The punishing recession pulled down US first-quarter output a massive 6.
1 percent, official data shows, but some analysts said the report indicates the worst is over for the economy.
The Commerce Department\’s first estimate of gross domestic product (GDP) was considerably worse than the 4.7 percent annual rate of decline expected by private economists and was only a marginal improvement over the 6.3 percent
drop in the fourth quarter of 2008.
But because the data showed a high level of fear in business investment while consumers appeared to emerge from retrenchment, the report sparked a positive market reaction and anticipation that the recession could end soon.
“There were some major positives” in the report, said Augustine Faucher at Moody\’s Economy深圳桑拿,, who argued that the data “points to an end to the recession by late 2009.”
Analysts pointed out that GDP was dragged down by massive declines in inventory stockpiling, which could mean businesses will need to ramp up production over the rest of 2009.
Subtracting inventories, the economy contracted at a 3.4 percent pace in a measurement known as real final sales.
Faucher said businesses “will quickly need to increase production” to keep up with consumer demand and that government spending “will start adding to growth as the stimulus package kicks in.”
Stocks rallied on the news, with the Dow Jones industrials vaulting 2.35 percent in afternoon trade.
Optimistic about future
Cary Leahey, senior economist at Decision Economics, said that while the report was worse than expected, “it isn\’t necessarily bad news for the remainder of the year.”
Leahey said that with consumer spending and the housing sector appearing to stabilize in early 2009, “that means the worst of the recession is behind us.”
Hours after the report was released, the Federal Reserve said the US economy is still contracting but at a “somewhat slower” pace as it maintained near-zero interest rates and its array of programs to boost easy credit.
Concluding a two-day meeting, the Federal Open Market Committee maintained its policy of low rates accompanied by a variety of programs to pump up credit and lift the economy out of recession, but noted that the outlook “has improved
Policy decisions important
The FOMC statement said that since its last meeting in March, “the economy has continued to contract, though the pace of contraction appears to be somewhat slower.”
It added that Fed members “anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”
The panel headed by Fed chairman Ben Bernanke repeated its position that it “will employ all available tools to promote economic recovery and to preserve price stability.”
The decline marked a third consecutive quarter of GDP contraction for the world\’s biggest economy, which had not occurred since 1974-1975. But some analysts cited hopeful signs in the bleak report.
Impact of housing
The steep GDP drop was the result of falling exports, declines in business and household investment and a weak housing market, offset in part by surprisingly strong consumer spending.
Consumers rebounded in the quarter, boosting spending 2.2 percent after a 4.3 percent plunge in the last quarter of 2008.
Even though consumer activity makes up the lion\’s share of activity, the rise was not enough to offset hefty declines in other segments of the economy.
The report showed investment in housing or residential structures fell 38.0 percent and spending on nonresidential business investment slumped 37.9 percent, including a 33.8 percent drop in software and equipment.
Exports tumbled 30 percent and even government investment fell 4.0 percent.
Scott Brown, chief economist at Raymond James & Associates, said the report is consistent with an economy that is struggling to come out of a punishing recession.
“We\’re seeing the worst part of the decline in some sectors behind us,” he said.
“There is hope for a bottom and a gradual recovery into next year.”