Council of Economic Advisers Blog

Advance Estimate of GDP for the First Quarter of 2013

Today’s report indicates that the economy posted its fifteenth straight quarter of positive growth, as real GDP (the total amount of goods and services produced in the country) grew at a 2.5 percent annual rate in the first quarter of this year, according to the “advance” estimate released by the Bureau of Economic Analysis. Over the last fifteen quarters, the economy has expanded by 8.3 percent overall, and the private components of GDP have grown by 12.2 percent. Real GDP is now 3.2 percent larger than it was at the previous business cycle peak in 2007:Q4. While there is more work to be done, this report, together with other economic indicators, provides further evidence that the economy is moving forward in the right direction.

It is important to recognize that GDP is made up of various components. Personal consumption expenditures, for example, rose by 3.2 percent at an annual rate in 2013:Q1, the fastest rate in over two years. Residential investment grew by 12.6 percent last quarter and has increased for eight quarters in a row, its longest streak since 2004-2005. Federal defense spending fell 11.5 percent at an annual rate in 2013:Q1, while federal nondefense spending declined at a 2.0 percent rate and state and local government purchases fell at a 1.2 percent rate.

The “advance" estimate of first quarter GDP growth encompasses the first month after sequestration began on March 1. It is likely that the contraction in Federal defense and non-defense spending, at least in part, reflects the onset of sequestration. These arbitrary and unnecessary cuts to government services will be a headwind in the months to come, and will cut key investments in the nation’s future competitiveness. The Congressional Budget Office has estimated that the sequester will reduce GDP growth by 0.6 percentage point for the year.

The Third Anniversary of the Affordable Care Act

This month marks the third anniversary of the passage of the Affordable Care Act. Provisions of the Act have already helped millions of young adults obtain health insurance coverage and have made preventive services more affordable for most Americans. When fully implemented, the law will expand coverage to an estimated 27 million previously uninsured Americans and ensure the availability of affordable coverage through traditional employer-sponsored insurance and the new Health Insurance Marketplaces (often referred to as Exchanges).

This blog post and the accompanying report describe progress toward slowing the growth of health care costs and improving the efficiency of the health care system.

Growth in Health Care Costs Has Already Begun to Slow

There are signs that the Affordable Care Act (ACA) has already started to help slow the growth of health care costs and improve the quality of care through value-based purchasing programs, strengthened primary care and care coordination, and pioneering Medicare payment reforms. For each year from 2009 to 2011, National Health Expenditure data show the real rate of annual growth in overall health spending was between 3.0 and 3.1 percent, the lowest rates since reporting began in 1960.

With the exception of a spike in 2006, the year Medicare Part D was introduced, the growth rate of Medicare spending per enrollee—a measure of health care spending intensity—has been on a downward trend since 2001, with a particularly significant slowdown over the past three years (see Figure 1). While Medicare enrollment is expected to increase 3 percent a year over the next decade, the rate of growth in spending per enrollee is now projected to be approximately the same as the rate of growth of GDP per capita, according to the CBO and Office of the Actuary at CMS.