Real gross domestic product (GDP) — the output of goods and services produced by US labor and property — increased at an annualized rate of 3.2% in Q110 from the previous quarter despite a slow-down in residential investment, according to an “advance estimate” by the Commerce Department’s Bureau of Economic Analysis (BEA). Amid ongoing “depressed” housing data, the Fed this week decided to keep interest rates near zero. But a withdrawal of federal stimulus programs looks to slow the growth in GDP even further into 2011. Th Q1 GDP growth is already slowing, from an increase in real GDP of 5.6% in Q409. “The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE [personal consumption expenditures] and a deceleration in imports,” BEA said in a statement. The second estimate for Q1 GDP growth, based on more complete data, will be released on May 27, 2010. Economic analysis firm Capital Economics said in e-mailed commentary that the slowdown in GDP growth “isn’t quite as bad as it looks,” but noted “there is at least one negative” for every positive element in the report. For example, investment in commercial real estate contracted at a rate of 14%, while investment in residential real estate fell by 10.9%. Additionally, government consumption declined by 1.8% on a “very worrying” 3.8% drop in spending by state and local governments, Capital Economics said. “This is the impact of the unseen fiscal consolidation in the US,” said Capital Economics senior US economist Paul Ashworth. “The focus is all on the impact of the stimulus at the Federal level. But that stimulus is being more than offset by the cuts in state spending, as state governments desperately try to balance their budgets (a legal requirement) in the face of collapsing revenues.” He said the federal stimulus will begin to wind down in the second half of 2010, while contraction on the state level will continue for several more years. “Overall, these figures illustrate just how uneven the  recovery is,” Ashworth said. “We still expect this recovery to be ultimately a disappointment, with GDP growth slowing from 3.0% this year to only 1.5% in 2011.” The decline in GDP growth comes as no surprise to the Federal Open Market Committee (FOMC), which in March revised down GDP growth expectations because of a leveling off in housing activity. After data since its March meeting indicated housing remains “depressed,” the FOMC decided this week to maintain the target range for the federal funds rate at zero to 0.25%. The Fed noted lower housing wealth, continued depressed housing starts and contracting bank lending among circumstances that warrant “exceptionally low” rates for an extended period. Write to Diana Golobay.