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Published: Thursday, 4/30/2009

Spending up; economy shrinks

ASSOCIATED PRESS

WASHINGTON - The economy shrank at a worse-than-expected 6.1 percent pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending.

The U.S. Commerce Department's report, released yesterday, dashed hopes that the recession's grip loosened in the first quarter. Economists surveyed by Thomson Reuters expected a 5 percent annualized decline.

Instead, the economy ended up performing nearly as badly as it had in the final three months of last year when it logged the worst slide in a quarter-century, contracting at a 6.3 percent pace. Nervous consumers played a prominent role in that dismal showing as they ratcheted back spending in the face of rising unemployment, falling home values, and shrinking nest eggs.

In the January-March quarter, consumers came back to life, boosting their spending after two straight quarters of reductions.

The 2.2 percent growth rate was the strongest in two years.

Much stronger demand for big-ticket "durable" goods, including cars, furniture, and household appliances, led the increase. That spending rose at a 9.4 pace, the most in a year.

Consumers also boosted spending on clothing, shoes, recreation services, medical care, gasoline, and other energy products. But not on food, where spending dipped slightly.

Still, businesses cut spending on home building, commercial construction, equipment and software, and inventories of goods.

All told, the U.S. economy logged its worst six-month performance since the late 1950s.

The cuts underscore the toll the housing, credit, and financial crises - the worst since the 1930s - are having on the country. The recession, which began in December, 2007, has taken a big bite out of national economic activity and snatched 5.1 million jobs.

To cushion the impact of the downturn, the Federal Reserve has slashed a key bank lending rate to a record low near zero and rolled out a string of radical programs to spur lending. The Fed yesterday said it sees signs the recession may be easing but warned that the economy is likely to remain weak.

The central bank held its key lending rate at a record low of between zero and 0.25 percent, and decided against taking any new steps to shore up the economy.



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