U.S. Economy Shrinks 5.7 Percent in First Quarter of 2009

The economy was in terrible shape at the beginning of the year, but not quite as terrible as first thought.

Gross domestic product, the broadest measure of economic output, fell at a 5.7 percent annual rate from January to March, the Commerce Department said today. The government had initially estimated that the economy shrank at a 6.1 percent annual rate.

Even with the less steep decline, the new data made clear that the economy remained basically in free fall at the start of the year, with plummeting business inventories, investment levels and exports. Analysts believe that the economy has continued shrinking in the second quarter of the year, which ends June 30, but at a more manageable pace.

In the first quarter, businesses did not cut back on inventories quite as quickly as originally estimated, nor did exports fall as steeply, which boosted the revised number. The new data affirmed that consumer spending stabilized in the early months of the year, with personal consumption expenditures rising at a 1.5 percent annual rate.

In a more negative sign, the government said that consumer spending on nondurable goods rose at a 9.6 percent annual rate, which is healthy but not as healthy as first estimated.

The data continued to show a near-collapse in business investment, with spending on equipment and software falling at a 33.5 percent annual rate, and investment in structures falling at a 42.3 percent rate. Those numbers continue, even after the revision, to support the idea that businesses are aggressively trimming their sales, unwilling to take any risk.

The report also found that overall corporate profits rose by $42.6 billion, as companies cut costs aggressively. But that followed a $250 billion decline in profits in the final months of 2008.