The BEA preliminary report revised the U.S. GDP growth rate for Q1 2009 to -5.7%. This is better than the 6.1% decline reported in the advance report. However, this is still the third declining quarter in a row, and the fourth since the recession began in Q4 2007. The slowdown in Q1 was less than the 6.3% drop in Q4 2008. This is the first time since the Great Depression that GDP fell more than 5% for two quarters in a row. The silver lining is that a large contributor to the decline was a decrease of business inventories. This means that inventories are getting lean, potentially boosting production next quarter if orders hold steady. (Source: GDP News Release)
What It Means to You
The slump in U.S. car sales contributed 1.36 percentage points to the Q1 decline and 2.01 points to the Q4 2008 decline. Another contributor was the fall-off in commercial construction.
Keep an eye on future Durable Goods Reports, which will herald the first signs of improvement in economic growth. For a review of the most recent GDP reports, see GDP Current Statistics.
Comments
It is significant that the GDP drop was “only” 5.7%. While that adds up to a number larger than half the European economies, it is important to recognize that the real surprise was that we got a better estimate of two underlying forces – Growth and Decline.
The assumption going in was that Growth was not still weak, but this was a sign of it otherwise.
The 5.7% aggregate is the total decline after netting out growth. What the market recognized is that the growth portion was much stronger than expected that offset complete shut down in the automotive industry during the quarter.
The liquidity that the Fed has been pushing into the market since Q4 2008, has driven growth. This growth will show up strong in Q4 2009 and will offset all the decline in Q3(GDP will be close to zero).
This along with inventory being very low, bodes well for a strong rebound.
Hi Madwesh,
I hope you are right. I am just concerned that the government has done all it can do – debt that is nearly 100% of GDP and zero percent Fed Funds rate. It’s hands are tied. Consumer spending and bank lending aren’t going to return to 2006 or 2007 levels for several years.
It all depends on how well investors adjust to the idea of an altered economic landscape – one of 1-2% economic growth, not a return to 2-3%.
Kimberly
Thanks for noting these figures. I am fed up with people in major newspapers who seem to think the USA only started its recession this year and do not count the recession quarter of last year, in total economic decline of the USA.
You are welcome. The recession actually started in Q4 2007. It may even be continuing in Q3 2009 – we’ll find out later this week!