in the January through March quarter.

Other negative factors were lower exports (down 6.0%), non-residential fixed investment, state and local spending and residential fixed investment. A plunge in business spending on commercial property and plants was also a drag.

On the plus side, consumer spending was revised slightly higher than in the advance estimate.

All in all, today’s GDP report was much worse than expected. It was the first negative quarter of GDP since the 1Q of 2011.

At the beginning of this year, most forecasters expected the economy to grow by a consensus of 3.0% or better. However, after last month’s advance estimate of only 0.1% in 1Q GDP, most forecasters had already shaved their estimates to closer to 2% growth for the year. Now, in light of today’s very negative report, forecasters are likely to lower their expectations even more.

Some analysts tried to put a positive spin on today’s report. One noted that if it were not for the decreases in inventories and exports, the number would have been +1.6%. Another said the weaker than expected 1Q means that the economy is coiled for an even sharper snap-back in the current quarter and for the rest of this year.

I agree that the economy will see positive growth for the rest of this year. But even if GDP grows at a 4% annual rate in this quarter and in the second half of the year, that’s still only annual growth of 2.75% overall.

The third and final estimate of 1Q GDP will be released on June 25.

In other news, the Consumer Confidence Index rose a bit more than expected in May to 83.0, up from 81.7 in April. Durable goods orders for April rose 0.8%, well above the pre-report consensus of -1.3%. In March, durable goods orders rose a solid 3.6%.

We also got good jobs numbers this morning. The Labor Department numbers showed that first-time applications for state unemployment benefits declined 27,000 to a seasonally adjusted 300,000 last week. The four-week moving average for new claims, which is a better measure of underlying labor market conditions, hit its lowest level since August 2007.

On the housing front, new and existing home sales were both better than expected in April. Housing starts and building permits were also better than expected in April.