Sunday, July 31, 2016

GDP: Health Services Spending Dominates "Close To Zero" Economic Growth

As the U.S. economy continues to flirt with recession, this morning’s “flash” Dross Domestic Product release for the second quarter indicates “close to zero” growth. Business investment has collapsed, leaving personal consumption expenditures to drive what little growth there is.

As a large component of personal consumption expenditures, spending on health services continues to outpace GDP growth. Growth in health services spending of $28.4 billion (annualized) comprised 18 percent of GDP growth. However, personal expenditures on services grew much more than GDP overall. Growth in spending on health services amounted to 15 percent of growth in personal consumption expenditures and 25 percent of spending on services. Spending on health services grew by 5.3 percent, versus only 3.2 percent growth in non-health services GDP (Table I).


The figures for 2015 Q2 to 2016 Q2 show growth in spending on health services accounted for one quarter of GDP growth. At a growth rate of 5.3 percent, spending on health services grow more than twice as fast as the 2.1 percent growth in non-health services GDP. Growth in health spending accounted for almost one third of the growth in services spending and one quarter of the growth in personal consumption expenditure (Table II).


Although health services spending accounts for just 12 percent of GDP, these estimates continue to indicate it will grow faster than GDP. There is no slowdown in health services spending.

Technical note: When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex.

(See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)

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