Economists slash second quarter growth outlook, dimming hope for strong snapback

New data showed weaker exports and slower-than-expected investment in inventories.

In terms of sheer volume, California conducts more trade with China than any other state in the country. Total trade with China tops $175 billion. Here, container ships sit in the Port of Oakland.

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Economists slashed forecasts for second quarter growth by as much as a half percent, after new data showed weaker exports and slower-than-expected investment in inventories.

Second quarter tracking GDP fell to 3 percent, a decline of 0.4 percent, according to the CNBC/Moody's Analytics Rapid Update. The update had shown second quarter growth as high as 3.6 percent.

There had been hope for a big bounce back in the second quarter to make up for extremely sluggish first quarter growth of 0.7 percent, which had been blamed on temporary factors like weather. Three percent is still a healthy growth rate, but there has been a series of disappointing economic reports lately.

Economists have revised first tracking quarter GDP to 0.8 percent, down from a higher expectation of 0.9 percent before Thursday's data, according to the Rapid Update survey. The second look at first quarter GDP will be released by the government Friday morning.

Economists caution that it's still early in the second quarter, and the trade and inventories data are preliminary. In the minutes of the Federal Reserve's last meeting, the Fed noted that the weakness it is seeing in the consumer and inflation appears to be transitory.

"The advance economic indicators report showed a decrease in wholesale inventories and a wider goods trade deficit in April. The weaker than expected trade data and slower implied pace of inventory accumulation led us to revise down our Q2 GDP tracking estimate by two tenths to 2.8 percent," wrote Goldman Sachs economists. The Goldman economists said they also now expect to see first quarter growth revised to 1 percent Friday, versus 1.1 percent previously.

Housing data this week was also disappointing when new home sales fell 11.4 percent and existing home sales fell by 2.3 percent in April.

Barclays economists cut their tracking forecast for the second quarter to 2 percent. They trimmed 0.2 percentage points based on the housing data, and 0.4 on weaker export growth and the inventories data.

"We're going to get data on personal spending next week, and we'll get a pretty good look at the consumer. I'm assuming that consumer and business spending will be stronger and will ultimately offset this," said Michael Gapen, chief U.S. economist at Barclays. "I think we're going to end up around 3 percent."