Tags: GDP | families | healthcare | spending

Contraction in GDP Highlights Government Wealth and Family Struggles

By    |   Friday, 27 Jun 2014 08:14 AM

GDP contracted by 2.9 percent in the first quarter, much more than analysts had expected. These are the same analysts who originally told us that healthcare spending in the first quarter grew fast enough to offset declines in other sectors. The original estimates for first-quarter GDP showed an increase of 0.1 percent.

Revisions to GDP seem to reflect the realities families are facing in the economy. Wages are stagnant, growing in line with the official rate of inflation. If wage growth matches inflation, families break even and there's no real growth in their spending.

In the government data, we saw that families spent more on utilities and less at restaurants in the first quarter. Family budgets also showed more dollars going to insurance premiums in the first quarter, as Obamacare mandates became effective. But those dollars were diverted from other sectors so they could not deliver economic growth.

While families were showing signs of financial stress, the federal government was able to spend more in the first quarter than they did a year ago. Belt tightening in Washington seems to mean federal agencies spend less than they'd like to but more than they spent a year ago.

The GDP report highlights two trends — families are struggling to stay even while government spending continues to grow. These factors define the New Normal in the economy. Private investment is crowded out by government spending and mandates.

Families had no choice but to spend more on utilities. Governments give utilities a monopoly and then allow rates to increase every year. Families also had no choice on their health insurance premiums, as the government is now giving insurers the ability to charge more through mandates.

GDP growth should continue to surprise economists, but those surprises are likely to be on the downside until government stops interfering so much with everyday life.

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MichaelCarr
GDP contracted by 2.9 percent in the first quarter, much more than analysts had expected. These are the same analysts who originally told us that healthcare spending in the first quarter grew fast enough to offset declines in other sectors.
GDP, families, healthcare, spending
307
2014-14-27
Friday, 27 Jun 2014 08:14 AM
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