The US economy shrank at a 5.7 per cent annual pace in the first quarter, capping its worst six-month performance in five decades and reflecting declines in housing, inventories and business investment.
The contraction in gross domestic product was smaller than the government estimated last month, revised figures from the Commerce Department showed today in Washington.
The drop was larger than economists had forecast, and followed a 6.3 per cent tumble in the last three months of 2008.
The slowdown is forecast to ease this quarter, reflecting smaller declines in stockpiles of unsold goods and in construction, which may set the stage for a return to growth later this year.
Still, companies are likely to continue cutting jobs as profits remain under pressure, causing consumers to limit spending and slowing any expansion.
“The decline in GDP will be much smaller in the second quarter and will move to positive in the third quarter,” said David Resler, chief economist at Nomura Securities International Inc. in New York, citing company inventories.
“What we’ll see thereafter is not going to be particularly exciting.” Stock-index futures, which had risen earlier in the day, remained higher after the report, while Treasuries were little changed.
The improvement from the 6.1 per cent pace of contraction estimated last month reflected a narrower trade deficit and a smaller reduction in stockpiles than previously estimated.
Today’s preliminary GDP report is the second of three estimates on first-quarter growth. Consumer spending rose at a 1.5 per cent annual rate last quarter, less than previously estimated, after plunging at a 4.3 per cent annual rate in the last three months of 2008, when it fell the most since 1980.
Spending may falter again this quarter as job losses mount. Economists surveyed by Bloomberg forecast unemployment, currently at a 25-year high of 8.9 per cent, may reach almost 10 per cent by the end of the year.
Firings in the auto industry, with Chrysler LLC already in bankruptcy and General Motors likely to follow next week, will probably depress the labour market in coming months.
Commerce today revised down their estimate for wages and salaries in the fourth quarter as the job market deteriorated.
Pay decreased by $21 billion in the last three months of 2008, $8.6 billion more than previously estimated. The update reflects more comprehensive figures from employer payrolls.
Companies trimmed stockpiles at a $91.4 billion annual rate last quarter, the biggest drop since records began in 1947.
Bloomberg