Friday, May 1, 2009

US Exports Fall By 30%

Slump in exports hits US economy

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US GDP graph

The US economy continued to contract in the first quarter of 2009, led by the biggest fall in exports for 40 years.

US GDP contracted at an annualised rate of 6.1% during the quarter, little improvement on the 6.3% fall in the last three months of 2008.

Exports fell by 30%, the Commerce Department said, as the global recession hit worldwide spending.

Separately, the Federal Reserve held interest rates at near zero and said the recession in the US may be easing.

The central bank kept its key rate at its current range of between zero and 0.25%, saying that while the economy is still contracting, the pace of contraction appears to be "somewhat slower".

Decline in exports

However the latest GDP figures were worse than expected. Analysts had predicted the economy would contract at a rate of 5%.

The economic decline between January and March was the third straight quarter of contraction, the longest period of continuous decline since 1975.

All major exporting nations are being hit by the slowdown in world trade, which the IMF forecasts will contract by 11% this year.

Exporters Japan and Germany are expected to suffer even bigger falls in GDP in 2009 than the US.

According to the IMF, world trade is expected to contract by 11% this year, and this has affected all the major exporting nations, with Japan and Germany projected to have an even bigger fall in GDP in 2009 than the US.

Consumer boost

In addition to the big fall in exports, the continuing decline in economic output was also caused by reduced inventory investment by firms, and lower public spending.

Business investment fell by 37%, while construction was down 38%.

However, the Commerce Department said this was "partially offset" by higher consumer spending, which rose 2.2% during the quarter, after falling 4.3% in the last three months of 2008.

Analyst Michael Darda, chief economist at MKM Partners, said the economy was "not as bad as it looks".

"It's worth noting that consumption was positive and better than expected," he added.

"There won't be positive growth until the second half of the year probably, but the fall in the second quarter, if it's negative at all, will be far smaller."

Christina Romer, the head of the White House Council of Economic Advisors, said there was a "silver lining" to the figures.

She said that the sharp decline in inventories "could put us in a position for perhaps a less dreary number going forward."

US stock markets shrugged off the news, with the Dow Jones industrial average up by more than 1% in early trading, as investors focused on the Federal Reserve's two-day interest rate meeting.

The latest GDP figure comes after data earlier this month showed that US housing construction fell in March to its second-lowest level on record.

Demand for durable goods also continued to fall in March.

Stimulus package

In the second half of the year, the US economy may also benefit from the $787bn (£533bn)economic stimulus package which was passed by Congress in February.

Very little of that spending reached the economy in the first quarter, with the figures showing government spending actually fell 3.9% in that period.

However, the worse-than-expected economic news provides a gloomy backdrop to mark President Obama's first 100 days in office.

In recent weeks, administration officials said they were seeing "tentative signs" of economic recovery.

One sign appeared on Tuesday when consumer confidence rose to its highest level in two years.

However, unemployment is still rising by over 500,000 per month and is expected to top 10% by the end of the year.

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