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Health Care Revision, Weather Drops 1Q GDP

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June 25, 2014 by   Leave a Comment

Economists expect the economy to bounce back in the second half of the year after first-quarter Gross Domestic Product (GDP) was revised to a decline of 2.9%, the worst drop since the Great Recession, based largely on a steep downward revision in health-care spending.

Now, 2014 is setting up to be a year of moderate growth, rather than the rosy rebound many economists expected. Second-quarter growth, expected at about 3%, means that the first half of 2014 could show no growth at all. Expectations are for higher growth rates of 3% or more for the third and fourth quarter. That would still mean growth for the year could be just about 2% or less.

 “Certainly the weather was a big factor in the first quarter,” said Stephen Stanley, Pierpont Securities chief economist. “The number would be much less negative if it weren’t for the weather. The magnitude of the bounce-back in the second quarter doesn’t look like it will be as explosive as one would expect.”

The big drop in revised GDP was largely due to a sharp reversal in consumer spending and a smaller-than-expected contribution from exports. The contribution from consumption went from 2.1% to 0.7%, and within that number health care was a large drag. The initial estimate in first quarter GDP was a positive 1% for health-care services but that fell to a decline of 0.2%.

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