U.S. Economy Contracts 5.5%

A factor in the weak GDP was a drawdown in inventories, which analysts say means businesses may need to ramp up production in the coming months.

In a report offering a glimmer of hope for recovery from prolonged recession, the U.S. government on June 25 said that the economy had contracted at a 5.5% pace in the first quarter.

In the fourth quarter of 2008 GDP fell 6.3%, the worst slump in decades.

The latest report showed consumer spending, the main driver of activity, rose 1.4% in the first quarter, rebounding from a decrease of 4.3% in the fourth.

Business investment outside the housing sector however plunged 37.3% with investment in equipment and software slumping 33.7%. The housing market showed major weakness persisting with a 38.8% drop.

Both exports and imports fell, but the decrease in imports provided a boost to GDP of 2.39 percentage points. The drop in exports was 30.6% while imports fell 36.4%.

A factor in the weak GDP was a drawdown in inventories, which analysts say means businesses may need to ramp up production in the coming months. Stripping out inventory adjustment, a measure of economic activity known as final sales showed a 3.3% decline.


"The recession continues, but the rate of contraction in the second quarter should be much slower," said Augustine Faucher at Moody's Economy.com. "The economy will contract less in the second quarter -- somewhere between 2% and 3% annualized -- be flat in the third quarter, and then start to expand at the end of the year."


Copyright Agence France-Presse, 2009

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