US Economy Contracts at More Than 6 Percent Annual Rate

By Barry Wood

Washington
29 April 2009



The U.S. Commerce Department reports in its first estimate of economic performance for the January to March quarter, that the U.S. economy contracted at a bigger than forecasted annual rate - 6.1 percent.

This is the second three month period in which the economy shrank at a more than a six percent annual rate. The rate of decline was more than financial markets had expected. But despite that, stock prices rallied Wednesday as analysts found positive elements to the otherwise grim report. These included a slight increase in consumer spending and a replenishment of business inventories.

Christina Romer is President Barack Obama's chief economist.

"I'm kind of sticking with what the private forecasters are telling me," said Christina Romer. "I think in the second quarter, we're absolutely going to see another fall.  But it should be a fair amount smaller. And then, most people are now saying that we're going to bottom out, maybe in the third quarter - and then certainly by the end of the year, seeing positive growth again."

Romer spoke on Bloomberg Television, which also interviewed Michael Moran, Chief Economist at Daiwa Securities in New York.

"Consumers are going to have to take some time to repair their damaged balance sheets," said Michael Moran. "With the housing market down and the equity market well down, the household sector has lost a great deal of net worth. And I think you have to rebuild that."

Moran says the economy will expand at a rate of more than two percent during the second half of this year.

The International Monetary Fund last week forecast that the U.S. economy would contract by 2.8 percent this year, after expanding by about one percent last year. The U.S. recession, which began in December 2007, is the most severe since the Second World War.

In an effort to pull the economy out of recession, the Obama administration has won Congressional support for large increases in government spending to compensate for sagging consumer demand. In addition, the Federal Reserve - the nation's central bank - has lowered short-term interest rates to near zero percent and pumped huge amounts of money into the economy.