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Who Shrank the GDP? Weak Recovery, Bad Weather, Drop in Healthcare Costs to Blame

Released: 26-Jun-2014 10:00 AM EDT
Source Newsroom: Cornell University
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News that the Gross Domestic Product shrank by 3 percent during the last quarter came as a big surprise to many economists. What does it mean? Steven C. Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell’s Dyson School of Applied Economics and Management, says that the shrinking GDP bears negative and positive news, and results from a combination of weather, reduced healthcare costs, and of course, a weak recovery.

Kyle says:

“The fact that the normal vagaries of economic data can result in a negative number for first quarter GDP growth is a testament to the continuing weak nature of our overall recovery.

“Bad weather, such as we had this past winter, will from time to time cause a weak growth number and is nothing to get seriously worried about over the long term.

“The weakness in export numbers is a bit worrying in that it shows that we can't expect foreign demand to help much in pulling us to a higher growth rate. Other countries are having their own problems and that is a damper on our prospects as well.

“But there is a silver lining to one of the other factors: Ordinarily, we would be unhappy about a fall in personal consumption expenditures – who doesn’t like to buy more stuff, right? But when that drop comes from a fall in health care spending, most of us will start to smile. Nobody wants to pay higher medical bills and it seems that we may already be seeing some of the dividends from Obamacare. It is too early to break out the champagne but if this trend continues we may have lower growth numbers but we will be kind of happy about it.”

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