Bloomberg News

Health Care Seen Helping U.S. Growth Pick Up in Second Quarter

April 30, 2014

Health Care Seen Helping U.S. Growth Pick Up in Second Quarter

Applicants get in line outside during a health care enrollment event on March 31, 2014 in Los Angeles. Photographer: Ringo Chiu/Zuma Press

A surge in health-care spending that helped keep the U.S. economy from shrinking in early 2014 is likely to continue fueling growth in coming months as more Americans gain coverage for medical services.

A 3 percent gain in consumer outlays was among the few positives in the first quarter. Services spending rose at the fastest pace in 14 years as Americans paid higher heating bills and the rollout of Obamacare encouraged more people to see the doctor. Even so, the economy’s total output of goods and services expanded at just a 0.1 percent annualized rate in January through March as a harsh winter kept business investment and homebuilding in check.

The president’s signature health-care law should provide another boost to growth in the second quarter as more people seek medical care. The GDP figures count what consumers, insurance companies and government programs such as Medicaid spend on services including doctor visits and surgery.

“People who would have signed up at the last minute, you won’t see that until April or May or some time after that,” said Ben Mandel, chief of the federal branch of the government division at the Bureau of Economic Analysis.

Some 8 million people signed up for health plans on Patient Protection and Affordable Care Act of 2010 insurance exchanges, the Obama administration said this month, and sign-ups lasted into mid-April. About 4.2 million had signed up through March 1, based on a Health and Human Services report from March.

Enrollment Cutoff

Enrollments after Feb. 15 will first be reflected in second-quarter GDP estimates, Mandel said. At the same time, warmer weather may encourage consumers to use the money they save on heating bills to make purchases at retailers and auto dealers. In the long run, though, stronger wage gains will be needed to sustain purchases.

“You’re going to get something like a 3 percent consumer spending number in the second quarter, so really not meaningfully different,” said Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who said he expects consumer spending growth to moderate to 2.2 to 2.3 percent in the second half. “We don’t have the income growth to support it for a sustained time.”

Outlays for health care will be a continuing driver of growth, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

“I definitely don’t think you’re going to see this increase reversed,” he said. “These people who obtain access to health insurance aren’t then going to lose that access.”

Will Diminish

Still, the effect may diminish over time as people finish getting checkups and procedures they had been putting off.

Data on health spending is “a lot of guesswork,” Stanley said. The Commerce Department is making estimates based on Medicaid reimbursements and enrollments that will be revised with more complete quarterly services survey data. “It’s kind of dicey for us to speculate on exactly how this is going to progress because they’re making all sorts of assumptions we aren’t really privy to.”

Meanwhile, utilities will probably fade as a consumption booster as the weather warms. That may be offset by a bounce-back in goods purchases, which eased to a 0.4 percent growth rate from 2.9 percent in the fourth quarter. Stanley projects the consumer spending trend to be between 2 percent and 2.5 percent, he said.

“Excluding utilities and health care, you do have to assume there was some weather-related drag to other consumption,” Stanley said. “There should be a weather rebound in the more general consumption categories that will be offset to some degree by the return to normal utility usage.”

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Mark Rohner


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