Economic Shrinkage: Real GDP Falls in First Quarter

The country may have suffered the worst of the economic downturn last year, but the outlook is far from rosy. GM's expected bankrupcy filing is still hanging over the air, and other economic indicators are turning up mixed.

GDP, for instance, is still contracting.

The Commerce Department is reporting a 5.7 percent rate of decrease in real GDP for the first quarter of 2009. Real GDP is the output of goods and services produced in the United States, adjusted for inflation.

This estimated decrease is less severe than the 6.3 percent drop in the last quarter of 2008, and also slightly better than the Q1 forecast of a 6.1 percent decline a month ago. The revised estimate reflects more complete data. Personal consumption went up 1.5 percent in the first quarter, versus a drop of 4.3 percent in the fourth. This is one reason the GDP dropped less in the first quarter compared to the previous one, according to the report from the Commerce Department's Bureau of Economic Analysis.

The national effect of the auto industry's woes is clear.

Out of the first quarter decrease, 1.36 percentage points are attributable to declines in motor vehicle output, according to the report. This is less than the 2.01 percentage points that motor vehicle output took out of the 2008 fourth quarter GDP.

Several other areas of the economy saw decline in the first quarter, including exports, equipment and software, private inventory investment, nonresidential structures, and residential fixed investment partly offset by a positive contribution from personal consumption expenditures, according to the report.

Exports fell by 28.7 percent, the largest drop since 1971. Private domestic investment also was a large contributor to the GDP decline, plunging 49.3 percent in the first quarter, the largest drop since 1975. However, this was less than the initial report of a 51.8 percent decline.

Food and energy prices dropped in the first quarter, according to the Bureau. The price index-which measures prices paid by U.S. residents-fell 1 percent in the first quarter, but actually increased 1.4 percent if food and energy prices were not taken into account.

Government spending also decreased at the federal, state and local levels, with a 6.8 percent decrease in national defense spending. This marks a contrast to the fourth quarter, where federal government spending increased by 7 percent, and defense spending increased by 3.4 percent.

The report also released numbers for real gross national product, which measures the output of goods and services produced by U.S. residents. Real GNP for the first quarter decreased 5.8 percent, versus a 5.6 percent decrease in the fourth.

Total first quarter final sales were at a 0.7 percent decline.

The Bureau will release its final GDP estimates for the 2009 first quarter on June 25.

Source: The US Commerce Department