The US economy contracted at a surprisingly steep 6.1 percent rate in the first quarter, dragged down by a record plunge in business inventories and a slump in exports, data showed on Wednesday. However, the data did not change views the economy would emerge from the recession, now in its 16th month, in the second half of the year. Next month, the downturn is on track to become the longest since the Great Depression. The Commerce Department said inventories were drawn down by a record $103.7 billion - potentially good news for the economy because it suggests businesses have cut the stockpile of unsold merchandise to levels that will let them start placing new orders, which would stimulate production. “The larger-than-expected decline in first-quarter GDP is good news for the upcoming quarters. We expect that the recession will be over in the second half of the year,” said Harm Bandholz, an economist at Unicredit Markets and Investment Banking in New York. While the drop in gross domestic product, which followed a 6.3 percent fourth-quarter decline, was much steeper than economists had expected, investors were cheered as they saw it laying the groundwork for a recovery. GDP, which measures total goods and services produced within US borders, has now dropped for three straight quarters for the first time since the 1974-1975 recession. That downturn, which started in 1973, lasted 16 months. The inventory plunge accounted for 2.79 percentage points of the drop in GDP. Excluding inventories, GDP contracted 3.4 percent. Business investment, which is typically made when companies are planning production increases, tumbled a record 37.9 percent in the first quarter. However, consumer spending, which accounts for over two-thirds of US economic activity, rose 2.2 percent, after collapsing in the second half of 2008. Consumer spending was bolstered by a 9.4 percent jump in purchases of durable goods, the first advance after four quarters of decline.
