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US economy contracts less in Q1, profits rebound

US economy contracts less in Q1, profits rebound

Washington: The US economy contracted slightly less than initially estimated in the first quarter, while corporate profits rebounded, according to a government report on Friday that hinted the recession was moderating.

Gross domestic product, which measures total goods and services output within US borders, dropped at a 5.7% annual rate, the Commerce Department said, less than the 6.1% estimated by the government last month. The economy contracted at a 6.3% pace in the fourth quarter.

While the drop in economic activity was still steep and slightly worse than market expectations for a 5.5% fall, recent data have indicated that the rate of the slowdown was easing and growth could resume by year-end.

Output has declined for three straight quarters for the first time since 1974-1975.

“The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5%. It should be the last of the negative quarters," said Christopher Low, chief economist at FTN Financial in New York.

US stock indexes were little changed on the data, while the government bond prices trimmed losses.

The Commerce Department’s preliminary report also showed corporate profits after taxes increased 1.1% in the first quarter, the first increase in a year. In the fourth quarter, profits had plummeted 10.7%, the biggest decline since the start of 1994.

Analysts polled by Reuters had forecast profits dropping 7% in the first quarter.

Economic activity in the first quarter was dragged down by cutbacks in business, federal government, residential and nonresidential investment as well as a drop in exports.

But housing reports this week raised hope that the sector, at the heart of the 17-month old recession, was stabilizing.

Business inventories fell $91.4 billion after slipping by $25.8 billion in the fourth quarter. Last month, the Commerce Department estimated the drop in inventories at a record $103.7 billion in the first quarter. Inventories subtracted 2.34 percentage points from the overall GDP figure.

Excluding inventories, GDP contracted 3.4%, the department said.

Exports fell 28.7%, the largest decline since the fourth quarter of 1971, after dropping 23.6% in the fourth quarter. The drop in exports lopped off a record 3.86 percentage points from GDP.

Investment by businesses tumbled a record 36.9% in the first quarter, while residential investment dived 38.7%, the biggest decline since the second quarter of 1980.

Consumer spending, which accounts for over two-thirds of US economic activity, rose 1.5%, but slower than the 2.2% rate estimated by the government last month. Spending had collapsed in the second half of last year.

Consumer spending was lifted by a 9.6% leap in the consumption of durable goods, the biggest advance since the first quarter of 2006. Motor vehicle output cut 1.36 percentage points from first-quarter economic activity, an improvement from the 2.01% subtraction in the fourth quarter.

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