The Commerce Department's quarterly services survey, or QSS, showed
healthcare outlays were not as strong as the government had assumed
when it published its second gross domestic product estimate for the
first quarter last month.
The government reported that the economy contracted at a 1.0 percent
annual rate in the January-March period. But with healthcare
spending data now in hand, economists say growth probably declined
at a rate of at least 1.7 percent.
A widening of the nation's trade deficit in March had already led
economists to anticipate a downward revision to GDP when the
government publishes its third estimate later this month.
Ryan Sweet, a senior economist at Moody's Analytics in West Chester,
Pennsylvania said the latest numbers on services spending "made the
first quarter look even worse."
"Healthcare spending did not add nearly as much to growth as we
initially thought in the first quarter," he said.
It is not unusual for the government to make big revisions to GDP
numbers as it does not have complete data when it makes its first
and second estimates, and the QSS has led to big revisions at times
over the last several years.
Even if the economy turns out to have been much weaker than
previously thought, there is little cause for concern as many of the
factors that held it down in the first quarter were temporary and
data ranging from employment to factory and services sector activity
indicate it has since rebounded.
The government previously estimated that healthcare spending
contributed one percentage point to growth, but economists said the
QSS suggested healthcare spending added only about 0.7 percentage
Since the fourth quarter, demand for healthcare services has helped
to push up consumer spending, which accounts for more than
two-thirds of U.S. economic activity.
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Part of the rise in spending reflects the implementation of
President Barack Obama's signature healthcare law.
Daniel Silver, an economist at JPMorgan in New York, said there was
some uncertainty about how the government would incorporate the QSS
data into its healthcare consumption estimate in the GDP data.
"But it looks like there could be a significant downward revision to
healthcare consumption, which would make the healthcare data more in
line with most of the other components of GDP which looked weak in
the first quarter," said Silver.
Should first-quarter GDP be revised sharply lower, economists could
trim their growth estimates for 2014, which had been dubbed as a
"Because we had such a horrible start to the year, you're going to
see GDP estimates for all of 2014 ratcheted down a little bit," said
Sweet. "But the good news is the data has improved and the second
quarter is going to look better."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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