Consumer spending, which accounts for more than two-thirds of the economy, fell at a 1.2% pace following a 0.6% increase in the prior quarter. The economy has lost 6.5 million jobs since the recession began in December 2007. The fact that the GDP for the previous quarter was revised further down from -5.5% to -6.4% shows how badly the economy was impacted. More importantly, benchmark revisions showed the world’s largest economy contracted 1.9% from the fourth quarter of 2007 to the last three months of 2008, compared with the 0.8% drop previously on the books. Clearly, the fall would have been higher had these numbers not been revised downwards.
The only positive aspect of the report is that inventories have come off substantially. While this has resulted in lower reading, it also means that production would pick up, if not for rising consumption, atleast for inventory replenishment. Is that a positive news? Not really. Is that sutainable? No, again. Inventory built up perk up the GDP number but this is more technical than a fundamental factor. Real demand has to increase forf the eoconmy to get back to a stronger footing and, for that, employment generation has to take place.
Given the high level of unemployment, even if the recession abates, its going to be long and tough road ahead.