"We think about a full percentage point of growth in Q1 is related to bad weather," said Michael Gapen, chief U.S. economist at Barclays. "It's unlikely we get all of that back, but you should get some of it back." Gapen said first quarter is now tracking at 1.1 percent, down a 0.1, after the durable goods report. For now, he is leaving the second quarter at 3 percent.

Economists cut first quarter growth to just above 1 percent or lower, with Amherst Pierpont Securities now forecasting absolutely no growth at all. JPMorgan was quick to also pare back second quarter growth to 2.5 percent from 3 percent, on the view that some weakness in business activity will continue and that the dollar's impact on factory activity could offset an expected bounce back in consumer spending.

The surprise decline in the March durable goods report weakened the already-anemic outlook for first quarter growth and dimmed the prospect for a big second quarter bounce.

On the surface, orders for March durable goods looked strong—rising 4 percent. But the jump was due to purchases of vehicles and aircraft. The number economists watch as a proxy for business spending—nondefense capital goods orders excluding aircraft—fell by 0.5 percent in March and was revised to a drop of 2.2 percent in February.

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"That was really the catalyst that drove the buying in Treasurys … as well as the knock on of actually seeing banks downgrade GDP forecasts," said Tyler Tucci, RBS short term markets and interest rate derivatives strategist. The 10-year yield was at 1.91 percent, after trading as high as 1.99 percent Thursday.

"I don't think we've seen enough data to opine about the second quarter GDP. That will take off in earnest after we get the Fed, PCE [personal consumption expenditures] and GDP blowout next week. Next week is going to be very pivotal."

The first reading on first quarter GDP is released Wednesday, the same day the Fed meets and releases its afternoon statement. The durable goods number, meanwhile, reinforced market views that the Fed may not move to raise rates until December.

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Tucci said that the market, or fed funds futures, now imply a roughly 50 percent chance the Fed could raise rates in September, but it has factored in full rate hike for December. The expectation for September was slightly greater than 50 percent two weeks ago, he added.

The PCE deflator is expected to show a slight increase in inflation when it is released on Thursday, much as seen in the consumer price index last week. "We obviously aren't going to have the employment number, which is the fourth piece in the picture, but there's growth, inflation—and what the Fed thinks about it—I would contend [it] is one of the biggest market catalysts globally," Tucci said. The April employment report will be released May 8.

The first quarter has been flush with disappointments, the biggest of which was perhaps the March employment report. Just 126,000 nonfarm payrolls were created, about 120,000 less than expected. That number helped set the tone for a market that is highly skeptical that the Fed will be able to raise interest rates as quickly as it has indicated it might.

Deutsche Bank economists on Friday cut their Q1 forecast a full percentage point to 0.7 percent, and JPMorgan trimmed first quarter growth to 0.6 percent from 0.7 percent.

JPMorgan chief U.S. economist Michael Feroli said the firm still expects a September rate hike from the Fed. "Even with weaker early Q2 momentum, we think by late summer there will be more convincing evidence that the Q1 weakness has passed," he wrote. "More importantly, our Fed call is more sensitive to labor market outcomes, and the relative stability of the jobless claims data suggests that (once again) the disappointment on GDP is not being reflected in labor market outcomes."



Stephen Stanley, chief economist at Amherst Pierpont, trimmed his GDP outlook to zero growth from just 0.1 percent.

Stanley said when excluding the transportation sector, durable goods orders slid by 0.2 percent, on top of a 0.7 percent cut in February. The core capital goods orders fell for a seventh month, he noted.

He pointed out they declined in five out of the nine months before that, "matching a similar string of futility recorded in 2012. Believe it or not, we never saw such a long streak of negatives during the 2008-09 recession," he wrote in a note.



"I had penciled in a pretty solid rebound in equipment in Q2, but a weaker March may push some portion of any bounce back into Q3," Stanley wrote. He also said it appears consumer spending may be a bit weaker in Q2 after a disappointing March. " As a result," he said, "I have also nudged my Q2 number down somewhat over the past week or so. I am currently at 3.2% for real GDP growth in Q2, but I am also now more willing to entertain a 3% or higher gain for Q3 as well."