U.S. Economy Contracts by 5.7%

The US economy continued to contract in the first quarter of this year as the pain of the recession spreads from consumers to businesses in the face of eroding global demand.

Revised commerce department figures showed on Friday that US gross domestic product declined by an annualised rate of 5.7 per cent in the first three months of the year, compared with last month’s estimate of 6.1 per cent. The decline was less severe than original projections due to slower liquidation of inventories and the narrowing trade gap.

The latest estimate fell short of economists’ expectations of a 5.5 per cent decline, but still marks an improvement from the fourth-quarter contraction of 6.3 per cent, which was the sharpest since 1982.

In spite of the improvement, the results show how far the US economy has fallen since the recession began in December 2007. The last six months have been the weakest such period in 51 years and US economy has not contracted for three consecutive quarters since the first quarter of 1975.

During the first quarter plunging exports, business investment and the collapse of spending on non-residential construction continued to be a drag on the economy. Improved consumer spending has provided a lift to overall economic output, although consumption of non-durable goods was weaker than originally estimated.

Policymakers and economists have taken hope, however, in the fact that the pace of the downturn appears to be slowing and that an aggressive array of stimulus measures will lift the economy out of the deepest downturn since the Great Depression sometime next year.

A bright note in Friday’s report was dramatic improvement in corporate profits, which surged by 3.4 per cent to $1,307bn in the first quarter after plummeting by 16.5 per cent in the fourth quarter. The rise was fuelled by a spike in financial sector profits, which soared by 94.9 per cent, as companies slashed costs.

U.S. Economy Contracts by 5.7%

TradingEconomics.com, Financial Times
5/29/2009 9:36:54 AM