On The Road To Recovery
The past week's first quarter GDP report likely marks the end of the economy's free fall, which began when Lehman Brothers declared bankruptcy. A similar fall is unlikely to follow yesterday's announcement that Chrysler is seeking bankruptcy protection and the economy should be able to handle whatever resolution unfolds for General Motors.
Real GDP declined at a 6.1 percent annual rate during the first quarter, with a huge $103.7 billion plunge in inventories accounting for 2.8 percentage points of the drop. Consumer spending rebounded slightly during the quarter but business fixed investment was astonishingly weak. Government spending was another surprisingly weak sector and net exports added 2.0 percentage points to the first quarter figures. Imports fell more than exports during the quarter.
While the first quarter's decline nearly matches the fourth quarter's 6.3 percent plunge, the composition was very different. The huge drop in inventories helps pave the way for a rebound in orders and output and puts the economy firmly back on the road to recovery.