We're Witnessing The Biggest Contraction In Defense Spending Since The Korean War

Real GDP grew at a 2.5% rate in Q1, which was below economists' expectations for 3.0% growth.

The biggest disappointment in the report was clearly defense spending.

"The unexpectedly large drag from defense spending was likely due in part to the first effects of sequestration, but could also be explained by constraints imposed by operating under a continuing resolution, which funded the government through March 27," said Goldman Sachs' Jan Hatzius.

Real defense spending contracted at an 11.5% rate in Q1, following a 22.0% rate of contraction in Q4.

JP Morgan's Michael Feroli observed that this was "the weakest two quarter run for defense spending since the end of the Korean War."