When the U.S. Bureau of Economic Analysis (BEA) first released economic data for early 2014, in April, the agency estimated that the gross domestic product (GDP) had grown a paltry 0.1 percent. Upon closer inspection, it's even worse than economists originally thought. The revised GDP estimate for January through March, released yesterday, is an annualized rate change of negative 2.9 percent—the fastest decline since the recession. The drop is also the largest recorded in non-recession times since the end of World War II.
Should we panic?
Probably not yet. "Many signs since March, including reports of growth in consumer spending, business investment and hiring, indicate the first quarter doesn't mark the start of a new recession," writes Jonathan House at the The Wall Street Journal.
J.P. Morgan Chase economist Michael Feroli described the decline as "mostly a confluence of several negative, but mostly one-off, factors."
The most mentioned of these one-off factors is the bad weather we saw throughout early 2014, which folks say dampened consumer spending. "Overall, the same old story remains: The recovery is underway, but it's still very slow," writes Annalyn Kurtz at CNN Money.
"Most economists say the rebound has already begun," notes Ylan Q. Mui at The Washington Post's "Wonkblog."
But this recovery has a way of moving out of reach just when we think we're getting close. The International Monetary Fund and the Federal Reserve have already pushed back their forecasts for liftoff from the grinding economy to next year. The new reading of first quarter GDP could move the ball even farther. A 3 percent annual growth rate is starting to seem like the promise made by the White Queen in "Alice in Wonderland": Jam tomorrow and jam yesterday, but never jam today.
The BEA—a division of the Commerce Department—always releases quarterly GDP numbers in three phases. As more data becomes available, the initial number is revised, and then revised again. Between 1983 and 2010, the average percentage change between initial and final GDP numbers was 0.3 points, according to George Washington University economist Tara Sinclair. So how to account for the unusually large gap this time?
The downward revision was largely concentrated in two areas: Consumer spending and health care spending. Initial estimates said consumer spending—which accounts for more than two-thirds of U.S. economic activity—grew at a 3.1 percent pace. The new estimate places this a 0.7 percent.
Spending on health care services was revised down by 1.2 percentage points, for which the White House is giving a big old 'thanks, Obama.'
Today's report thus shows that the historically slow growth in health care prices and spending seen in recent years, which is thanks in part to the Affordable Care Act, continued through 2013 and into early 2014. Slow growth in health care costs is making it easier for businesses to hire workers or pay a good wage and improving the Nation's fiscal outlook.
Improving the nation's fiscal outlook one negative GDP growth rate at a time!
The BEA is expected to release an initial estimate for second-quarter GDP rate change in July.