June 26, 2014

1Q14 STILL Has Room to Go Down

Filed under: Economy,Taxes & Government — Tom @ 1:47 pm

Yesterday’s GDP report, which increased the first-quarter contraction to an annualized 2.9 percent, is not the last word.

The government’s next GDP release on July 30 will look back at the past five years for possible revisions, up to and including 1Q14.

There’s a fair chance that we’ll see the first-quarter contraction top 3 percent at that point, possibly by quite a bit:

1Q14PostJune25AdjEstimate

There are some qualifying factors, including but not limited to seasonality and inflation, but the fact of the matter is that yesterday’s GDP report showed only a 0.4 percent reduction in health care spending, while another Commerce Department report issued two weeks ago showed a 2 percent reduction.

If the health care spending number gets adjusted to show a full 2 percent reduction — and again, it’s not at all clear that it will get fully adjusted to that level — the contraction could increase to as much as 3.7 percent.

Of course, another wild card in the mix is what’s going to be done with the 19 other quarters in the comprehensive revision.

Will the contraction really get worse? That’s a question for five weeks from now, but we’ll be monitoring developments in the meantime.

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