Those who expected the fallout from September's flare-up in the credit crisis to trip up the economy have something else to crow about today. The initial estimate for Gross Domestic Product , or advance GDP, fell at a larger-than-expected annualized rate of 6.1% in the first quarter, exceeding the consensus view of a nearly 5.0% drop.
The decline in the January-March period follows a 6.3% contraction in the final quarter of last year, which eclipses the worst two-quarter period of the 1982 recession as well as the 1974 contraction, which was caused by the oil embargo and spike in oil prices.
Personal consumption, which makes up close to 70% of the economy, managed to rebound by an annualized 2.2% rate following weakness in the second half of 2008, suggesting that the modest improvement in consumer confidence (Consumer mood brightens) is being reflected at the retail level. And that improvement is helping to support stocks.
But the culprit for the plunge in activity comes from a record 51.8% decline in investment spending, underscoring how much businesses have been slashing outlays in response to falling demand and tight credit.
In addition, a 30.0% decline in exports is more proof that the global economy has not been immune to the swift falloff in US economic activity. Clearly, this recession is shaping up as the worst in over 60 years.
One final thought. Most observers feel that the worst of this mess in the rear-view mirror - remember, the report is backward-looking. The improvement in personal consumption is an indication that a bottom is taking shape, and the early look at output for the world's largest economy will be revised during the next month when data is more complete.
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