First Quarter GDP Numbers Show Another Down Quarter

publication date: Apr 28, 2009

Update 4/29/09: The 1st quarter GDP numbers out today show that the U.S. economy shrank at a 6.1 percent annualized rate in the first three months of this year. As I've explained earlier, the reported number annualizes changes for one quarter. In the first quarter, GDP declined by 1.5 percent which annualizes out to 6.1 percent.

As you can see from the graph below, the change in GDP over the past year (coming in now at just under -3 percent) is about in line with prior recessionary periods (shaded portions of graph).

Inventories declined at the most rapid rate in generations which means that as demand picks up in the future, companies will have to step up production. Also, consumer spending was healthy in the first quarter and actually grew (at a 2.2 percent annualized rate).



FRED Graph



Update to 1/30/09 story on 4th quarter GDP data. How's this for shrill? This AP story uses the word "staggering" in its headline and goes on to say, "The new report offered grim proof that the economy's economic tailspin accelerated in the fourth quarter under a slew of negative forces feeding on each other. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter. The faster downhill slide in the final quarter of last year came as the financial crisis -- the worst since the 1930s -- intensified."

Ah, there it is again, the comparison to the Great Depression! And you gotta love the use of the words "tailspin" and "slew of negative forces feeding on each other." Please!

As I said in the original story below, these numbers are annualized so the economy didn't actually contract 6.2 percent in the 4th quarter - it was only down 1.5 percent which annualized works out to the 6.2 percent number. Also, the one year change in GDP now with this new data is down 0.8 percent. That still is not yet as bad as in prior recessions when GDP typically fell several percent over a full year.

Absent from most media reports about these lowered 4th quarter numbers was the mention of the good news that companies hadn't allowed inventories to build up as much as was previously estimated. Lower inventory levels are good news because companies will need to step up production sooner to replenish inventories.



How many pundits and news commentators have been talking about the worst recession since the Great Depression or a Great Depression II?

Well, the preliminary 4th quarter GDP numbers out show a 3.8% decline. Note though this number ANNUALIZES what actually happened in the 4th quarter which was a 0.9% decline - which doesn't sound nearly so bad, right?

This first graph shows over the last 60 years how GDP has changed year over year (shaded areas are recessions). As you can see, even with these new, negative 4th quarter numbers, the current recession isn't the worst since the Great Depression - not even close. At the worst of a typical recession, GDP declines several percent year over year and we've only just shown a slight decline (less than one percent) over the past 12 months.

This next graph is even more important to help everyone keep perspective. This looks at inflation adjusted (real) GDP over the past six decades. As you can see, the recessions are merely slight bumps in the road of long-term growth. This is why those who buy and hold stocks and real estate will do well for the long-term.



Graph: Real Gross Domestic Product, 1 Decimal


 

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Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.