The US economy sank at a 5.7 percent pace in the first quarter as the brute force of the recession carried over into this year. However, many analysts believe activity isn’t shrinking nearly as much now as the downturn flashes signs of letting up.
The US Commerce Department’s updated reading on GDP, released on Friday, showed the economy’s contraction from January to March was slightly less deep than the 6.1 percent annualized decline first estimated last month. But the new reading was a tad worse than the 5.5 percent annualized drop economists were forecasting.
It was a grim first-quarter performance despite the small upgrade. It marked the second straight quarter where the economy took a huge tumble. At the end of last year, the economy shrank at a staggering 6.3 percent pace, the most in a quarter-century.
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Economists are hopeful that the economy wouldn’t shrink as much in the second quarter as the recession eases its grip.
Forecasters at the National Association for Business Economics, or NABE, predict the economy will contract at a 1.8 percent pace.Other analysts think the economic decline could be steeper — around a 3 percent pace. Some think it could be less — about a 1 percent pace.
“Things are getting less awful,” said Bill Cheney, chief economist at John Hancock Financial Services.
Less dramatic cuts by businesses factor into the expected improvement. Consumers, however, are likely to be cautious. There have been encouraging signs recently with gains in orders for big-ticket manufactured goods, some firming in home sales and a slowing in the pace of layoffs.
“The speed of the drop will slow,” predicted Ian Shepherdson, chief US economist at High Frequency Economics.
The government makes three estimates of the economy’s performance for any given quarter. Each estimate of GDP is based on more complete information. The third one will be released late next month.
US Federal Reserve Chairman Ben Bernanke and NABE forecasters say they expect the recession to end later this year, barring any fresh shocks to the economy. NABE forecasters predict the economy could start growing again in the third or fourth quarter.
US President Barack Obama’s stimulus package of increased government spending and tax cuts, along with aggressive action by the Fed to spur lending, should help revive the economy.
Still, both the Fed and private economists caution that any recovery will be lethargic and that unemployment — now at 8.9 percent, the highest in 25 years — will continue to march upward in the months ahead.
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