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Analysis: American GDP fall worse than expected

America’s real GDP fell by an annual rate of 6.1% in the first quarter of 2009.

Note: This story was updated at 2:40pm.

America’s real GDP fell by an annual rate of 6.1% in the first quarter of 2009, according to provisional figures, defeating expectations that the pace of decline would have slowed.

The drop follows a 6.3% decline in the final quarter of 2008. The consensus forecast had been that the first quarter would see a fall of 4.7%.

A key factor was the decline in private inventories, which subtracted 2.79% from the first-quarter change in real GDP, according to the Bureau of Economic Analysis (BEA), which issues the figures.

Federal government consumption expenditures fell by 4% after increasing by 7% in the previous quarter.

Both exports and imports declined more than in the last quarter of 2008. Real exports fell by 30% after a 21.7% fall in the fourth quarter, and real imports – which are a subtraction when GDP is calculated – fell 34.1% after a decline of 17.5% in the fourth quarter.

Non-residential fixed investment was another drag on the figure, dropping 37.9% during the quarter after a 21.7% fall the previous quarter. Reflecting the ongoing property market crash, non-residential structures decreased 44.2%.

However, some respite was provided by personal consumption expenditures, which increased 2.2% in the first quarter after a 4.3% fall in the fourth. In particular, 9.4% more was spent on durable goods. This reflected a 5.1% increase in disposable personal income over the quarter.

Showing some deflationary pressure, the price index for gross domestic purchases fell by 1% over the quarter; however, the rate of decline was less dramatic than the 3.9% fall over the preceding quarter. With food and energy prices excluded, the index rose in the first quarter by 1.4%.

Gabriel Stein, the chief international economist at Lombard Street Research, said the GDP fall was “not particularly pleasant” and added, “I am rather surprised by the massive de-stocking – my impression was that we might have seen the worst of the inventory reductions, but that’s clearly not the case. We’ve now had six quarters of falling inventories and at some stage we do reach the end of that process – presumably that’s where we are now.”

However, he said the numbers “to my mind confirm the view that the US economy is headed back to a positive growth number in the second half of the year: not high, but modestly positive.”

According to Stein, the fall in government spending is unlikely to persist given fiscal stimulus plans, while “what’s very positive about the numbers is that we have personal consumption growing again”.

He said the difference between consensus forecasts and today’s figure was “well within the margin of error”, while the gloomy figures should be taken in context: “Green shoots are leading indicators, but the GDP lags behind.”

In contrast, Paul Ashworth, a senior US economist at Capital Economics, said the decline was “markedly bigger than the consensus” and Capital Economics’ prediction of a 4% fall.

He described the drop in business investment as “breathtakingly bad” and added the rise in consumption could prove “short-lived”, because “incomes were boosted in Q1 by higher tax rebates and a big cost-of-living adjustment to government benefits. The tax cuts that are coming will be much smaller.”

However, like Stein, he said that aside from the fall in government spending, “the news in today’s GDP report is actually a little bit better that expected.”

Capital Economics predicts the American economy will contract by 3% this year and start to expand again early next year.

More comprehensive estimates will be released on May 29.

Related Articles:
US decline slowing, says Bernanke
Fed minutes reveal downbeat outlook



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