US Economy 1Q Falls Much More Than Expected

13:30 29Apr09 US GDP -6.1% RATE IN 1Q; CONSENSUS -4.6%
13:30 29Apr09 REAL FINAL SALES -3.4% IN 1Q
13:30 29Apr09 PCE PRICE INDEX -1.0% RATE IN 1Q
13:30 29Apr09 DOMESTIC PURCHASES PRICE INDEX -1.0% RATE IN 1Q
13:30 29Apr09 CHAIN-WEIGHTED PRICE INDEX +2.9% RATE IN 1Q
13:30 29Apr09 US Economy 1Q Falls Much More Than Expected

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Gross Domestic Product 1Q 4Q 3Q ! Consensus: !
Overall GDP Growth -6.1% -6.3% -0.5% ! -4.6% !
PCE Price Index -1.0% -4.9% +5.0% ! Actual: !
! -6.1% !
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WASHINGTON - The slumping U.S. economy barely improved early this
year, with businesses slashing spending and inventories, according to a
surprising report indicating the recession didn't ease as much as expected.

Gross domestic product decreased at a seasonally adjusted 6.1% annual rate January through March despite rising consumer spending, the Commerce Department said Wednesday in its first estimate of first-quarter GDP.

The 6.1% drop was much bigger than Wall Street expected and hardly different than a 6.3% plunge in the fourth quarter, when the recession that began in December 2007 deepened.

Economists surveyed by Dow Jones Newswires expected a 4.6% drop in GDP during the first three months of 2009. With a 0.5% drop in the third quarter, GDP has now fallen three consecutive quarters. That hasn't happened in 34 years, since third-quarter 1974 through first-quarter 1975.

Price indicators within Wednesday's report suggested inflationary pressures rose in first-quarter 2009, easing fears of deflation. For instance, the price index for personal consumption expenditures fell by 1.0%, a decline much smaller than the fall of 4.9% in the fourth-quarter 2008. The PCE price gauge excluding food and energy rose 1.5%, after increasing 0.9% in the fourth quarter.

Weaker investment in housing combined with the enormous inventory adjustment to pull the economy downward. But the aggressive drawdown of stockpiles of goods, while hurting the economy in the short run, is beneficial because it is an important step toward bringing inventories under control and ending a production freefall. U.S. industrial production retreated a fifth straight month in March, recent data show. Over the past 12 months, output was down nearly 13%. Capacity use by industries receded to 69.3%, a historical low since records began in 1967.

First-quarter GDP would have fallen farther if not for improvement in trade. Exports fell - but imports dropped even more.

GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP. First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter.

Purchases of durable goods rose 9.4% in the first quarter, after decreasing by 22.1% October through December. First-quarter non-durables spending climbed by 1.3%. Services spending rose 1.5%.

Overall, consumer spending contributed 1.50 percentage points to GDP; it had dropped 2.99 percentage points in the fourth quarter.

But another component of GDP, housing, took a large bite out of the economy. Residential fixed investment fell by 38.0%, reducing overall GDP by 1.36 percentage points. Fourth-quarter investment had fallen 22.8%, taking 0.80 of a percentage point out of GDP.

International trade boosted the economy early this year, adding 1.99
percentage points to GDP. U.S. exports plunged 30.0% and imports decreased 34.1%.

In the fourth quarter, trade deducted 0.15 of a percentage point out of GDP; exports in that period were 23.6% lower and imports fell by 17.5%.

First-quarter business spending dived 37.9%. Investment in structures went down 44.2%. Equipment and software outlays decreased 33.8%. Overall fourth-quarter outlays by businesses retreated 21.7%.

Businesses dumped inventories by $103.7 billion. Inventories fell $25.8
billion in the fourth quarter and $29.6 billion in the third quarter. The big
deceleration siphoned 2.79 percentage points out of January-March GDP.

Real final sales of domestic product, which is GDP less the change in private inventories, fell at a 3.4% annual rate in the first quarter. Fourth-quarter sales fell by 6.2%.

Federal government spending decreased 4.0%, after rising in the fourth quarter by 7.0%. State and local government outlays fell 3.9%, after going down by 2.0% in the fourth quarter.

Other price inflation gauges in the report include the price index for gross domestic purchases, which measures prices paid by U.S. residents. It fell 1.0%, after decreasing 3.9% in the fourth quarter. The chain-weighted GDP price index increased 2.9%, after increasing 0.5% in the fourth quarter.