Economy Shrinks at 6.1% Pace in 1Q

Fresh glimmers of hope emerged in the U.S. Tuesday. The Conference Board's Consumer Confidence Index rose far more than expected in April, jumping more than 12 points to 39.2, the highest level since November. And a housing index showed that home prices dropped sharply in February, but for the first time in 25 months the decline was not a record.

However, in the first quarter there was much weakness in those areas and others.

Spending on home building fell at a 38% annualized rate, the most since the second quarter of 1980. Businesses cut spending on equipment and software at a 33.8% pace, the most since the first quarter of 1958. Inventory reductions shaved 2.79%age points off overall first-quarter economic activity.

U.S. exports plunged at a rate of 30%, the biggest drop since the first quarter of 1969, reflecting the crimped appetite of struggling foreign buyers. The government also cut spending 3.9%, the most since the end of 1995.

Even if the recession were to end this year, the economy will remain feeble and unemployment will keep climbing, government officials and analysts say.

The jobless rate is now at a quarter-century high of 8.5% and is expected to hit 10% by the end of this year. It will probably rise a bit higher in early 2010 before starting to slowly drift downward. Still, the Fed predicts unemployment will stay elevated into 2011, and economists don't think it will return to normal -- around a 5% jobless rate -- until 2013.