Economists and others weigh in on the worse-than-expected decline in gross domestic product.
- The bottom line of this report is simply that the U.S. economy remains rather weak as the ongoing housing correction and financial sector crisis continue to weigh heavily on the domestic economy. However, there were some obvious glimmers of hope in the report as the improvement in consumer spending (which remains the lynch-pin of U.S. economic activity) during the quarter suggests that U.S. household spending may be on the rebound. Also of note is the fact that the massive draw-down in inventory may mean that this component could add favorably to output in the near future. –Millan L. B. Mulraine, TD Securities
- The downward momentum continued into the first quarter. However, the economy was not as soft as the GDP number indicated. Businesses stopped producing goods for a while slashing inventories by a whopping $104 billion. Without the inventory runoff, the economy would have contracted by 3.4% instead of 6.1% as reported. This is good news. With lean inventories, production will be cranked up in order to restock the depleted shelves in coming months. –Sung Won Sohn, Smith School of Business and Economics
- Consumers came out guns a’blazin, but even that wasn’t enough to overcome the downward pressure of the corporate sector. Personal consumption expanded at a surprisingly robust 2.2%, on the combined strength of greater demand for both durable and non-durable goods. This result stands in stark contrast to talk — including that from yours truly — of diminished credit availability leading to lower consumer demand. Still, the first-quarter consumer performance is likely a matter of a bounce from low late 2008 levels, and with a savings rate in the 4% range, significant consumption growth will remain a long run challenge for the domestic economy. –Guy LeBas, Janney Montgomery Scott
- The upside surprise in first-quarter consumption largely reflected higher then anticipated spending on services. This will show up as either an unusually sharp gain in March and/or an upward revision to Jan/Feb when the monthly breakdown is released tomorrow as part of the personal income report. From a broader perspective, the modest rebound in first-quarter consumer spending following back to back declines in the second half of 2008, was driven by the upside surprises in the previously reported results for retail control in January and February. However, given the significant fall-off that was seen in March retail control, the ramp points to a renewed decline in consumer spending in second quarter. –David Greenlaw, Morgan Stanley
- This is nothing to celebrate, and simply indicates that the recession will be longer and deeper than most economists expect. With the collapse of the housing and stock markets, the surge in unemployment, and the fall in wages, the only way that consumers can spend more is if they reduce savings or increase borrowing. However, our economy collapsed precisely because we borrowed and spent too much to begin with. The economy will not find a solid foundation unless consumers decide to live within their means. Sadly that message is not getting out. –Peter Schiff, Euro Pacific Capital
- On the surface, 2009’s first quarter doesn’t look much different than did 2008’s fourth quarter, as real GDP contracted at an annualized rate of 6.1% in the first quarter after contracting by 6.3% (annualized) during 2008’s final stanza. The details, however, of the GDP data in the respective quarters are markedly different, and despite the dismal headline number, the details of the first-quarter report suggest a much smaller contraction, if not a modest advance, in real GDP during the second quarter. This should not, however, be taken as a sign that the recession has run its course. Clearly this is not the case, and there are plenty of downside risks still facing the U.S. and global economies. –Richard F. Moody, Forward Capital
- The broad picture of the economy painted by this report makes sense. The output declines in terms of real GDP were almost as severe in the first quarter as that seen in the fourth quarter (private sector hours worked would have suggested a larger decline — productivity continues to hold up well in the recession), however the declines in both final demand and nominal GDP were much less severe. The baton of demand declines was passed firmly from the consumer to the producer. –RDQ Economics
- Arguably the most negative feature of this report was the unprecedented 37.8% plunge in business fixed investment. That decline underscores the lagged feedback effect of the collapse in consumer spending during the second half of last year. If consumer spending stabilizes, a stabilization in capital spending would further improve the near term outlook. –Nomura Global Economics
- The downside surprise to our -3% forecast is almost all in capital spending on equipment and nonresidential structures, down 33.8% and 44.2% respectively, and government spending, down by 3.9%… The capital expenditure numbers are hard to square with the monthly data, and we think there is scope for upward revision… Overall, horrible. The second quarter will be less bad. –Ian Shepherdson, High Frequency Economics
- Surprising was a -0.35 percentage point contribution from federal defense spending and little change in federal nondefense spending. Presumably, federal spending will boom in coming quarters as fiscal stimulus begins to manifest itself. However, with the budget positions of states and localities suffering (-0.49 percentage point contribution from state and local government spending to overall GDP growth in first quarter following -0.25 percentage point in the fourth quarter), a good chunk of the stimulus is merely going to blunt declines in those categories of spending. –Joshua Shapiro, MFR Inc.
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