June 13, 2014

1Q14 Expected to Take ANOTHER Dive in Next Revision (UPDATE: As Bad As -3%?)

Filed under: Economy,Taxes & Government — Tom @ 10:05 pm

Oh my (for a bigger “oh my,” see UPDATE 2) — From Reuters, via CNBC:

US health care data point to much weaker first-quarter GDP

The U.S. economy likely contracted at a much sharper pace in the first quarter than previously estimated with data on Wednesday showing weaker health care spending.

The Commerce Department’s quarterly services survey, or QSS, showed health care outlays were not as strong as the government had assumed when it published its second gross domestic product estimate for the first quarter last month.

The government reported that the economy contracted at a 1.0 percent annual rate in the January-March period. But with health care spending data now in hand, economists say growth probably declined at a rate of at least 1.7 percent.

A widening of the nation’s trade deficit in March had already led economists to anticipate a downward revision to GDP when the government publishes its third estimate later this month.

“At least” means “-1.7 percent or worse.”

Yours truly pointed to the trade data’s potential negative impact last week“The 10 percent worsening of March from $40.2 billion to $44.2 billion would seem to indicate that any final revision to first-quarter GDP will go further into contraction.”

I expect the Associated Press and other news services to mention this revised expectation about 12 hours before the final revision to revision to first-quarter GDP gets published on the morning of June 25.

There’s also more pessimism about the second quarter: “CEOs Warn Q2 “Less Robust” Than Expected.”


UPDATE: The actual government report says that “The estimate of U.S. health care and social assistance revenue for the first quarter of 2014, not adjusted for seasonal variation, or price changes, was $549.4 billion, a decrease of 2.0 percent (± 0.8%) from the fourth quarter of 2013 and up 2.9 percent (± 0.6%) from the first quarter of 2013.”

The bleeding is profuse.

UPDATE 2: The bleeding is so profuse that I felt compelled to go back and guesstimate what will happen if that -2.0 percent, one-quarter dive (note: roughly 8% annualized) gets applied to health care instead of the 2.2 percent increase reported in the most recent 1Q14 GDP revision (i.e., about 9% annualized).

Brace yourself:


I’m having a hard time poking big holes in this.

The 2 percent decline reported by the Census Bureau in its QSS survey applies to more items than health care and totals about $2.16 trillion in annual spending. I’ve only applied a 2 percent decrease in the above estimate to health care’s $1.8 trillion GDP segment. That would argue for a larger reported contraction.

Also arguing for an even larger contraction: The above doesn’t include any potential downward revision related to trade Reuters mentioned and yours truly noted on June 1.

There are two potential wild cards here.

First, the Census QSS data isn’t seasonalized, while GDP is. But the Q412 to Q113 raw decrease was only 0.16% (0.63% annualized), while the GDP report’s seasonalized and annualized increase was 0.32%. That could argue for mitigating the final GDP report’s dive by a few tenths of a point, I would guess by at the very most a half-point.

Second, there’s a wide potential swing in the Census data (“2.0 percent (± 0.8%)“). But I’ve obviously used the midpoint.

But still, could we really be looking at a roughly -3.0% annualized final GDP print 12 days from now?

If there’s a reason why I’m wrong, I want to hear it.

UPDATE 2A: Here’s another factor — Census’s data is not inflation adjusted: real GDP is. That would mean a 2% raw first-quarter decrease is really about 2.5% in real terms.

That would also argue for a worse result, perhaps offsetting the seasonal mitigation mentioned above.



  1. The Commerce Department’s quarterly services survey, or QSS, showed health care outlays were not as strong as the government had assumed

    Assumed? Interesting choice of wording. Have they so over “assumed” the GDP estimates that a contraction appears on paper? Basically they are moving the numbers back to where they should be, meaning there was no growth in the first place. This may be just the Commerce Dept using the slow down to their advantage to reset the numbers. If everyone is going to be upset about negative growth or lack of any growth over a lengthy period they will be less upset taking the hit in 1 quarter. That’s my theory.

    With gasoline prices so high it astonishes me we didn’t already experience a contraction.

    My 2nd thought, with ObamaCare extracting more money from the middle class on top of the lack of wage growth in an inflationary environment (a stealth tax) we may have reached a tipping point in the economy. Taking a dollar from the various economic groups does not translate equally in personal terms and macro economic terms. ObamaCare is a targeted hit upon the middle class meaning retail is going to loose. A hit upon the wealthy is a hit on investment dollars available for expanding the economy.

    Comment by dscott — June 15, 2014 @ 2:00 pm

  2. 3rd thought, maybe the hit you are seeing is a one time drop since all these people who lost their individual health insurance plans stopping paying in December as the insurance companies could no longer accept their premiums for the now non existent policies. Most of these people in the individual market didn’t get replacement health insurance policies in January…

    With that situation, these people would rationally save up money for future healthcare expenses.

    Comment by dscott — June 15, 2014 @ 2:12 pm

  3. It will be interesting to see how all of this gets interpreted if it comes to pass, and how it will be deliberately misinterpreted.

    Comment by Tom — June 15, 2014 @ 5:25 pm

  4. [...] what about the health care spending adjustment? On Friday at this post, based on a Reuters report carried at CNBC and before the trade news noted above, I presented the [...]

    Pingback by BizzyBlog — June 18, 2014 @ 12:28 pm

  5. [...] there’s a good chance next Wednesday’s revision to the first quarter could very well come in signficiantly worse than a 2 percent [...]

    Pingback by BizzyBlog — June 18, 2014 @ 6:03 pm

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