April 30, 2014

1Q14 Gross Domestic Product (043014): +0.1% Annualized Growth (‘Saved’ by Obamacare?)

Filed under: Economy,Health Care,Taxes & Government — Tom @ 8:17 am


As noted yesterday, there is a chance of an Obamacare-related upside surprise (BEA’s lengthy explanation of Obamacare influences is here), basically because higher premiums will be treated as increases in personal consumption, while government tax subsidies designed to offset those increases will not be considered.

The guess here is that artificial juicing from Obamacare will enable the overall result to come in at about the predicted level.

The report will be here at 8:30 a.m.

My initial reactions to it will be delayed until after the end of the ADP April Employment Report conference call.

HERE IT IS (full HTML): This is NOT a typo … +0.1%.

Comments later.

9:00 a.m.: Okay here is key text from the report (bolds are mine) —

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent.

… The increase in real GDP in the first quarter primarily reflected a positive contribution from personal consumption expenditures (PCE) that was partly offset by negative contributions from exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

… The deceleration in real GDP growth in the first quarter primarily reflected downturns in exports and in nonresidential fixed investment, a larger decrease in private inventory investment, a deceleration in PCE, and a downturn in state and local government spending that were partly offset by an upturn in federal government spending and a downturn in imports.

Specific elements (Table 2 here) —
- Personal Consumption, Goods: +0.08 points, vs. +0.66 in Q4
- Personal Consumption, Services: +1.96 vs. +1.57 in Q4
- Fixed Investment (w/o Inventories): -0.44 vs. +0.43
- Inventories: -0.57 vs. -0.02
- Exports: -1.07 vs. +1.23
- Imports: +0.24 vs. -0.24
- Fed. Govt.: +0.05 vs. -1.00
- State/Local Govt.: -0.14 vs. +0.00

Zero Hedge, on the PCE services number:

Spending on Services, however, surged by the most since 2000 – heralded as great news by some talking heads – but is merely a reflection of the surge in healthcare and heating costs (imagine if it had not been cold and if Obamacare hadn’t saved us).

I should note that PCE Services never contributed more than 1.20 points to GDP in the previous 14 quarters until shooting up to +1.57 points in Q413 and 1.96 points in today’s release. Within that category, health care never contributed more than 0.44 points to GDP in the previous 14 quarters until shooting up to +0.62 point in Q413 and 1.10 points in today’s release.

Here’s my take:

  • The fourth quarter rise in the health care category occurred largely because many of the millions of people who had their health insurance cancelled because their policies didn’t meet Obamacare’s requirements either decided to go without insurance this year or saw the huge deductibles they would face in 2014 under their Obamacare policies, and rushed to get medical procedures completed before the end of the year.
  • The first quarter rise in the category occurred largely because many of the newly insured — both through Medicaid and Obamacare — heavily utilized medical services.

Thus, Obamacare appears to have made 4Q13 stronger than it would have been, and to have “saved” 1Q14 from going negative (so far, pending future revisions) without adding substantive long-term value to the economy.

As to future quarters, both impacts just noted would appear to be fleeting. If so, that does not augur well for future quarters.


UPDATE: Fixed investment sans inventories, the GDP factor which really drives long-term substantive economic growth, turned in the worst negative GDP impact in at least 16 quarters. This is not what happens in a genuinely prospering economy.

UPDATE 2: Zero Hedge elaborates on the Obamacare effect — “if it wasn’t for the (government-mandated) spending surge resulting from Obamacare … (growth in) real Q1 GDP (in chained 2009 dollars), which rose only $4.3 billion sequentially to $15,947 billion, would have been a negative (annualized) 1.0%!”

Again, I should note that premiums paid are considered part of GDP, but the government subsidies aren’t. This in my view improper treatment of the subsidies artificially inflates GDP, especially when you consider that many people wouldn’t have purchased Obamacare policies without the subsidies’ existence.



  1. I know you said you’ll comment later, but the change in inventories is highly illuminating. Much as we feared and predicted, the 3Q2013 buildup (which contributed 1.55 points to the 4.1% real increase) was nothing more than busted hope, with the post-Christmas inventory liquidation sales accounting for -0.59 points of the 1Q2014 0.1% real increase.

    Comment by steveegg — April 30, 2014 @ 8:40 am

  2. Looking over the historical data, the 1Q downward move in private inventories isn’t exactly unprecedented. I should have caught that before I mentioned it.

    What is ugly on the business end of GDP is the fixed private investment drop (taking 0.44 points away from the change in real GDP). That is the biggest drop since 2Q2009.

    On the household side, there were essentially three growth areas – health care (+1.10 points toward real GDP change), housing/utilities (+0.73 points toward real GDP change) and financial services/insurance (+0.25 points toward real GDP change). The entirety of the services portion of PCE contributed only +1.96 points toward real GDP change, and the entirety of PCE only contributed +2.04 points toward GDP change.

    In other words, PlaceboCare and a poor energy policy crowded out everything else.

    Comment by steveegg — April 30, 2014 @ 9:32 am

  3. Indeed, those healthcare numbers are off the charts (Q413 but esp 1Q14).

    Comment by Tom — April 30, 2014 @ 9:47 am

  4. One more item for the good of the order – the implicit price deflator was only 1.3%, down from 4Q2013′s 1.6% and 3Q2013′s 2.0%.

    All it would have taken for the meager nominal GDP growth to translate into real GDP shrinkage would be for the deflator to be a couple ticks over 1.41%. Had the deflator been the 2.03% it averaged between 1Q2001 and 4Q2012, real GDP would have shrank 0.61%.

    Comment by steveegg — April 30, 2014 @ 11:28 am

  5. Great point. I should know this, but do deflators also get revised in future revisions? Seens like they would, and if so, your point might lead one to believe that we’re going negative when more data comes in.

    Comment by Tom — April 30, 2014 @ 11:34 am

  6. I really should know that as well, but I believe deflators are adjusted.

    Comment by steveegg — April 30, 2014 @ 12:28 pm

  7. In other words were it not for the accounting slight of hand counting the theft of money from one group of people via ObamaCare to pay for another group so they could reap their money in the form of subsidies and some more niggling on the deflator the economy would officially be on it’s way to recession.

    Playing with the accounting to show a positive GDP growth is charade. Given everything we have seen so far with the IRS, Benghazi, EPA and BLM, why should anyone believe the economy is growing? Only those who are die hard boosters of Socialism would believe it because not to would acknowledge that Socialism doesn’t work. It’s long past time to call the Enron style accounting gimmicks for what they are, a farce.

    Comment by dscott — May 1, 2014 @ 9:31 am

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