While a previous report painted a somewhat negative portrait of the US economy in the first quarter, the most recent data suggests that the reality was even worse. Real gross domestic product (GDP) for the US decreased at an annual rate of 2.9% in the first quarter of 2014 according to the Bureau of Economic Analysis' (BEA's) latest revision. The downward revision marks the first quarter of 2014 as the worst for the American economy since the recession ended in 2009.
A major driver of the broader GDP downward revision was a downward revision to consumer spending, primarily on services and specifically health care. Previously the BEA had estimated that health care spending had added 1.01 percentage points to the full GDP figure for the first quarter of this year, but revised it down so that it was actually reduced by 0.16 points. Many believe this reflects the changing nature of health care spending in the wake of the Affordable Care Act (ACA) taking effect as of the first day of 2014. The BEA's preliminary estimate suggested that health care spending was increasing, but now it appears that it did the opposite.
Although health care was the main culprit of the downward revision, elsewhere in the economy things weighed negatively, particularly a downward revision in exports combined with an upward revision of imports, squeezing the GDP to lower numbers from both sides. Corporate profits for Q1 of 2014 also declined by 9.1% at a quarterly rate, amounting to a whopping $198.3 billion drop, after increasing by 2.2% in the last quarter of 2013, putting further pressure on the economy in the beginning of the year.
Despite the dramatic nature of the latest figures, economists appear to be taking the 2.9% negative growth rate in stride and still predict much higher growth for the second quarter, which ends next week. Led chiefly by the weather-related issues that dogged the economy in the first quarter, as reflected in the February Credit Managers' Index (CMI), many analysts wrote the sharp decline in GDP off as the result of a unique set of circumstances and noted that other indicators released in the first quarter, and more recently, continue to point toward stronger growth moving forward.
- Jacob Barron, CICP, NACM staff writer