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Economists expect a second-quarter GDP spring back

Q1 GDP drops 1.0%
Q1 GDP drops 1.0%

Economists are forecasting second-quarter growth will spring back, rising solidly above 3 percent, after the first quarter's surprising 1 percent decline.

A CNBC Rapid Update of nine economists' forecasts is tracking second-quarter GDP at 3.74 percent.

But the rosier expectations aren't pacifying the bond market, which continued to rally in midday trading, sending yields to fresh lows.

"It was a shocker to people and it's mostly because of inventories which is good for second-quarter growth. The market didn't respond to it all that much because it's old news," said Marc Chandler, head of fixed income strategy at Brown Brothers Harriman.

GDP was first reported at 0.1 percent, but the government revised the data in big part because of a drag from inventory investment it says erased 1.6 percent from the annual growth rate.

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For the same reason, several economists boosted their forecasts for the second quarter. Goldman Sachs bumped its forecast for the annual growth rate to 3.9 percent in the second quarter from 3.7 percent.

A factory worker installs rivets on an Airstream Inc. RV travel trailer on the production line at the company's assembly plant in Jackson Center, Ohio.
Luke Sharrett | Bloomberg | Getty Images

Barclays held its forecast at 3 percent, but said the number could now prove too low, and Pierpont Securities raised its expectation to 3.5 percent from 2.9 percent.

Credit Suisse economists have a 4 percent target for the second quarter, given the first-quarter inventory data and a pickup in momentum. "Even so, 4 percent growth followed by -1.0 percent would still only leave the two-quarter moving average at 1.5 percent," they said in a note.

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Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, said the data provide backup for both a half-full and half-empty view of the economy. But the data are rearview and point to a better economy going forward.

"The revision was all in inventories. No worries. Consumer spending, two-thirds of the economy, is rock solid at 3.1 percent, up a tenth from the 3.0 percent estimate earlier. Don't talk down the economy with consumer spending numbers this strong regardless of the 1 percent drop in GDP," he wrote in a note.

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—By CNBC's Patti Domm.