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Washington Post: US economy shrank at steep 2.9 percent rate in Q1


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Can we still pin this on W? Too long ago? Lets blame the weather

 

In all seriousness, hold on to your butts, especially if we are in a recession again

 

http://www.washingtonpost.com/business/us-economy-shrank-at-steep-29-percent-rate-in-q1/2014/06/25/b93168e2-fc65-11e3-9b05-7ec49dc09d97_story.html?hpid=z5

 

 

WASHINGTON — The U.S. economy shrank at a steep annual rate of 2.9 percent in the January-March quarter as a harsh winter contributed to the biggest contraction since the depths of the recession five years ago. But the setback is widely thought to be temporary, with growth rebounding solidly since spring.

The first-quarter contraction reported Wednesday by the Commerce Department was even more severe than the 1 percent annual decline it had estimated a month ago. Two-thirds of the downward revision reflected a drop in health care spending. Another factor was a bigger trade deficit than initially estimated.

Though such a sharp economic decline would typically stoke fears of another recession, analysts see it as a short-lived result of severe winter storms that shut factories, disrupted shipping and kept Americans away from shopping malls and auto dealerships. They say the economy is rebounding in the April-June quarter. Some expect growth to approach a robust 4 percent annual rate this quarter.

Most analysts also foresee the economy expanding at a healthy annual rate of around 3 percent in the second half of this year.

 

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Weather certainly had a severe effect on my 1st quarter.  2nd quarter looks to be really, really good.

 

Great news for you. 

 

Time will tell whether this is a blip or something different. Economic growth is seasonally adjusted, but the winter was terrible and the worst was in the North East, our economic engine. 

 

The other significant change in Q1 was the ACA. If the economy comes roaring back in Q2, most will chalk the just about whole dip up to weather. If not, it's fair to examine the effect of the ACA. For now, the employment reports at least look pretty good. Not booming, but not nearly as tepid as they had been during the "recovery." 

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Can we still pin this on W? Too long ago? Lets blame the weather

 

In all seriousness, hold on to your butts, especially if we are in a recession again

 

http://www.washingtonpost.com/business/us-economy-shrank-at-steep-29-percent-rate-in-q1/2014/06/25/b93168e2-fc65-11e3-9b05-7ec49dc09d97_story.html?hpid=z5

 

If its due to anything other than weather, the most sound economic theory we have would tell us the contraction is due to austerity measures.

Great news for you. 

 

Time will tell whether this is a blip or something different. Economic growth is seasonally adjusted, but the winter was terrible and the worst was in the North East, our economic engine. 

 

The other significant change in Q1 was the ACA. If the economy comes roaring back in Q2, most will chalk the just about whole dip up to weather. If not, it's fair to examine the effect of the ACA. For now, the employment reports at least look pretty good. Not booming, but not nearly as tepid as they had been during the "recovery." 

 

Its also fair to examine austerity.

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I don't think that there is any doubt amongst serious economists that sequestration is slowing economic growth.

 

http://blog.al.com/wire/2013/06/sequestration_slowing_us_econo.html

 

"Sequestration's across-the-board cuts are slowing U.S. economic growth by as much as much as half, according to a report released last week by the International Monetary Fund."

 

EPI: 

 

http://www.epi.org/blog/sequestration-slows-recovery-job-growth/

 

"Sequestration will slow the recovery and job growth, period"

 

These things were predicted.

 

In terms of stimulus:

 

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/japan-shows-keynes-is-right-and-austerity-is-wrong

 

"In the fall of 2012, Shinzo Abe, Japan’s new prime minister, committed the country to a policy of aggressive Keynesian stimulus. This took the form of both additional Infrastructure spending intended to directly boost the economy and also monetary stimulus from the Bank of Japan. In a sharp break with practices of other central banks, the Bank of Japan committed itself to a target of 2.0 percent inflation. Since the country had been experiencing mild deflation for more than a decade, this amounted to an explicit commitment to raise the inflation rate, an unprecedented step for a central bank.

 

While it is still early, to date the results are overwhelmingly positive. The employment to population ratio (EPOP) in Japan has risen by 1.6 percentage points since the fall of 2012. This would be the equivalent of 4 million new jobs in the United States. That’s twice the pace of job growth that President Obama is anxious to tout.

 

Japan now stands with Germany as the only wealthy countries to have higher EPOPs than before the downturn. By contrast, the EPOP in the United States is still more than four percentage points e below its pre-recession level."

 

http://www.economist.com/blogs/freeexchange/2010/08/german_recovery_3

 

"Germany's stimulus spending was smaller than America's, but it was quite large by developed nation standards. Have a look at this cross-country assessment of stimulus policies put together by the Brookings Institution. Meanwhile, Germany has committed itself to deficit cutting, but it is not cutting now. Germany is one of the few euro zone countries to increase its budget deficit from 2009 to 2010. And planned 2011 cuts are quite small relative to those in countries pursuing crash austerity programmes, which are also suffering very weak recoveries (Greece has yet to get out of recession, and Spain may be heading back in). This doesn't mean that stimulus is the key to German success. But Germany is absolutelynot an example of strong growth despite austerity."

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Just back from the gym, where I saw the news. 

 

One of the news stations said that some people are claiming that part of the decline was because Obamacare caused lower health care spending.  (I can't tell if they were being sarcastic, but I ain't buying it.) 

 

But I agree with one pundit that one of the channels had on. 

 

Is it possible that the weather was a factor?  Yep. 

 

Is it possible that Obamacare was a factor?  Yep. 

 

Is either (or both) of these enough to explain all of it?  Nope. 

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Am I missing something?

 

The article says,

 

Two-thirds of the downward revision reflected a drop in health care spending. Another factor was a bigger trade deficit than initially estimated.

 

Though such a sharp economic decline would typically stoke fears of another recession, analysts see it as a short-lived result of severe winter storms that shut factories, disrupted shipping and kept Americans away from shopping malls and auto dealerships. They say the economy is rebounding in the April-June quarter. Some expect growth to approach a robust 4 percent annual rate this quarter.

 

Most analysts also foresee the economy expanding at a healthy annual rate of around 3 percent in the second half of this year.

 

And yet you guys are talking about another recession?

 

WTF?

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We have austerity measures?

 

so you mean the limping economy was only held afloat by rampant stimulus spending?

 

Yea I gotta be honest here I am not sure what austerity measures we have taken.

 

Have any of the entitlement programs been cut at all since 2009? 

 

Oh, so sequestration didn't happen?  You forgot about that time the house gop let sequestration happen in exchange for not raising the debt limit?  Ahh... forgetful minds.

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Sequestration impacts a sliver of our national budget, mostly impacting contractors. If anything this should be a more localized drop in growth confined to the DC area (which has already happened, big integrators aren't doing too well these days) 

 

But sequestration is hardly austerity, when all that was cut was the rate of growth in future years, nothing was actually cut

 

I think the weather is a terrible excuse for a 3% GDP drop. I don't think you can blame it on the ACA either.

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Sequestration was a couple of years ago so that's "priced" into GDP. In fact, the last budget deal gave a relief to the sequester, so that's not the issue.

 

Based on some of the tweets I've seen, the BEA significantly changed healthcare spending data from very high growth to a decline based on new information from hospitals, etc. That was a significant driver (accounted for like -1.5 of revision).

 

Other significant drivers include the weather and inventories, which may have been weather related (my speculation, not read anywhere).

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Along with that, looking through some of these articles, the most dire of forecasts were calling for sequestration to have a 1% negative impact on growth, which would still leave an economy that contracted at a 1.9% rate last quarter.

 

It is a miracle Scandinavian countries have any economic growth at all 

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Two more quotes from the article,

 

 

“We have ample evidence that the first quarter was just a temporary setback for the economy, and we are climbing out of the hole in the current quarter,” said Stuart Hoffman, chief economist at PNC Financial.

 

 

 

“The larger contraction in GDP in the first quarter is not a sign that the US is suffering from a fundamental slowdown,” said Paul Dales, senior U.S. economist at Capital Economics.

 

 

And yet we are talking about a possible reccession?

 

Again, wtf? Are you people not so secretly rooting for a collapse or something?

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I am not rooting for any type of slowdown because I have a big fat wedding to pay for this year and like my job and business running well ;)

 

But 2.9% is a huge drop. Anything under a point, yea I'd be feeling you TEG, but we are expecting the economy to grow significantly in Q2 to avoid the "r" word 

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I think the weather is a terrible excuse for a 3% GDP drop. 

 

Based on what exactly? Your gut?

I am not asking to be an ass. This really isn't my wheelhouse and an honest question. The article seems pretty clear and has quotes from economic experts saying this is a temp dip. 

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Sequestration impacts a sliver of our national budget, mostly impacting contractors. If anything this should be a more localized drop in growth confined to the DC area (which has already happened, big integrators aren't doing too well these days) 

 

But sequestration is hardly austerity, when all that was cut was the rate of growth in future years, nothing was actually cut

 

I think the weather is a terrible excuse for a 3% GDP drop. I don't think you can blame it on the ACA either.

 

 

Sequestration was a couple of years ago so that's "priced" into GDP. In fact, the last budget deal gave a relief to the sequester, so that's not the issue.

 

Based on some of the tweets I've seen, the BEA significantly changed healthcare spending data from very high growth to a decline based on new information from hospitals, etc. That was a significant driver (accounted for like -1.5 of revision).

 

Other significant drivers include the weather and inventories, which may have been weather related (my speculation, not read anywhere).

 

These two posts couldn't be more wrong.  The sequester is going to harm our economy for years.  I'm not just saying that now, but it was predicted back when it happened by everyone other than the tea party, which thought it was a good idea.  Moreso, it makes the economy more "fragile," meaning something like a bad winter will have a magnified effect on the economy.

 

Sequestration was not a "sliver" of our economy.  It had a huge effect, and a huge ripple effect.  Contractors are a big part of our economy, as is government spending itself.  You all tell us that every day (we spend 1 trillion, blah blah blah).  That spending does spur growth, whether you like it or not.  

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And yet we are talking about a possible reccession?

 

Again, wtf? Are you people not so secretly rooting for a collapse or something?

 

A recession is two consecutive quarters of negative growth. We're half way there. It's absolutely predictable and logical to talk about a recession, particularly after the cut in health spending. If that persists, every prognosticator will be wrong. With that said, I just saw this tweet which certainly predicts a strong Q2.

 

US real GDP contracts 2.9% in Q1 2014; Q2 2014 real GDP forecast raised to 4.0% - Baclays
 
James Pethokoukis (@JimPethokoukis) 
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Based on what exactly? Your gut?

I am not asking to be an ass. This really isn't my wheelhouse and an honest question. The article seems pretty clear and has quotes from economic experts saying this is a temp dip. 

 

 

The same experts were predicting us "breaking even" a few months back. Today's latest numbers were a downward revision

 

If we look at the "real economy" wages are still stagnant, inflation is picking up (as are fuel costs), and people are still dropping out of the job force

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If its due to anything other than weather, the most sound economic theory we have would tell us the contraction is due to austerity measures.

 

Its also fair to examine austerity.

I'm not so sure about that...

It is true that Obama's spending austerity has severely weakenned the recovery.. Since Bush's last budget in 2009 we have cut the deficite by about 2/3rds and cut the deficite to GDP ratio from 10% to about 3.8%.

This austerity can certainly be blamed for the systemic unadjusted inflation rates in double digits. and the rather enimic rate of growth in the economy..

But a 3% drop in GDP is frankly cataclysmic. Unless of coarse it's due to (1) efficiencies like an unexpected easing of the constant growth in healthcare spending.. or (2) Due to poor weather over key economic centers..

In this case both are being attributed.. So overall it's hard to argue this is even a bad thing, but rather just the economy balancing itself in response to monopolitic powers of the healthcare industries being curtailed... or at least that's the largest reason I'm hearing for the contraction.

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just the economy balancing itself in response to monopolitic powers of the healthcare industries being curtailed... or at least that's the largest reason I'm hearing for the contraction.

 

Any chance you can source what I bolded above? I actually do think some of the state/municipality monopolies for insurance companies could have resulted in higher prices. I also think they could have resulted in lower prices. Either way, I have not seen this as a reason for the decline in health spending. If someone's making that case, I'd like to see it.

 

My theory is somewhat simpler.

 

1. A bad economic quarter means people have less money.

2. Less money means less spending on things like healthcare.

3. People who joined or switched to the ACA have large deductibles, meaning they have to come out of pocket for care.

 

These are negative influences on health spending. Most of us thought they'd be offset by the positive influences, being more people covered and more people getting subsidies for care.

 

To summarize, if the price of care is driving the decline, it's great. If it's just less people using the system because of other events, it's a different story altogether that needs to mature before we can draw conclusions.

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You bolded "monopolitic powers of the healthcare industries being curtailed"

The Health Insurance Industry in the United States is a monopoly or more accuracely a trust.
They are legally excempt from the laws which prohibit them from colluding and acting in concert to avoid competition. See the Mccarran Ferguson Act; which is the healthcare industries antitrust exemption legislation. Systems devoid of competion and in this case consumer choice are not free market, and are rarely efficient. Case in point our healthcare system which is the most expensive in the world by nearly a factor of 2:1 per capita and ranks what down around 40th ? in dilivery efficiency. Down around Cuba and Costa Rica according to the World Health Organization ( WHO).

As for Healthcare reform / Obamcacare legislation over this trust being partiallhy responsible for the decline in our economy by nearly 3% due to consumer savings it's part of the original article. A decline in Consumer spending on healthcare is responsible for "most of the downward revision" of the economy..

From the original article.

Most of the downward revision from the government’s previous estimate of a 1 percent annual decline reflected a change in the estimate of spending on health care. The government had previously estimated a strong gain in this category reflecting implantation of provisions of the Affordable Care Act.



So the Dow, Nasdaq, and S&P are all up today... people who do this for a living obviously were expecting this and are unconcerned.


So basically it's like a person who somehow was able to kill a vampire who had been sucking all his life's blood from his neck; finding out he then has more blood, more energy, and his healthy complextion comeing back to his cheaks. ( in this case we more accurately minorly disrupted the vamire a little, rather than killed them ).

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