Q1 GDP was a little softer than expected at +0.6% q-o-q (consensus, +0.8%) and up 2.5% y-o-y. The contribution to the 0.6% rise from household consumption was a little softer than expected (up 0.6% q-o-q contributing only 0.3pp to growth). Private capital spending was mixed with a big fall in spending on private machinery and equipment, -6.9% q-o-q contributing -0.4pp, but more than offset by a big lift in non-dwelling construction +7.6% q-o-q contributing +0.6pp. The biggest negative surprise was public sector fixed capital formation -15.3% contributing -0.9pp (state and local government was down 46.1% q-o-q!). Another negative drag on growth was a bigger than expected fall in inventories detracting 0.4pp from growth. Net exports contributed 1.0pp to growth (0.3pp from rising exports and 0.7pp from falling exports). Remarkably despite a huge king hit to growth from falling private investment and public capital spending which combined detracted 1.5pp from growth the economy still managed to grow and at a rate on par with US growth in Q1 and much stronger than European growth.

Looking ahead, the fall in capex spend (private and public combined) in Q2 is likely to be materially smaller than in Q1, while household consumption and housing (effectively flat in Q1) are likely to be stronger. Early estimate for Q2 GDP around 0.7% q-o-q.