Well, We’re Not Imagining the Deterioration: AP Reports an Estimated Annualized 2% First-Quarter Contraction (Potentially MUCH Worse; See Updates)
A larger trade gap in the first three months of this year cut nearly a full percentage point from growth. Economists now estimate the economy contracted at an annual pace of 2 percent in the first quarter. But they expect growth will resume in the current quarter at roughly a 3.5 percent rate.
I thought AP would sit on the worsening GDP situation until about 12 hours before next Wednesday’s final revision from the government. Perhaps it just got too ugly to ignore.
From what reporter Christopher Rugaber has written, trade alone is on track to worsen the 1st quarter contraction to an annualized 2 percent, because the “full percentage point” (actually 0.95 points) to which he referred is already baked into the GDP report. So, if I’m interpreting correctly, today’s even worse trade news alone is what took the estimated 1Q contraction to 2 percent.
If health care spending causes yet another separate downward revision to GDP, we’re now looking at a conceivable annualized contraction of 3.9 percent (1.0 currently reported plus 1.0 due to trade plus the net change of 1.9 due to health care).
There’s actually a wide possible range in the health care spending shrinking of 2 percent; it could be anywhere for -1.2 percent to -2.8 percent. Run the worst-case shrink through the above analysis, combine it with everything else, and you’ve got a potential annualized contraction of over 4 percent. O … M … G.
Even if a 4 percent annualized contraction is “out there” (to be clear, I’m having a hard time convincing myself that it is, but that’s because it’s so bad that it’s just hard to absorb), it seems almost certain that we’re looking at an annualized contraction of quite a bit more than 2 percent.
UPDATE: Maybe the economists and analysts out there should just pull a CBO-Obamacare maneuver and say, “Based on Obamacare, we have no flippin’ idea where the economy is going.”
UPDATE 2: I have it on good authority that the AP’s -2 percent is supposed to be all-inclusive. I’m thinking it’s “not-enough inclusive,” but we’ll see in a week.