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).
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.