At first glance, what stood out to me was the growth in consumption led by a significant increase in spending on consumer services - the largest since 2000. One of the main reasons was a surge in spending on health care (+9.9%), the largest quarterly increase since 1980. Health care spending rarely increases by more than 5% (just over 10% of the time since 1980), so an increase of nearly10% is extremely high. In fact, spending on healthcare services added 1.1% to economic growth, the largest contribution since records started to be kept in 1959 (it only exceeded 0.6% one other time). Why would healthcare spending increase so much? The Affordable Care Act or Obamacare. Also, due to the harsh winter, spending on housing and utitities increased by the second highest rate in the last 25 years, adding 0.7% to economic growth. On the flip side, business purchases of computers and peripheral equipment declined at the fastest rate since 1982, contributing to a decline in overall business investment.
What are the key takeaways from the report? There were a lot of temporary factors affecting the data, so interpretation needs to be careful. The biggest disappointment was the weakness in business spending, particularly on equipment. Watch to see how this performs in the coming months to see whether the economy continues to grow at a modest pace or begins to accelerate.
