Thursday, September 11, 2014

Expect another upward revision of Q2 GDP: over 4.5%?

 - by New Deal democrat

You may remember 3 months ago when Q1 GDP was revised all the way down to -2.9%, from an initial report of +0.1%, the main culprit was a sudden and unexpected decline in health care costs.  The BEA acknowledged that this came from exactly one report:  the Census Bureau's Quarterly Services Report.

I wrote a post confirming something Dean Baker (?) had written:  namely, that the same thing had occurred 50 years ago when Medicare was inaugurated.  There was a one quarter sudden and anomalous decline in GDP.  But then it was followed by a surge in the next quarter.

Well, this morning the Quarterly Services Report for the 2nd quarter was released, and it shows a similar surge in Q2 compared with Q1.  Hospital services, which unexpectedly declined -1.3% seasonally adjusted from Q4 2013 to Q1 2014, rose by +2.6% in Q2 2014.  The larger aggregate of health care services, which isn't seasonally adjusted in the report, rose +3.0% in the 2nd Quarter, after declining -2.0% in the 1st.

In comparison, the Q1 to Q2 change in 2013 for health services was about 2.2%, and added .4% to GDP.

While I am no maven of the minutiae of how GDP is calculated, nevertheless since 2nd quarter 2014 GDP as presently revised only shows a +.05% contribution by health care, it appears that at very least 2Q 2014 GDP is likely to be revised upward to 4.5% or better.

Even if so, the bad news is that the combined GDP for the first half of 2014 would still only be about +1.2%.