Thursday, June 26, 2014

What Happened to GDP?

There was some startling economic news yesterday, as the Commerce Department's third and final estimate for first quarter GDP growth in this country came in at a negative 2.9 percent, revised downward from a minus 1.0 percent. That makes Q1 of 2014 the worst economic quarter since the first quarter of 2009, in the middle of the recession, when the economy shrank by 5.4 percent.

It's unusual for the economy to perform that badly when we're not in recession, which is technically defined as two consecutive quarters of GDP loss. Outside of recessions, there have only been two other quarters since World War II where the economy shrank by as much as 2 percent.

Still, economists don't seem to have panicked much. For one thing, the poor economy is still being blamed in part on that old standby, last winter's harsh weather. The other big factor was a huge drop in health care spending: After initially being estimated at having grown by 9.9 percent in the first quarter, the final estimate showed health care spending dropping by 2.9 percent.

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