Unnoticed in last week’s US 4Q data was the continued weakness in the consumer and government sectors. While the US business sector continues to recover from the SARS-CoV-19 collapse, other than residential construction and home repair, consumer and government spending appears exceedingly weak.
Half the 4Q 4.0% GDP increase was driven by consumer spending on healthcare. Without the health-related increases, personal consumption expenditure would have been unchanged from 3Q and the 4Q GDP increase would have been reduced to 2.2%. The very large 4Q increase in healthcare spending, from both for-profit providers and nonprofit organizations, appears to be, at least in part, driven by the pandemic.
Apparently bouncing back from last year’s shut downs, outpatient services experienced a strong rebound, returning to the levels of late 2019 and early 2020. Physician’s services and dental visits along with hospital and nursing home spending have all returned to prior levels. Such a rebound is not necessarily new consumer spending growth.*
A small, but still interesting piece of the 4Q health care spending increase, is the substantial increase in social services and client advocacy spending. It would not surprising that some of the 26M Americans suffering from COVID-19 – especially the elderly – have needed the services of advocates for their care. Further, many Americans – whether having contracted the disease or not – have been in need of mental health care.
With consumer spending outside healthcare spending flat, it was not surprising to see Friday’s report that personal saving in December rose to exceed October’s level and for 4Q personal saving to reach an astounding 13.4% of disposable personal income. With consumers remaining extremely cautious, both in mobility and spending, Friday’s report from the University of Michigan’s Consumer Sentiment survey of the fall in December sentiment was not surprising. Both the current conditions component and the future expectations component declined.
With this week’s employment report likely to show further January weakness, US growth enters 2021 on a very weak foundation. Adding to the weakness was the slowdown in federal, state and local 4Q spending. While much of the recent COVID relief has been in the form of aid to households and businesses, during a period in which relief and support are required, the government sector might have been expected to maintain its pace of spending growth.
* It remains a bit of a mystery as to why, with so many suffering from COVID-19, hospital spending fell so much through the middle of 2020. It is true that elective surgery was dramatically curtailed – if not completely eliminated. However, with nearly 800,000 COVID-19 hospital admissions over the past year, the expectation is that hospital spending might have increased not decreased, with capacity constraints necessitating the postponement of elective surgery. Anecdotal evidence suggests a large cadre of dedicated healthcare workers have been working very long hours to care for those suffering with the disease. It could be that there are significant reimbursement issues with insurance carriers expecting government assistance, thus, slowing hospital reimbursement, and clouding the data.
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