U.S. Economy Shrinks at 6.1 percent Pace in First Quarter

The Commerce Department said Wednesday that gross domestic product (GDP) in the U.S. shrank at an annual rate of 6.1 percent, a reading far worse than what economists had been expecting.

Economists polled by Reuters were anticipating a drop of 4.9 percent while MarketWatch’s economists predicted contraction at a 5.1 percent rate.

The GDP contraction marks two straight quarters of declines over 6 percent. GDP contracted at a 6.3 percent rate in the fourth quarter of 2008. Since 1947, the economy had never contracted by more than 5 percent for two consecutive quarters. And when the third quarter’s contraction of 0.5 percent is factored in, it marks the first time since 1975 that GDP has fallen three consecutive quarters.

Economists anticipate that the losing streak will extend at least another quarter as the current second quarter’s GDP is projected to contract by at least 2 percent.

But details in the government’s report paint a better picture than in Q4 2008’s report.

Consumer spending rebounded in the first three months of 2009 with a rise of 2.2 percent, compared a drop of 4 percent in the previous two quarters. Real disposable personal income increased 6.2 percent, compared with an increase of 2.7 percent in the fourth quarter.

Inventories fell by $103.7 billion in the first quarter, which subtracted 2.8 percent from the GDP. But this can be taken as a sign that companies were adjusting their inventories to meet demand in the first quarter with resupply through manufacturing on the horizon.

Federal government spending fell 4 percent in the first quarter, as the economic stimulus spending had yet to be recognized.

In the face of a global recession, international trade collapsed in the first quarter with exports falling 30 percent – the most in 30 years – and imports dropping 34.1 percent, the most in 34 years.