Gross Domestic Product ― the measure of total U.S. output of goods and services from ocean to ocean ― contracted at a slower pace in the first quarter than originally reported, the Commerce Department said on Friday. Looking ahead, the nationwide contraction appears to be slowing.
The Q1 report indicated that output contracted by an annual rate of 5.7% rather than the -6.1% originally reported. Improvements were seen in construction, inventories, foreign trade, and government spending. However, analysts had been expecting a -5.5% figure, so the report is slightly disappointing.
Consumption, which accounts for more than two-thirds of GDP, was revised down from a 2.2% advance to just +1.5%.
“That is very weak, and our models show continued soft consumer spending in 2Q-2009,” said John Herrmann, president of Herrmann Forecasting.
In Q4 2008, real GDP decreased 6.3%. Together, the two quarters represent the biggest contraction since 1958.
GDP was pulled down in the first quarter by exports, equipment & software, private inventory investment, and residential fixed investment. Positive contributions were seen in consumption (despite revisions), as well as a reduction of imports (which are a subtraction of GDP).
Looking forward, second-quarter GDP could fall by just 1.8%, according to economists at the National Association of Business Economics. The group even predicted a 0.7% gain in output in Q3, followed by a 1.8% advance in Q4.
Herrmann is less optimistic. He said there are “numerous signs of an economic bottom in 2Q-2009 and 3Q-2009,” but labor losses could result in an 11% unemployment rate before the end of Q1 2010, which would hinder potential for a quick recovery.
Final revisions to the GDP report will be released next month.