June 27, 2014

Can Bad Economic News Really Be ‘Unexpected’ Anymore?

Latest GDP revision is a sign that we’re not out of the woods yet.

Two months ago, first quarter economic growth was pegged at a measly 0.1%, a number for which people blamed the rough winter weather in portions of the country. A month later, that number was revised downward to negative 1% growth, with the weather still considered the culprit.

But at a revised-again annual rate of -2.9%, the answer is more than the weather. Now some are beginning to blame the full-fledged adoption of ObamaCare as a significant factor in the decline. Health care spending was originally thought to be a net addition to GDP, but instead it’s dragging down the economy because consumers spent less on it than previously thought.

One may believe spending less on health care is a good thing, and to an extent that would be correct. But the problem with ObamaCare is people are spending less because they are going without. Part of that change is driven by employees losing hours. In the last year and a half, the number of workers who toil 30-34 hours a week dropped 6.4%, but those working 25-29 hours (and exempt from employer mandates) is up 10.8%. All told, wages aren’t rising as quickly as the consumer price index, and the wage stagnation means less money for more expensive health care.

But with our brave new world of terabytes of data and the chance to analyze it all in a matter of minutes, the question is how the Bureau of Economic Analysis (BEA), which calculates GDP, could have missed this key number by a full three percentage points. The blame seems to be centered on the original assumption that health care spending would increase over 9%, but as new data came in the estimates kept dropping. As noted, this may be spun by the Obama administration as a victory, but Americans don’t seem appreciably healthier and their wallets are emptier than they have been in some time.

Obviously the pressure will be on the BEA to follow the conventional wisdom that the first quarter’s steep drop was an aberration and the rebound will make up the difference; to do otherwise would meet the classic definition of a recession that would have to be called the Obama recession – one occurring just before a key midterm election. As the prospect for a return toward free-market capitalism isn’t looking likely from this president, we beg your pardon for expecting the bad economic news to continue.

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