US GDP contracts 6.1% (annualized) in 1st quarter

Shouldn't be a surprise to anyone, although it seems slightly worse than consensus expecation, but US GDP contracted by 6.1% (annualized rate) in the 1st quarter of 2009:

Real gross domestic product -- the inflation-adjusted, seasonally adjusted value of all goods and services produced in the United States -- fell at a 6.1% annualized rate in the first quarter, nearly matching the 6.3% decline in the fourth quarter of 2008. Read the full report.

The two-quarter contraction is the worst in more than 50 years. Since the 1947, the economy had never contracted by more than 4% for two consecutive quarters. With a 0.5% drop in the third quarter of 2008, it's the first time the economy has contracted for three consecutive quarters since 1975.

In the past four quarters, the economy has fallen 2.6%, the biggest year-over-year decline since 1982.

The big story for the first quarter was in the business sector, where firms halted new investments, and shed workers and inventories at a dizzying pace to bring down production and stockpiles to match the lower demand from U.S. and foreign markets.

"The traditional patterns of a business cycle are emerging," wrote John Silvia, chief economist for Wachovia. "After a sharp decline in demand in the fourth quarter we are now witnessing the inventory correction. Ahead is rising demand and recovery at a slower, but still positive, pace."


Sharp contraction in 4Q08 and 1Q09 was a given; the question is whether 3Q09 and 4Q09 will see strong recovery or not. The stock market is betting on strong recovery in the 2nd half of 2009. The Federal Reserve also forecasts strong growth in the latter part of the year. For long-term investors, the decision is to figure out what normalized profits really are.

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