U.S. GDP Worse Than Expected

April 29, 2009

U.S. real GDP sank 6.1% at a seasonally adjusted annual rate even though personal consumption made a positive contribution of 1.5 percentage points after depressing the fourth-quarter growth rate by 3 percentage points.  Here are some highlights of today’s report.

  • GDP fell 6.2% saar over the past two quarters, the weakest two-quarter slide since -7.4% in 4Q57-1Q58.
  • Growth has been negative for three consecutive quarters for the first time since the second half of 1974 and 1Q75.
  • GDP has declined 3.3% from peak, more than the drops during the 1973-5 and 1981-2 recessions.  Since WW2, only the 1957-8 recession saw a bigger peak-to-trough drop than the present recession, a 3.7% decline that will be undoubtedly exceeded in the second quarter of 2009.
  • The current decade is 92.5% complete and shows a 1.7% annualized rate of U.S. GDP growth so far.  Since GDP is contracting, that figure will drop to 1.6% or 1.5% saar by the end of this year.  By comparison, real GDP expanded 3.2% per annum in the 1990’s, 3.1% in the 1980’s, 3.3% in in the 1970’s, 4.3% in the 1960’s, and 4.2% in the 1950’s.  I doubt growth will surpass 2.5% per annum next decade, and it might not even reach 2.0% per annum.
  • As in the final quarter of 2008, it appears that GDP will have contracted at very similar rates in the United States and Euroland, in contrast to the widespread market perception that the downturn is less intense in the United States than in Europe.
  • The contraction of U.S. growth last quarter was concentrated in business investment, inventory de-stocking, and residential spending, which respectively depressed the overall growth rate by 4.7 percentage points (ppts), 2.8 ppts, and 1.4 ppts.  Perhaps the biggest unpleasant surprise involves government spending, which fell 3.9% saar in the quarter and rose just 1.7% between 1Q08 and 1Q09  despite the cocaphony of protest against excessive fiscal giveaways.  Net exports enhanced GDP growth by 2.0 ppts, as the drop in imports of 34.1% saar exceeded the decline in exports of 30.0% saar.
  • The personal consumption deflator fell on quarter and to a year-over-year increase of just 0.8%.  The core PCE deflation remained only slightly less than 2.0%, however.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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