Last Week’s GDP Estimate Included a Massive Upward Revision in Health Spending

Due to the Christmas break, we did not discuss last week’s third estimate of 3rd quarter GDP when it was released on December 23. The media noted the big headline jump in the real (inflation-adjusted) increase in GDP, from a 3.9 percent in the second estimate to 5.0 percent in the third estimate.

November’s second estimate of 3rd quarter GDP included moderate health spending growth. The third estimate blows that out of the water.┬áMuch of the upward revision to the GDP estimate was due to health spending.

The real dollar change in seasonally adjusted GDP (at annual rates) from the 2nd quarter to the 3rd quarter was estimated at $153.7 billion in the second estimate. The third estimate revised this up to $195.2 billion, a change of $41.5 billion (27 percent).

Health spending was revised up from $8.6 billion to $20.7 billion, an increase of $12.1 billion. That is, the upward revision of health spending accounted for almost one third of the entire GDP revision. Health spending is a component of household consumption of services. The entire revision to that category was $21.8 billion. So, pretty much the entire net increase in the estimate for household consumption of services was accounted for by health spending.

Figuring out the impact that Obamacare is having on health spending has been exceedingly difficult. Let’s hope that we are not back where we were last summer, when the Bureau of Economic Analysis was struggling to capture health spending accurately in its GDP estimates.

Comments (4)

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  1. Wes Baker says:

    The Federal Reserve is predicting GDP growth ranging anywhere from 2.6% to 3.0 in 2015.

    http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140917.pdf

    • Jake Sanders says:

      Needless to say, not everything that is paid for has equal value. Investing in military technology and goods is not the same as investing in civilian technology and goods. Not to mention a total absence of any measure of quality for the goods and services being produced. So how practical are these aggregates anyway?

  2. Wanda J. Jones says:

    John–The fact that these figures do not distinguish between insured healthcare expenditures and those that can be considered consumer goods in the same category as
    buying an exercycle for home use, I think pundits and policy-makers may read way too much into these figures.

    It is particularly wrong to connect these expenditures with the GDP, as both are influenced by the greater economy and both reflect the willingness of people to spend money, regardless of the object or services. It’s like counting the same thing twice. I’d much rather see a total of all insured expenditures. Isn’t that what recent policy aimed at?

    Cheers…

    Wanda Jones

    • John R. Graham says:

      Thank you. Plus, these are just healthcare services. It includes less than the National Health Expenditures as estimated by the Centers for Medicare & Medicaid Services does.

      Nevertheless, if we cannot measure these things well, we will struggle to make good policies.