First quarter GDP plunged 2.9 percent

We already knew that GDP fell in the first quarter. The Department of Commerce had estimated that output fell by 1 percent as manufacturers sold off inventories produced last year rather than producing new goods, and with unusually harsh weather keeping consumers at home, and shutting down construction and forestry sites.

But new data suggests it was worse than we thought. GDP actually fell in the first quarter at a seasonally adjusted annual rate of 2.9 percent. That's the worst decline since the first quarter of 2009, when output fell 5.9 percent.

The big question is whether this is just a temporary bump in the road, or whether it reflects a more serious problem. Some will argue that this slump is a product of the Federal Reserve tapering its quantitative easing programs too early, and that this slump indicates that it is inevitable that the Fed will have to go back to a stronger stimulus program to get the economy growing again. This is a premature view. A single quarter's data can be quirky, and influenced by transient factor like weather and inventories.

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Still others argue that the problem is ObamaCare, but although healthcare spending slightly fell, the impacts of that program will become clear in the long term, not over a single quarter.

Those taking a more optimistic view of the data will argue that the improving employment picture, rising service sector activity, and rising stock markets suggest a broader economic strength and continued recovery. That is the view that I am taking until the second quarter's data shows otherwise.

But certainly, this urges caution. The Federal Reserve must begin to consider the possibility that the taper came too early, and be prepared to reverse course at a moment's notice.