GDP for 2009 revised downward; ‘worst contraction’ since WWII

A revised GDP report shows an even gloomier picture of the U.S. economy in 2009, with construction and manufacturing showing the biggest declines.

The federal Bureau of Economic Analysis reported Tuesday (Dec. 14) that 16 of 22 “major industry groups” contributed to the decline in real GDP growth in 2009. The construction sector, down for the fifth consecutive year, saw economic activity decline 15.6% in 2009, compared to a 5.7% decline in 2008.

“Downturns in durable-goods manufacturing and professional, scientific, and technical services along with the continued contraction of construction were among the leading contributors to the decline in U.S. economic growth in 2009,” noted the BEA report.

Manufacturing value fell in 2009 for the second consecutive year, with a decline of 8.6% in 2009 and 2008 decline of 4.8%. Durable-goods manufacturing — the primary type of manufacturing in the Fort Smith metro — fell 12.7% in 2009 after enjoying a 1% gain in 2008. Nondurable-goods manufacturing fell 3.4% in 2009, compared to an 11.8% drop in 2008.

Greg Kaza, an economic researcher and executive director of the Arkansas Policy Foundation, said the revised BEA report is yet more confirmation of how deep the recession was.

“The release confirms the severity of the Great Recession as the worst contraction of the postwar era,” Kaza said.

He also noted that 2008 and 2009 marked the first time in the postwar (WWII) era that the U.S. manufacturing sector saw declines in two consecutive years.

Dr. Michael Pakko, chief economist and state economic forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock, said the report shows what happens when consumption declines.

“The decline in consumption reflects, in part, the origins of the cyclical downturn in 2008. Housing prices peaked around 2006, and their subsequent decline dampened residential construction sharply — and that contraction appears to be ongoing,” Pakko said in a note to The City Wire.

Pakko said the revised U.S. GDP report indicates the resilience of the Arkansas economy in 2009.

“Overall, looking at sectoral decomposition of GDP in 2009 for the nation, it is even more remarkable that Arkansas’ GDP displayed positive growth for the year,” Pakko said.

Arkansas’ 2009 GDP increased 0.6% compared to 2008, and the state was one of only 16 states to see a gain despite declines in manufacturing. With a value of $93.015 billion, Arkansas’ year-over-year GDP growth was ranked 8th in the U.S. Arkansas’ GDP gain between 2007 and 2008 was 1%.

Neighboring Oklahoma saw its GDP rise by 6.6%, making it first in the nation. The report cited mining as a major reason for Oklahoma’s gain. Oklahoma’

Pakko has predicted a 2% GDP gain for Arkansas in 2010 and a 3% GDP gain in 2011 “as we move further away” from the recession.

OTHER GDP NOTES
Following are other findings of Tuesday’s revised U.S. GDP report.
• Declines in value added prices for mining, wholesale trade, and agriculture were the largest contributors to the slowdown in the GDP price index for 2009.

• Prices for mining fell sharply in 2009, decreasing 40.4% after increasing 29.1% in 2008, primarily reflecting steep declines in prices for petroleum, natural gas, and other mining products.

• Prices for agriculture fell 21% in 2009, after increasing 1.4% in 2008, primarily reflecting decreases in most crop and livestock commodity prices.

• The private goods-producing sector value added fell 6.4% in 2009, after a 4.2% decline in 2008.

• The private services-producing sector declined by 2.1%, after a 0.4% increase in 2008.

• The finance and insurance industry grew 6.1% in 2009, partially offsetting the widespread economic decline. The increase was primarily driven by the strong recovery of the insurance carriers industry.