Making Sense Out of "Contradictions That Make No Sense"

A New York Times headline by Floyd Norris reads In U.S. Data, a Baffling Contradiction.

The same article, by the same author, appears on Yahoo!Finance as In U.S. Data, a Contradiction That Makes No Sense.

The first quarter of this year was the worst for the United States economy since the depths of the Great Recession in early 2009.

During the same period, employers hired more people than in any quarter over the last six years, signaling gathering strength in the economy.

It is hard to imagine how both of those statements could be true, but they are what government statistics indicate.

While the employment numbers have been strong, the government sharply cut its estimate of first-quarter gross domestic product late last month. It had previously said the economy declined at an annual rate of 1 percent during the quarter — a small dip that could be explained by severe weather in much of the country. The new figures showed a 2.9 percent rate of decline, the worst since a 5.4 percent drop in the first three months of 2009.

What happened? Put simply, a single government survey produced highly dubious numbers. Those who conduct the survey say it was done normally and that nothing suspicious surfaced in the responses. But — particularly in the case of one vital part of the economy — that survey contradicted other available information. The result was suspiciously low revenue estimates for companies in both health services and food retailing.

The big decline in estimates of the size of the United States economy was caused primarily by a sharp reversal in the government’s estimate of spending on health care services.

In May, the Bureau of Economic Analysis of the Commerce Department, which produces the G.D.P. figures, estimated that in the first quarter such spending rose at an annual rate of 9.7 percent before adjusting for inflation. That would have been the largest quarterly increase in 13 years.

There was a significant increase in Medicaid spending in the first quarter, said Benjamin R. Mandel, an economist who is chief of the federal branch of the bureau’s government division. He said that increase was one reason the early estimate was so positive. He also said that increase had been expected because, thanks to the Affordable Care Act, Medicaid coverage expanded at the beginning of the year in many states.

But the revised estimate released in June said that spending on health care services fell at an annual rate of 0.9 percent. Instead of the largest increase in more than a decade, it was the first decline in nearly half a century, since the third quarter of 1965. That one change accounted for most of the decline in the estimate for overall first-quarter G.D.P.

Questions on Obamacare

In regards to the peculiarities of Obamacare I have a couple of questions:

1. Isn't a decline in health care spending a good thing?
2. Wasn't that the goal of Obamacare in the first place?

That said, I am not about to attribute such positive results (ironically portrayed by Norris as a bad thing) as directly attributable to Obamacare.

I stated this in advance of Obamacare passage: "Health care costs are on an unsustainable upward trend, and although Obamacare provides no incentive for lower costs, I expect lower costs anyway".

So here they are, and I am hardly shocked.

Questions on Employment

I am on far more comfortable ground in regards to employment. Norris simply did not dive into the details.

Yep, the last job report showed a gain of 288,000.

Had Norris bothered to look into the details, he would have discovered some interesting facts as I discussed in my monthly jobs report.

• Voluntary part-time employment rose by a whopping 840,000 and involuntary part-time employment rose by 275,000.
• Compared to a total gain of employment of 407,000, the gain in total part-time employment was 1,115,000. I confirmed with the BLS that one cannot directly subtract those numbers because of seasonal reporting.
• However, one can compare seasonally-adjusted full-time employment this month to seasonally-adjusted full-time employment last month. Doing so shows a decline in full-time employment of 523,000!

The "strength in hiring" that Norris referred to was actually a decline in full-time employment of 523,000 - a number I confirmed with the BLS.

Is there a "contradiction that makes no sense" or is there sloppy reporting by people who do not dive into the facts?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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