The US economy shrank at an annual rate of 6.1% in the Q1 of 2009, compared with the 6.3% drop in the previous quarter, the Commerce Department reported on Wednesday.
Analysts had been expecting a decrease of 5% for the first three months of this year. The worse-than-expected decline marked the third straight quarter of contraction for the world’s biggest economy and signaled little improvement in a deep recession.
“The decrease in real GDP in the Q1 primarily reflected negative contributions from exports, private inventory investment, equipment and software, non-residential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures,” the department said. “Imports, which are a subtraction in the calculation of GDP, decreased,” it said.
Spending on equipment and software by businesses dropped by 33.8%, compared with a 28.1% decrease in the final quarter of last year.
Meanwhile, builders slashed their spending on commercial construction projects by 44.2%, much bigger than the 9.4% decline in the previous quarter. Their residential spending also fell by 38%, the steepest drop since the Q2 of 1980.
Exports of goods in the January-to-March period plummeted at a 30% pace, the biggest drop since the Q1 of 1969, following the 23.6% plunge in the previous quarter.
Government spending decreased by 3.9% in the Q1, the biggest decrease since the end of 1995. It also marked the first drop in government spending since the Q4 of 2007 following an increase of 7% in the Q4 of 2008. However, consumers, who have been cutting their expenditure for two consecutive quarters, boosted spending by 2.2% in the first three months. The 2.2% growth rate was the strongest in two years.
Many analysts had predicted that the US economy would shrink less in the current April-June period as the government’s stimulus measures begin to take hold. However, the recent outbreak of swine flu, which started in Mexico and has spread to the United States and elsewhere, poses a new potential danger. The flu could stifle trade and force consumers to cut back further on spending thus worsening the recession.
The International Monetary Fund predicted the economy of the United States, at the center of a worsening global financial storm, will contract by 2.8% in 2009.
Despite large cuts in policy interest rates, credit is exceptionally costly or hard to get for many households and companies, which reflects severe strains on financial institutions, the IMF said last week in its latest World Economic Outlook report.
“In addition, households are being hit by large financial and housing wealth losses, much lower earnings prospects, and elevated uncertainty about job security, all of which have driven consumer confidence to record lows,” it said.
The US administration under Barack Obama is counting on the $787-billion stimulus package, which combines tax cuts and increased government spending on public projects, to help bolster economic activity later this year. The administration has also unveiled a series of measures to rescue banks, curb home foreclosures and spur lending to businesses and consumers. (Xinhua)