Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Real GDP Declines Far More Than Predicted


Falls for three consecutive quarters for the first time in 34 years.


This is a free preview of The Lavery Insight. For economic forecasts, analysis and insight from Former Merrill Lynch Chief Economist, Jack Lavery, take a free two week trial.

The Commerce Department's Bureau of Economic Analysis advance estimate of first quarter 2009 real GDP confirmed my weaker than consensus expectation. Real GDP dropped at an annual rate of 6.1% in the January through March quarter.

This follows the 6.3% annualized rate of decline in the final quarter of 2008. Real GDP contracted at an annual rate of 0.5% in the third quarter of 2008. This gives us the first decline in real GDP in 3 consecutive quarters in 34 years.

Contributing to the decline in first quarter real GDP was the decline in US exports, reflecting economic weakness outside the US. Imports are a subtraction from GDP, and imports fell, due to weakness in the US.

Very significant in the GDP decline was an accelerating pace of inventory liquidation by business, amounting to $103.7 billion. This was a $77.9 billion drag on the first quarter, as fourth quarter liquidation was only $25.8 billion: $103.7 - $25.8 = 77.9 (I expect inventory drawdown to be even more pronounced in the second quarter, which will contribute to the fourth successive quarterly decline in real GDP).

Also hurting first quarter real GDP were declines in business equipment and software investment that were worse than the declines in the fourth quarter, a much larger drop in non-residential investment in structures than occurred in 2008's fourth quarter, and a faster decline in real residential investment than in the fourth quarter.

The consumer became a positive in the first quarter. Imports fell faster than exports, contributing positively to real GDP.

On inflation in 1Q:'09, the real personal consumption expenditures (PCE) deflator declined at a 1% annualized rate, following a 4.9% annualized decline in 2008's fourth quarter. The core (excluding food and energy) PCE deflator rose a subdued 1.5% in the first quarter, following a 0.9% rise in the fourth quarter, the lowest increase in 47 years. These moves are reflective of heavy discounting in a weak demand climate

Deflation remains the threat. As an example, current dollar or nominal GDP receded 3.5% annualized in the first quarter, following a 5.8% annualized decline in the final quarter of 2008.

For much more of Jack's expert analysis, sign up for a 14 day trial to The Lavery Insight.

In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos