The U.S. economy shrank by a nearly 3 percent annualized rate in the first quarter of this year, according to the third estimate of gross domestic product out Wednesday morning. The 2.9 percent GDP drop is a much steeper decline than the 1.0 percent drop the Commerce Department announced at the end of May. And that number was a far cry from the original estimate for the first quarter, which showed a slight gain. The difference between the second and third estimates is the largest since 1976.
The January-March turndown is the worst the U.S. economy has seen since the first quarter of 2009. Economists had been expecting a lower revision for the new GDP number, something near a 2 percent drop. But this is obviously quite more dramatic.
So what happened? For months, much has been blamed on the unusually cold winter. That’s part of the explanation the White House gave following the second revision in late May. Health care spending is also a major factor. Two-thirds of the new revision’s drop was a result of lower-than-expected health care spending — where previous estimates had spending growing at a 1 percent rate, the new estimate shows it declining at a rate of about 0.2 percent. The government expected health care spending to be higher due to further implementation of the Affordable Care Act.
The Commerce Department also noted Wednesday that the increase in personal consumption for the first quarter was less than officials had previously thought (partially because of to health care spending), and that the decline in exports was greater than first thought.
Time to panic? Not necessarily. While we won’t have an advanced estimate of second-quarter GDP (which covers April through June) until the end of July, economists largely expect that we’ll see much better numbers. Economists surveyed by Bloomberg earlier this month predicted that we’ll see a 3.5 percent expansion in the second quarter and an average expansion of more than3 percent for the second half of the year. Moody’s chief economist, Mark Zandi, brought some optimism to the AP, saying, “We should have a much better second half this year and a much better 2015 than 2014.”
And as Daniel Gross pointed out on Twitter, things could be much, much worse:
So while the new revision is definitely bleak, it may wind up just being one bad blip on the year.
What We're Following See More »
Much has been made of David Brooks’s recent New York Times column, in which confesses to missing already the civility and humanity of Barack Obama, compared to who might take his place. In NewYorker.com, Jeffrey Frank reminds us how critical such attributes are to foreign policy. “It’s hard to imagine Kennedy so casually referring to the leader of Russia as a gangster or a thug. For that matter, it’s hard to imagine any president comparing the Russian leader to Hitler [as] Hillary Clinton did at a private fund-raiser. … Kennedy, who always worried that miscalculation could lead to war, paid close attention to the language of diplomacy.”
“We haven’t seen a true leftist since FDR, so many millions are coming out of the woodwork to vote for Bernie Sanders; he is the Occupy movement now come to life in the political arena.” So says Bill Maher in his Hollywood Reporter cover story (more a stream-of-consciousness riff than an essay, actually). Conservative states may never vote for a socialist in the general election, but “this stuff has never been on the table, and these voters have never been activated.” Maher saves most of his bile for Donald Trump and Sarah Palin, writing that by nominating Palin as vice president “John McCain is the one who opened the Book of the Dead and let the monsters out.” And Trump is picking up where Palin left off.