

J.P. Morgan economists now see the economy growing at just 1.5 percent in the first quarter, and they trimmed back fourth-quarter growth as well on signs of slowing business spending.

The economists had expected fourth-quarter growth of 1.6 percent, but revised it lower to 1.4 percent, after Thursday's release of December durable goods orders, which were up 1.2 percent on the headline, due mostly to a big gain in aircraft orders.

But the J.P. Morgan economists said the fact that core capital goods orders, in the report, moved down 0.7 percent in December means real annualized capital goods spending growth was close to zero in the fourth quarter and they expect just a slight pickup in the first quarter.

Many economists still expect fourth-quarter growth of just above 2 percent. The median forecast for economists in the CNBC/Moody's Analytics rapid update is 2 percent for the fourth quarter and 1.8 percent for the first quarter.

Inventory data in the durable goods report was also short of expectations, and J.P. Morgan economists now see inventories at only a $31 billion annual rate in the fourth quarter.

For the first quarter, they trimmed growth to 1.5 percent from 1.75 percent. They said domestic demand does not look good, after December's surprise decline in retail sales, reported last week.

But they do see a pickup in the second quarter and expect growth of 2.25 percent, due to expectations of more normal consumer spending and a recovery in government spending after the shutdown.

Much of the January data was delayed due to the government shutdown and some December reports, like Thursday's durable goods, have just become available.

"'The biggest headwind is likely consumer spending. The expected 0.4% decline in December real consumption makes for very challenging quarterly arithmetic for Q1. This isn't helped by the fact that vehicle sales in unit terms declined by 5.1% last month, the largest monthly decline since 2011," the J.P. Morgan economists wrote.

The economists also pointed to weaker equipment spending, after the drop in December capital goods orders, and also noted that rig counts for oil and gas production have fallen from the fourth-quarter average.

"Housing may be improving some, but the lagged effect of the second half slowing in starts should still weigh on residential investment. Federal government spending will of course be hit by the shutdown, though this is partly offset by decent indicators on state and local government activity," they noted.

Citigroup economists, meanwhile, said they were maintaining their estimate of 2.5 percent for the fourth quarter.

"While the decline in core capital goods orders reaffirms weakness in manufacturing-related industries, there is little new information in the December durable goods report. Weakness has been evident in already-released data, such as the drop in ISM Manufacturing new-orders and January IP," the Citi economists wrote in a note.

However, they say they are watching investment-related data for signs of further slowing, and the decline in new orders in the February Philadelphia Fed manufacturing survey is a sign that weakness continues. "Business investment in Q4 should be stronger than Q3 as shipments of capital goods rose," they wrote.