The U.S. Economy Sinks at a 5.7% Rate in Q1’09

The U.S. economy receded slightly less than initially estimated in the 1st quarter 2009, according to preliminary estimates released today by the Bureau of Economic Analysis that pointed to moderation in the recession.

The report indicated that real GDP decreased at an annual rate of 5.7% compared to the advance estimates of a 6.1% decline reported last month. The revision about matched consensus expectations and followed a 6.3% contraction in the 4th quarter. Real GDP is down 2.5% in the past year.

The decrease in real GDP in Q1 primarily reflected negative contributions from business investment and inventories. Falling inventories subtracted 2.34 percentage points from GDP in Q1. The largest positive contribution to the revision in overall real GDP was from net exports that provided a 0.4 percentage point boost, or $12.8 billion, higher than the advance estimate issued last month.

As the financial sector recovered from its fourth quarter bleeding, it lifted the overall measure of corporate profitability. Profits from current production increased $42.6 billion in Q1, in contrast to a decrease of $250.3 billion, or 16.5%, in Q4. Net cash flow increased to $59 billion in Q1, compared to a decrease of $97 billion in the fourth.

Profits at domestic financial companies rose $116.1 billion, while profits at domestic non-financial businesses fell $64.2 billion. Total corporate profits rose 3.4% on a Y/Y basis last quarter due to a near-doubling of financial sector earnings.

Inflation continued to show signs of firming. The PCE decreased 1.00% annual rate in the first quarter, the same as the advance estimate.

While the drop in activity is still considerable, recent data suggest the rate at which the economy was deteriorating is easing. With the completion of the inventory correction, which so far has seen unprecedented liquidation by businesses, many economists expect growth to resume by year-end.

Still, the two-quarter contraction for the U.S. economy is the worst since 1947, and output has declined for three straight quarters for the first time since 1975.

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