Decipering the GDP Report

Yesterday’s Commerce Department announcement of a steep decline in first quarter GDP was met by a huge yawn by the business and investing community. That’s good news considering that GDP fell 2.9% in the first quarter, an enormous decline that outstripped any estimate of the decline. The collective shoulder shrug was because the decline was expected and even though it was forecasted to be worse, most economists knew that they didn’t have a good way to estimate the true impact of the polar vortex winter. For those wondering why the government’s estimates of first quarter GDP were so much higher in April and May, the answer is that Commerce takes in more information with each month and adjusts the estimates appropriately. As usual, some of the most important data just isn’t available until almost three months pass.

OK, here’s why the drop is no big deal. Cold weather kept shoppers, home buyers, contractors, etc. home instead of out doing what they do. Frigid temperatures kept freight from moving many days this winter. The normal measures of output are inventory building, consumption and foreign trade. None of these could function properly in January and February but the upside is that most activity gets deferred in those kinds of winters. Dining out, movie-going and seasonal activity won’t be made up but most consumption that would have occurred will happen later – or has already.

The bad news in the report was called out but seems to have been obscured by the yawn. The biggest output revision done in June was for healthcare spending, which could have been affected somewhat by the weather but is more likely to have been a reflection of the new normal post-Affordable Care Act.

When I researched the healthcare edition of BreakingGround, I was surprised to hear from so many sources that visits were down – in some cases more than 30%. People who found out this year that the MRI or follow up visit with the specialist was going to cost them much more money decided not to go. Emergency rooms, which saw a big increase in co-pay charges, have seen big declines in visits. Not every place is experiencing this phenomenon but most are and in a city with more than its share of older people on fixed incomes, this trend is more noticeable.

Economists expect that the spring rebound is real and that second quarter GDP will be up well over 3%. That’s good. Watch the healthcare spending line item when these reports come out. That winter drop is a trend worth following. In a town where hospital construction makes up one of the highest portions of the construction industry, declining visits will keep capital spending down too.

Not much on the project news front. Mosites and Carl Walker put revised BAFO pricing in Tuesday on the former Saks site project. Carl Walker’s previous bid was reportedly the low proposal.

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