Last month, economic pundits began cautioning that the Commerce Department’s forthcoming estimates of the Nation’s first-quarter gross domestic product (GDP) growth would be flat at best. Two weeks later, when Commerce released its data, it revealed the first-quarter economy had exhibited the same symptoms as a recession.
Last week, Commerce revised its numbers again to reflect even greater pessimism. The Commerce Department’s quarterly services survey, released last Wednesday, overhauled its original May 29 report to accommodate first-quarter health care spending data – and found it had underestimated the GDP contraction by almost half.
The revised figure estimates that the U.S. economy shrank during the first three months of 2014 by 1.7 percent. Commerce had reported on May 29 that American GDP had shrunk by an alarming 1.0 percent.
General consensus among economists acknowledges a national recession if the GDP contracts for two consecutive quarters.
“Should first-quarter GDP be revised sharply lower, economists could trim their growth estimates for 2014, which had been dubbed as a break-out year,” Reuters reported Friday, citing analysts who cautioned that policymakers should temper their original expectations for a dramatic economic rebound in 2014.
“Healthcare spending did not add nearly as much to growth as we initially thought in the first quarter,” Moody’s economist Ryan Sweet told Reuters. “Because we had such a horrible start to the year, you’re going to see GDP estimates for all of 2014 ratcheted down a little bit.”
“[I] t looks like there could be a significant downward revision to healthcare consumption, which would make the healthcare data more in line with most of the other components of GDP which looked weak in the first quarter,” explained JP Morgan economist Daniel Silver.
Forecasters had expected a surge in the demand for health insurance, a function of Obamacare’s mandate for Americans to obtain health coverage, would boost total GDP by 1.0 percent. Actual health insurance spending as a percentage of GDP has since been revised downward to .7 percent, a figure more in line with tepid growth in other sectors, said economists.