GDP = Consumption + Gross Investment + Government Spending + Exports – Imports

This is one of those good-bad numbers. Businesses are running about as lean as they possibly can be. It sets up the reality that any sort of increase in demand will cause firms to have to increase production.

Joel Naroff, president of Naroff Economic Advisors

  • GDP drops at a 6.1% annual pace, exceeding forecasts, but lower than the 6.3% annual rate in 4Q2008
  • Weakest six months since 1957-1958, and that was the year of the Edsel
  • Personal consumption increased 2.2% in Q1, vs a decrease of 4.3% in 4Q08 
    • Durable goods: up 9.4%, vs down 22.1% in 4Q08
    • Nondurable goods: up 1.3%, vs down 9.4%
    • Services: up 1.5%, same as 4Q08
  • Real nonresidential fixed investment decreased 37.9% in Q1, vs 21.7% decrease in 4Q08 
    • Non residential structures: down 44.2%, vs down 9.4%
    • Equipment & Software: down 33.8%, vs down 28.1%
    • Residential: down 38%, vs down 22.8%
  • Real exports & imports
    • Exports: down 30%, vs down 23.6%
    • Imports: down 34%, vs down 17.5%
  • The pace of Government Spending declined, increasing 4%, vs 7% in Q4
  • Private inventories subtracted 2.79% from Q1 GDP, almost half of the decline. On an real dollar basis, they decreased $103.7b in Q1, vs a decline of $25.8b in Q4.
    • Big impact on real final sales (GDP minus change in private inventories)
    • Big impact on real GDP, which would have declined at a 3.4% pace, otherwise
  • Price Index for gross domestic purchases
    • decreased 1%, compared to a decrease of 3.9% in 4Q08
    • adjusted to exclude food & energy, the index increased 1.4% in Q1, vs 1.2% in 4Q08.

The slightly smaller decrease in real GDP in the first quarter than in the fourth reflected an upturn in PCE for durable and nondurable goods and a larger decrease in imports that were mostly offset by larger decreases in private inventory investment and in nonresidential structures and a downturn in federal government spending.

There wouldn’t be a case for new moves unless the economy appeared to be deteriorating at a faster clip, and the opposite is the case since the last meeting. [The statement may include] an acknowledgement that the decline in activity seems to have moderated a bit.

—Former Federal Reserve Governor Lyle Gramley

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