The Continuing Recession, GDP Edition

The preliminary numbers for real GDP for the first quarter of 2009 have been released, and they are worse than expected, but pretty much in line with the kinds of employment declines we've seen in January, February, and March. GDP declined at an annual rate of 6.1%; apparently the consensus expectation was a decline of 4.7%.

The truly striking decline was in Gross Private Domestic Investment (purchases of new capital equipment), which fell at an annual rate of 37.9% (compared to a fourth quarter 2008 decline of "only" 21.7%). Investment has declined more sharply in this recession than in any recessions ince at least 1974/75.

But even more strikingly, Investment has declined as a percent of GDP since the first quarter of 2006, from 17.3% of GDP to 11.7%. This is a lower Investment share than at any time since the 1991 recession (but the decline then was only from 13.6%). Even in the "biggest recession since World War II" (the 1980-82 recession), Investment's share of GDP declined only by 2.6 percentage points.

The current decline in Investment spending, because it means our capacity to produce is growing much more slowly and we are incorporating new technologies at a much slower rate, has significant implications both for the recovery and for our longer term growth.