Fall in US GDP worst in 51 years

Richard B. Levine/Newscom
The US economy's severe contraction is reflected in the growing number of vacant retail spaces across the country like this one in New York's Greenwich Village.

The US economy has shrunk for the third quarter in a row – the first time that has happened since 1975, when Gerald Ford was president, South Vietnam was on the point of collapsing, and the leisure suit was considered up-and-coming fashion.

America's real gross domestic product (GDP) – its output of goods and services – has now contracted more severely than at any time since the sharp 1957/58 recession.

The decline in the first quarter – 6.1 percent at an annual rate – was almost as severe as the 6.3 percent tumble in the fourth quarter of 2008, the Commerce Department reported Wednesday in its advance estimate of GDP numbers.

A fall in exports, private inventory investment, equipment and software sales, fixed investment in nonresidential structures, and residential fixed investment were the biggest contributors to the first quarter's dismal performance. Cushioning the fall, to some extent, was an increase in personal consumption and a decrease in imports (which are viewed as a subtraction from GDP).

The sharp decline in first-quarter GDP was a setback for optimists subscribing to the so-called "green shoots" theory. The idea is that the economy, having fallen off a cliff in February and early March, is now seeing some tentative signs of recovery as some indicators turn up (click here for an example), some downtrends flatten out (click here), and others fall less sharply (here).

The US economy's output is now 3.3 percent smaller than its peak in the second quarter of 2008 (measured as an actual decline instead of the annualized rates reflected in the quarterly figures). That's the most severe contraction of GDP since the 3.7 percent peak-to-trough tumble in the first quarter of 1958.


So is that number a rear-view mirror of an economy on the mend or a hint of things to come? Twitter us with your view.

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