First Quarter GDP Revised Higher

Washington, DC, May 29, 2009--The U.S. economy contracted less than initially thought in the first quarter, falling at a revised 5.7% annual rate after sinking 6.3% in the fourth quarter, the Commerce Department reported Friday in its second estimate of quarterly gross domestic product.

Business investment declined at a record rate during the first three months of 2009. Investments in housing fell at the fastest pace in 29 years. Domestic demand fell at the fastest rate in 29 years. Exports fell at the fastest pace in 38 years.

The negative 5.7% estimate for GDP on a real, seasonally adjusted basis was slightly stronger than the initial estimate of a 6.1% decline released a month ago. The revisions, which came from more complete information not available then, saw higher inventory building and greater exports, offset by weaker consumer spending, compared with the first estimate.

Economists were forecasting that the revision would be to a negative 5.5%. They expect the economy to contract by 2% for the second quarter and to grow 1.5% in the third quarter.

The big story for the first quarter was in the business sector, where firms halted new investments and shed workers and inventories to bring down production and stockpiles to better match lower demand from U.S. and foreign markets.

The massive pullback has reaped few benefits for the owners yet, as profits in the nonfinancial sector fell again, the government's latest data showed.

Falling inventories subtracted from GDP in the first quarter, but that liquidation will set the stage for stronger growth later after companies have brought supply back in line with demand.

The swing in the inventory cycle -- from being a massive drag to being a small help -- is the main reason economists expect the economy to begin to grow again in the third or fourth quarters.