GDP falls 6.1% in the first quarter. What does that mean?

The U.S. economy shrank at a 6.1% annual pace (adjusted for inflation/deflation) in the first three months of the year. That's a lot, especially since it was down 6.3% in the previous quarter. If these numbers hold up (more on that in a moment), that's the worst half-year run for the economy since 1957-58, when real gross domestic product shrank 4.2% in the fourth quarter and 10.4% in the first.

But those were the only quarters of negative growth in that particular recession—it was sharp and short, and this downturn isn't. In 1981-1982, which was a long, nasty recession, the worst two-quarter run was -4.9%, -6.4%. They don't have quarterly data for the 1930s, but the annual GDP figures were -8.6% in 1930, -6.4% in 1931, and -13% in 1932. Today's economy has been shrinking for the past two quarters at a pace similar to that of the early Depression. But it would have to continue at that pace unabated for us to put up annual numbers anywhere near those of the Depression years. So the big question is, will the downturn continue at this pace?

The quarterly GDP report actually isn't the best place to look for answers to that question. For one thing it's backward-looking. For another it's always wrong. The numbers released today were the "advance" estimate of GDP, consisting almost as much of extrapolation from previous quarters as actual hard data. On May 29 we get the "preliminary" data, and on June 1 the "final," which isn't really final because every couple of years there's a "benchmark" revision which changes everything yet again. (There's one of those coming up July 31.)

So the worse-than-expected GDP headline number is not going to discourage those economic forecasters who've been predicting a marked easing in the pace of the downturn, or even an end to it within a few months. In fact, the sharp decline in private inventories that accounted for 2.79 percentage points (almost half) of the GDP decline is actually extremely good news, because it means businesses may have already made most the inventory adjustment that's a part of every recession—clearing the way for an upturn.

Given the current battered financial state of U.S. consumers, it's probably not going to be much of an upturn. But even a weak upturn is better than an economy shrinking at 6% a year.