November 7, 2013

Coverage of Third Qtr. GDP and Fourth Qtr. Estimates Omits Potential Obamacare Impact

You would think that economic forecasters, who have been obsessing over the impact on economic growth of October’s 17 percent partial government shutdown might have noticed that a lot of people have all of a sudden learned that they’re about to experience a major cut in their take-home pay. You would be wrong.

Hundreds of thousands of Americans had received health insurance cancellation notices by September 30, and had also learned that they will be on the hook starting next year for hundreds of dollars in premium increases on the Obamacare exchanges. It should be obvious that most affected people would have started spending less on other items virtually immediately, and that they will continue to be in major cutback mode indefinitely. But I didn’t find anyone in the establishment press who mentioned it. Nor did I find anyone who noted that the millions of Americans facing higher health insurance premiums are also going to materially impact fourth quarter growth and Christmas shopping season results.

At the Associated Press, Martin Crutsinger noted lackluster consumer spending, but didn’t identify a cause or quote someone who did. But he did find someone to say there’s nothing to worry about:

The U.S. economy showed surprising growth from July through September just before the government’s partial shutdown.

But much of the gain came from a buildup in company stockpiles. Consumers and businesses slowed their spending – a cautionary sign for the current quarter and early 2014.

… Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, believes the solid growth is the start of robust second half of the year.

… He predicts growth will strengthen in the fourth quarter to an annual rate of 3.5 percent. If correct, that would be the strongest quarter for the economy in nearly two years.

“People say the consumer is weak … but if you delve deeper into the data, the weakness is in services,” he said. “The consumer is doing better than you think especially on the items that are most cyclical” such as autos.

Lucia Mutikani at Reuters came across much more pessimistically:

U.S. economic growth accelerated in the third quarter as businesses restocked shelves, but the slowest expansion in consumer spending in two years suggested an underlying loss of momentum.

… Consumer spending, which accounts for more than two-thirds of U.S. economic activity, expanded at a 1.5 percent rate, the slowest pace since the second quarter of 2011. It grew at a 1.8 percent rate in the April-June period.

The slowdown in consumer spending suggests some of the inventory accumulation by businesses was probably unnecessary.

That could force businesses to cut back on inventories, which would weigh on what is already expected to be weak growth in the fourth quarter because of the 16-day government shutdown in October.

But again, Mutikani didn’t identify spending cutbacks driven by Obamacare premium increases as a factor threatening future growth.

As I wrote in a column elsewhere earlier this week:

People who know they will have to spend hundreds of dollars extra every month on health insurance starting next year won’t wait until next year to sharply curtail their spending. They’ll start the minute they learn the bad news, taking billions away from November and December retail sales. Meanwhile, those who will supposedly be saving money on health care thanks to subsidies won’t change their spending habits until the lower premiums take effect in 2014.

I fail to see why the impact of the 17 percent shutdown is so much more important than the lasting impact of Obamacare on affected Americans’ spending habits.

Bryan Preston at PJ Tatler also noticed the potential impact of Obamacare on the Christmas shopping season and fourth quarter.

Although Jake Tapper at CNN reported on a White House document showing Obama officials worried about consumers’ reactions once they get through a theoretically fixed, he didn’t go to the next step and note what “sticker shock” might do to the economy.

Why haven’t the press and the myriad analysts out there picked up on what should be so obvious?

Cross-posted at


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