An article titled ‘GDP hints recession is moderating’ says that reports released this morning says the U.S. economy contracted slightly less than initially estimated in the first quarter and U.S. corporate profits rebounded – and that U.S. GDP, which measures total goods and services output within U.S. borders, dropped at a 5.7% annual rate (forecasters expected a drop of 6.1%, down from a 6.3% annualized decrease in Q4 2008. Exports fell 28.7% in Q1 2009, the largest decline since Q4 1971 (the decline was 23.6% in Q4 2008.  Business investment dropped by 36.9% (a record) and residential investment dropped 38.7% (the biggest decline since Q2 1980).  Importantly (as I see it) U.S. consumer spending rose 1.5% – albeit lower than the 2.2% estimated last month by the U.S. government.

These numbers are better than I would have expected.  As best I know, in 2008 U.S. Government revenues were approximately U.S.$2.6 trillion.  Assuming a direct relationship between GDP and U.S. Government revenues – which I think is unlikely to be accurate but likely to be directionally correct – a 5.7% reduction in GDP would, all other things equal, result in an approximate U.S.$150 billion in U.S. Government revenues in 2009 from 2008.  A second article written by Casey Research says that “when you add in all revenue from all sources (including Social Security revenue, government fees, etc.), the fiscal year-to-date – October through April – revenue shortfall comes to 19%, vs. the 14.6% projected in Obama’s budget, and that in the midst of the Great Depression, the 1931 federal tax revenues had fallen by 52% from their 1929 highs. While we do not expect anything that dramatic in 2009, it would not be unrealistic to see a 20% to 25% reduction in cash flow from tax collections this tax season. Such a drop would pose significant challenges given that spending commitments are off the charts and climbing”.

Reduced U.S. Government revenues – at whatever amount they finally come in at – will increase U.S. Government deficits and the U.S. Cumulative National Debt.  This has to be a significant concern.  As I have said in prior posts on this blog, U.S. jobs must go positive and the U.S. consumer must spend so as to directly and indirectly create U.S. Government, State and Municipal tax revenues – or in my view there is nowhere economically positive for the U.S. (and to some degree the rest of the world) to go any time soon.

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