You can sum up today’s report on first-quarter gross domestic product in one short word: oof.
The last estimate had GDP shrinking slightly from the prior quarter. The current estimate has it shrinking a lot: 2.9 percent on an annualized basis. If this keeps up for another quarter, the economy will officially be in recession.
How did this happen? The White House line is that this was driven mostly by health care and net exports. But treat those figures carefully -- which is what I’ve seen a lot of people on Twitter not doing.
Health-care spending is a major factor in the downward revision of Bureau of Economic Analysis estimates, because the BEA was overestimating it in prior reports. But it is not what is mainly driving the actual decline in GDP. That looks a lot more broad-based:
The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, state and local government spending, nonresidential fixed investment, and residential fixed investment that were partly offset by a positive contribution from PCE. Imports, which are a subtraction in the calculation of GDP, increased.
It’s still a mystery why health-care costs have fallen. One theory is that this was a transitional thing -- maybe people who were going to sign up for a health plan but procrastinated until the deadline put off a bunch of ordinary medical expenses until they had their new insurance. It’s also possible that the weather kept people at home; after all, the unusually hard winter is thought to have hurt first-quarter GDP. Though as an explanation, weather is a lot more convincing when you’re talking about a tiny decline than it is when you’re talking about a huge drop like this. Snow keeps people from shopping so much; it does not cause them to abandon all economic activity and hole up in their homes waiting for the final trump to sound.
The most worrisome potential explanation is that health expenditures fell because, well, health expenditures fall when the economy is contracting. I’m not exactly ready to call recession yet -- consumption was still basically healthy, and the weather was awfully bad. But I’ll be crossing my fingers until the next report comes out.
And so, presumably, will Democrats: partly because they are patriotic Americans who want to see their country do well, but also because recessions are bad for incumbents and, one imagines, particularly bad for the party that claimed the other guys had driven the economy into the ditch and that they were just the folks to drive it out. If the economy heads back into a recession this year, things start looking pretty grim for the Democrats -- not just for this year, but for 2016.
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