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GDP: Tame Health Spending In Weak Report

For those (like me) concerned about how much health spending continues to increase after Obamacare, today’s flash report of fourth quarter Gross Domestic Product confirmed good news.

Overall, real GPD increased 1.9 percent on the quarter, while health services spending increased only 1.6 percent, and contributed only 10 percent of real GDP growth. Growth in health services spending was somewhat higher than growth in non-health services spending (1.2 percent) but significantly lower than non-health personal consumption expenditures (2.7 percent). Further, the implied annualized change in the health services price index increased by just 1.5 percent, lower than the price increase of 2.4 percent for non-health services, 2.3 percent for non-health PCE, and 2.2 percent for non-health GDP.

(See Table I below the fold.)

GDP: Tame Health Spending Confirmed In Strong Report

For those (like me) concerned about how much health spending continues to increase after Obamacare, the second report of third quarter Gross Domestic Product confirmed good news. Although GDP growth was revised up $10 billion, only a scratch was due to health spending. It is good to have a breather from the second quarter, which was dominated by growth in health services spending.

Overall, real GPD increased 3.1 percent on the quarter, while health services spending increased only 2.3 percent, and contributed only 9 percent of real GDP growth. Growth in health services spending was also in line with other services spending and personal consumption expenditures (PCE). However, the annualized change in the health services price index increased by 1.7 percent, lower than the price increase of 1.3 percent in non-health GDP but less than the 2.8 percent price increase for non-health services.

(See Table I below the fold.)

GDP: Health Services Grew Almost 12 Times Faster Than Non-Health GDP

The media noted today’s third estimate of second quarter Gross Domestic Product was revised upward from the second estimate. It was a sharply revised estimate of health spending that led to the higher overall estimate. While the estimate of GDP was revised up by $12.9 billion, the estimate of health services spending was revised up by $16.2 billion. Spending on services other than health services was revised down.

In real (inflation-adjusted) dollars, services grew 2.9 percent (annualized, seasonally adjusted) from the first quarter. As a large component of services, health services grew 7.1 percent.  While real GDP growth was 1.4 percent, once health services is stripped out, non-health GDP grew just 0.6 percent.

See Table I below the fold:

GDP: Health Services Spending Dominates “Close To Zero” Economic Growth

As the U.S. economy continues to flirt with recession, this morning’s “flash” Dross Domestic Product release for the second quarter indicates “close to zero” growth. Business investment has collapsed, leaving personal consumption expenditures to drive what little growth there is.

As a large component of personal consumption expenditures, spending on health services continues to outpace GDP growth. Growth in health services spending of $28.4 billion (annualized) comprised 18 percent of GDP growth. However, personal expenditures on services grew much more than GDP overall. Growth in spending on health services amounted to 15 percent of growth in personal consumption expenditures and 25 percent of spending on services. Spending on health services grew by 5.3 percent, versus only 3.2 percent growth in non-health services GDP (Table I).

Health Services 30 Percent of GDP Growth

This morning’s second estimate of GDP for the first quarter was a little stronger than last month’s advanced estimate, although much of the adjustment was a smaller decrease in inventories than initially estimated.

Spending on health services continue to dominate weak GDP growth. Health services spending of $19.2 billion (annualized) comprised 30 percent of GDP growth. However, there was shrinkage in personal consumption expenditures on goods, private domestic investment, and exports. This meant personal expenditures on services grew much more than GDP overall. Growth in spending on health services amounted to a little less than one fifth of growth in services spending. Nevertheless, the quarterly growth in spending on health services indicates health services continues to consume a disproportionate share of (low) growth (Table I).