Advance look at 1st-quarter GDP – +0.2%

By Steve Eggleston

On Wednesday, the Bureau of Economic Analysis released their first look at 1st-quarter GDP, and found that the real (or inflation-adjusted) GDP grew at an annualized 0.2%. While the economic experts had expected a further drop-off from the 4th quarter’s 2.2% growth, they weren’t expecting it to be below 1.0%.

None of the three major positive contributors to real GDP growth can really be considered a positive. The largest positive contributor, change in non-farm private inventories (+0.76 percentage points), along with non-existent income growth, strongly suggests that those inventories businesses built up in hopes of an eager buying public will end up having to be sold at a substantial discount instead.

For the fourth quarter in a row, spending on health care (no, not insurance, care itself) contributed at least +0.42 percentage points to GDP growth, with this quarter’s +0.62 percentage-point contribution trailing only last quarter’s +0.88 percentage-point contribution. Here I thought ObamaCare was supposed to bend the health care cost curve down. Instead, over the last year, spending on health care has grown 6.2% on a non-inflation-adjusted basis, and 5.5% on a specific-to-the-industry inflation-adjusted basis.

Despite a collapsed energy sector, and a winter that was, for most of the country, far less severe than last winter, increased spending on housing and utilities provided a +0.59 percentage-point boost to real GDP. In fact, taken together, spending on health care and housing/utilities accounted for almost all of the +1.31 percentage-point increase in personal consumption expenditures.

I’m almost reluctant to discuss the indication that, for the second quarter in the row, the advance look at GDP indicated a period of deflation, because the BEA found a modicum of inflation between the 1st and subsequent reads of 4th-quarter GDP. This time around, the implicit price deflator (the BEA’s term for inflation) for GDP as a whole was -0.1%, with the implicit price deflator for gross domestic purchases at -1.6%.