Economy shrinks a more-than-expected 6.1% in Q1

— -- The U.S. economy contracted at a swift pace in early 2009 as sharp drops in business spending and inventories more than offset the biggest rise in consumer spending in two years, the government said Wednesday in a report that still offered hopeful signs the economy may soon turn a corner.

Gross domestic product, the broadest gauge of U.S. economic activity, fell at a seasonally adjusted annual rate of 6.1% in the January-March quarter after dropping 6.3% in the fourth quarter, the worst in a quarter-century, the Commerce Department said. It was the first time GDP contracted for three consecutive quarters since 1974-75.

But many economists said there were some positives in the report, such as the increase in consumer spending, that suggested the news for the second quarter will be better.

Insight Economics President Steven Wood said government spending will also be a positive in the second quarter as stimulus money is spent.

"Although there have been large back-to-back declines in economic activity, the composition of the most recent decline is actually favorable" for the second and third quarters, he said. "Any declines should be much smaller, and there is a possibility that at least one of those quarters could register small positive growth."

A look at some of the key components of the report:

Consumer spending, up 2.2%

There was some positive news from the consumer in the first quarter. Consumer spending, which accounts for more than two-thirds of all U.S. economic activity, rose 2.2% in the January-March quarter, the biggest increase since the first quarter of 2007. Consumers increased spending on a wide range of items, including cars, furniture, clothing, medical care and recreation. Their spending added 1.5 percentage points to GDP in the first quarter.

"Tax cuts and expanded government spending are supporting incomes, and households may feel that they have cut back enough on their spending," said Augustine Faucher, director of macroeconomics at Moody's Economy.com.