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.

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