The PlaceboCare McEconomy

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The PlaceboCare McEconomy

By Steve Eggleston

If you haven’t noticed, I’ve been miss­ing in action the last few weeks. I’ve just been burned out. One can say the econ­omy is, at best, stag­nant only so many times before run­ning out of ways to say it.

Unfor­tu­nately for the coun­try, but for­tu­nately for my writ­ing block, the Bureau of Eco­nomic Analy­sis released their third and final read of 4th-​quarter GDP. While the BEA found a bit of infla­tion between the first and third reads to avoid mak­ing the defla­tion indi­cated in the first read offi­cial, they reduced the annu­al­ized real GDP growth from 2.6% to 2.2%, which is the same as it was in the sec­ond read.

The biggest con­trib­u­tor to that growth is spend­ing on health care (no, not health insur­ance, health care itself). Annu­al­ized spend­ing on health care rose by $39.9 bil­lion in cur­rent (not adjusted for infla­tion) dol­lars, and $35.3 mil­lion in con­stant 2009 dol­lars, to, respec­tively, $2,048.8 bil­lion (cur­rent) and $1,836.6 bil­lion (con­stant 2009). The +0.88 percentage-​point con­tri­bu­tion to the change in real GDP is the high­est on record going back to 1959, and is also the largest pos­i­tive single-​component con­trib­u­tor to GDP change last quar­ter. It also marks the third con­sec­u­tive quar­ter increased spend­ing on health care con­tributed the largest percentage-​point increase to the per­sonal con­sump­tion expen­di­tures por­tion of GDP change.

As for health insur­ance, there are con­tin­u­ing strong indi­ca­tions that, con­trary to the claims made at the time Place­bo­Care was passed, spend­ing on health insur­ance also sky­rock­eted. There are innu­mer­able reports of sky­rock­et­ing pre­mium increases. Fur­ther, the larger “finan­cial ser­vices and insur­ance” com­po­nent of per­sonal con­sump­tion expen­di­tures added another +0.17 points to GDP change, after adding +0.35 points in the third quar­ter. The BEA should issue its esti­mates of net spend­ing on health insur­ance in 2014 late this sum­mer, and I’d expect another per­for­mance like last year, when it increased by $7.4 bil­lion to $145.1 billion

The report also con­tains fur­ther evi­dence that much of the job growth over the last year would have been derided as McJobs a decade ago. Increased spend­ing on food ser­vices and acco­mo­da­tions con­tributed +0.30 per­cent­age points to GDP change, the third con­sec­u­tive quar­ter it con­tributed at least +0.21 per­cent­age points. The last time that cat­e­gory con­tributed more to GDP growth was the 4th quar­ter of 1999, and the last time the cur­rent level of growth has been sus­tained for at least 3 quar­ters was the mid-​1960s.

Adden­dum - Tom Blumer blows up the AP meme that the Place­bo­Care McE­con­omy is “durable”.

By Steve Eggleston

If you haven’t noticed, I’ve been missing in action the last few weeks. I’ve just been burned out. One can say the economy is, at best, stagnant only so many times before running out of ways to say it.

Unfortunately for the country, but fortunately for my writing block, the Bureau of Economic Analysis released their third and final read of 4th-quarter GDP. While the BEA found a bit of inflation between the first and third reads to avoid making the deflation indicated in the first read official, they reduced the annualized real GDP growth from 2.6% to 2.2%, which is the same as it was in the second read.

The biggest contributor to that growth is spending on health care (no, not health insurance, health care itself). Annualized spending on health care rose by $39.9 billion in current (not adjusted for inflation) dollars, and $35.3 million in constant 2009 dollars, to, respectively, $2,048.8 billion (current) and $1,836.6 billion (constant 2009). The +0.88 percentage-point contribution to the change in real GDP is the highest on record going back to 1959, and is also the largest positive single-component contributor to GDP change last quarter. It also marks the third consecutive quarter increased spending on health care contributed the largest percentage-point increase to the personal consumption expenditures portion of GDP change.

As for health insurance, there are continuing strong indications that, contrary to the claims made at the time PlaceboCare was passed, spending on health insurance also skyrocketed. There are innumerable reports of skyrocketing premium increases. Further, the larger “financial services and insurance” component of personal consumption expenditures added another +0.17 points to GDP change, after adding +0.35 points in the third quarter. The BEA should issue its estimates of net spending on health insurance in 2014 late this summer, and I’d expect another performance like last year, when it increased by $7.4 billion to $145.1 billion

The report also contains further evidence that much of the job growth over the last year would have been derided as McJobs a decade ago. Increased spending on food services and accomodations contributed +0.30 percentage points to GDP change, the third consecutive quarter it contributed at least +0.21 percentage points. The last time that category contributed more to GDP growth was the 4th quarter of 1999, and the last time the current level of growth has been sustained for at least 3 quarters was the mid-1960s.

Addendum – Tom Blumer blows up the AP meme that the PlaceboCare McEconomy is “durable”.