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| US Economy: GDP shrink worst in 50 years |
| Bloomberg / Washington Apr 30, 2009, 00:32 IST |
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The US economy plunged again in the first quarter, making this the worst recession in at least half a century.
Gross domestic product dropped at a 6.1 per cent annual pace, weaker than forecast, after contracting at a 6.3 per cent rate in the last three months of 2008, the Commerce Department said on Wednesday in Washington. The report, which reflected a record slump in inventories and further declines in housing, comes hours before Federal Reserve officials decide how much money to pump into the economy.
Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off. The contraction persisted even as lower gasoline prices and larger tax refunds helped bring an end to the worst slump in consumer spending in almost three decades.
“We are likely to emerge from this recession very slowly and the recovery will be very weak,” said Richard Berner, chief US economist at Morgan Stanley in New York. “The aggressive policy response we have gotten will take time to work, but it will counter the still-strong headwinds holding the economy back.”
Stocks rose for the first time in three days as bank shares rallied on an analyst report that non-performing assets will peak this year. The Standard & Poor’s 500 Index was up 2.2 per cent at 873.59 as of 11:53 am in New York. Treasuries were little changed, with benchmark 10-year notes yielding 2.99 per cent.
“This is one of those good-bad numbers,” Joel Naroff, president of Naroff Economic Advisors Inc in Holland, Pennsylvania, said in a Bloomberg Television interview. “Businesses are running about as lean as they possibly can be. It sets up the reality that any sort of increase in demand will cause firms to have to increase production.”
As a result, Naroff predicted growth won’t “be nearly as bad in the current quarter, and will probably be reasonably good.”
The world’s largest economy has shrunk 3.3 per cent since peaking in last year’s second quarter, already making this the second-worst recession since the Great Depression. GDP shrank 3.8 per cent during the 1957-58 contraction, according to figures from the Bureau of Economic Analysis.
nce records began in 1947. Excluding the reduction, the economy would have contracted at a 3.4 per cent pace.
Companies cut total spending, including equipment, software and construction projects, at a record 38 per cent annual pace.
Residential construction also decreased at a 38 per cent pace last quarter, the most since 1980.
“The hangover from the Bush administration is even worse than we thought,” Congresswoman Carolyn B Maloney, chairman of the Joint Economic Committee, said in a statement. “These numbers reflect a drawdown in business inventories and continued weakness in the housing and commercial real estate markets. Americans are starting to spend more and I’m optimistic that we will begin to see the effects of the stimulus next quarter.”
President Barack Obama signed a $787 billion stimulus plan into law in February that included increases in spending on infrastructure projects and a reduction in taxes.
One reason for the larger-than-projected decline in GDP was that government slashed spending at a 3.9 per cent pace, the most since 1995. The drop reflected a cutback in defense spending and the biggest decrease in state and local government outlays since 1981, reflecting slumping tax revenue.
Recent announcements by companies including General Motors Corp indicate the economy will shrink again this quarter, albeit at a slower pace. GM last week said it will idle 13 US assembly plants for multiple weeks to trim production by 190,000 vehicles from May through July. Sales in its home market fell 49 per cent this year through March.
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