- The Washington Times - Saturday, May 30, 2009

The U. S. economy did not shrink as much during the first quarter as initially reported, but the October-March period still represented the biggest six-month contraction in more than half a century, the Commerce Department revealed Friday.

One important development involved corporate profits, which increased in the first quarter for the first time since the second quarter of 2007, just before the onslaught of the most serious financial crisis since the Great Depression.

Profits of financial firms, measured at an annual rate, nearly doubled in the January-March period to $238 billion. That was about half their level before the crisis began. But profits at nonfinancial firms continued to fall, the Commerce Department reported.

After declining 6.3 percent during the fourth quarter, gross domestic product fell at an annual rate of 5.7 percent during the first quarter, slightly less than the 6.1 percent drop reported last month.

Most analysts expect the economy to contract less sharply in the current quarter and then begin to recover during the second half of this year, ending the nation’s longest postwar recession.

“All the incoming data suggest that the rate of decline in economic activity is decelerating,” said Nariman Behravesh, chief economist of IHS Global Insight. “The key drivers of the gradual improvement in the outlook will be the massive monetary and fiscal stimulus and a turn in the inventory cycle.”

Forecasters at the National Association for Business Economics projected earlier this week that the economy will decline at a 1.8 percent pace during the April-June period. However, when it resumes, economic growth is likely to be anemic for some time and unemployment will continue to rise, their forecasts show. NABE forecasters expect the economy to grow by just 0.7 percent in the third quarter and 1.8 percent in the fourth. Many economists expect the unemployment rate, which reached a 25-year high of 8.9 percent in April, will hover above 10 percent for much of next year.

The biggest factors contributing to the first quarter’s dismal performance were huge declines in exports, home building, inventories and business investments in equipment, software and structures. Charles McMillion, chief economist of MBG Information Services, noted that gross private domestic investment (inventory changes and residential and business investment) was 11.2 percent lower than it was in the first quarter of 1998 - the first 11-year decline in private investment since the 1930s.

The Reuters/University of Michigan index of consumer sentiment rose in May as consumers expressed greater optimism about the future, while their perceptions of current conditions declined.

Turmoil in the auto industry is causing overall manufacturing to continue to plunge throughout the Midwest, according to a business barometer released Friday by the Institute for Supply Management-Chicago. Factory indexes for other regions released earlier this month were more upbeat.

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