Wednesday, June 25, 2014

First Quarter Growth Revised from -1% to -2.9%?

The government released its final estimate of first quarter growth and it showed a decline of nearly 3% compared to an initial estimate of +0.1% and second estimate of -1%.  Why the decline?  Consumption grew less than previously estimated, +1% instead of +3.1%.  What happened?  In a previous post, I noted how spending on health care services rose by nearly 10% in the first quarter, adding a record 1.1% to economic growth (most since records started being kept in 1959).  According to the latest estimate, spending on health care services actually declined by 1.4%.  Instead of being historic in terms of the size of the increase, it is now historic in terms of the size of the decrease (the largest decline in health care spending since the first quarter of 1982).  So instead of adding 1.1% to growth, it subtracted about 0.2% from growth.  Given the size of the US economy, some revisions are to be expected (as more data becomes available, estimates can be made more accurate).  However, that doesn't normally result in such a large revision.  The near-record growth in health care spending initially reported was attributed to the introduction of Obamacare.  Details and explanation are not readily available, but it seems that something went seriously wrong in the early estimates of the impact of Obamacare on spending on health care.