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Joe Garagiola: “Yogi, we’re lost.”
Yogi Berra: “Yeah, I know it. But we’re making good time, ain’t we?”
The slowdown that wasn’t
Economists anticipated lackluster economic growth last quarter. Instead, growth surged, a sign of the still-resilient economy.
Why it matters:
The soft landing was very much intact this spring: Price pressures eased, but not at the expense of the strong economy and labor market.
What they’re saying:
“While these estimates will be revised a few times, they do point to the continued strength of the U.S. economy despite the high interest rate environment we’ve been in for over a year,” NerdWallet senior economist Elizabeth Renter wrote this morning.
The big picture:
The economy grew at an annualized 2.8% in the second quarter, up from the modest gain of 1.4% at the start of 2024.
- The consumer was the key driver of last quarter’s strong economic growth. Personal consumption expenditures increased at a 2.3% annualized rate, gaining from the 1.5% pace in the prior period. That category contributed 1.6 percentage point to the increase in GDP figure.
- Another big contributor to growth: Businesses stocked up inventories at a strong rate, adding 0.8 percentage point to GDP. Given that consumer spending was so brisk last quarter, the stocking was likely to keep up with current demand — not to make up for prior shortfalls.
Capital spending rose at a 5.2% annualized rate, reflecting a surge in spending on equipment (+11.6%) and continued investment in intellectual property (+4.5%).
- The jump in spending on equipment and intellectual property “affirms our conjecture that the American economy is in the midst of a productivity boom that in turn will result in an improved standard of living across the economy for all cohorts,” RSM economist Joe Brusuelas wrote in a note.
Between the lines:
A narrower measure of growth affirms the economy’s resiliency in the second quarter.
- Final domestic private sector sales — which strips out volatile categories like inventory shift, government spending and trade — increased at a 2.6% annualized rate, the same as the previous quarter.
The intrigue:
The second quarter saw strong growth alongside lower inflation — a reversal of dynamics observed in the January to March period, when inflation resurged and headline GDP moderated.
- Still, other indicators point to potential risks for the economy. The unemployment rate has risen in recent months to 4.1%, the highest since 2021. Should the labor market lose steam, that could slow consumer spending and crimp the economy.
What to watch:
The Federal Reserve holds a policy meeting next week. No rate changes are expected, though officials look likely to lay the groundwork for a rate cut in the fall.
U.S. economy surprises with strong 2.8% growth rate in second quarter
The U.S. economy grew at a 2.8% annualized rate in the second quarter—a faster rate than economists expected as consumer spending increased and businesses built up inventories, the Commerce Department said on Thursday.
Why it matters:
The new data raises confidence the economy has achieved a “soft landing” — healthy economic growth alongside cooling inflation.
- Economists expected an annualized growth rate of 1.9% last quarter. The economy grew at a 1.4% rate in the first three months of the year.
Driving the news:
The accelerated growth stemmed from a jump in inventory investment and consumer spending.
- Companies also increased spending on equipment and intellectual property. That was partly offset by a slump in housing, the government said.
- Personal consumption expenditures rose at a 2.3% annualized rate last quarter, up from the 1.4% in the first quarter.
- Consumer spending contributed 1.6% to the rise in GDP, while private inventories added 0.82 percentage point.
The big picture:
Gloomy forecasts of a recession over the past year have not come to pass.
- The Federal Reserve raised interest rates to the highest in two-decades to restrain growth and bring down inflation—raising expectations those actions would tip the economy into a sharp slowdown.
- Fed officials have cautiously suggested the economy has achieved a soft landing as inflation dissipates.
- The central bank is expected to keep rates on hold at the policy meeting next week and set the table for a rate cut in September.
The bottom line:
The economy continues to defy expectations of a slowdown.
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CMS proposes a nearly 3% cut to Medicare physician pay for 2025
https://www.kaufmanhall.com/insights/blog/gist-weekly-july-12-2024
On Wednesday, the Centers for Medicare & Medicaid Services (CMS) issued its proposed annual changes to physician payments in its 2025 Medicare Physician Fee Schedule Proposed Rule. Required by statute to maintain budget neutrality, CMS is proposing to reduce the conversion factor—which translates the cost of providing medical services into physician payments—by 2.8%.
This is expected to lower physician payments by 2.93% on average. The proposed rule also includes new telehealth flexibilities, changes allowing eligible accountable care organizations access to a quarterly advance on their earned savings, and new payments for providers that help patients at high risk of overdose or suicide.
The Gist: With CMS proposing to reduce physician payments for the fifth straight year, the American Medical Association and other physician groups are once again calling on Congress to avert these cuts.
Congress has previously responded with “Band-Aid” solutions to temporarily reduce or eliminate reductions for the next calendar year, but physician groups are demanding a more comprehensive fix that ties Medicare payment updates to the Medicare Economic Index, a measure of practice cost inflation.
Medicare physician pay has declined 20% relative to practice costs from 2000 to 2021, and post-COVID inflation has only worsened the issue. Although lawmakers on Capitol Hill have explored various means of doing so, structural changes to Medicare budgetary policy face an uphill legislative battle in a presidential election year.
Outpatient shift turning to new specialties
https://www.kaufmanhall.com/insights/blog/gist-weekly-july-12-2024
Using the latest data forecast from Sg2, a Vizient company, the graphic above illustrates how the outpatient shift will continue to accelerate through 2034.
Home-based care and outpatient services, including ambulatory surgery centers, are projected to be the fastest growing care sites over the next decade, with volumes increasing 22% and 14% respectively.
Sg2 forecasts that physician offices, emergency departments, and inpatient settings will experience more modest volumes increases, whereas skilled nursing facilities and retail care volumes are predicted to decline.
Additionally, although the initial outpatient procedural shift was largely focused on orthopedics, the next wave of outpatient volume growth will come from other service lines.
Driven by regulatory changes, as well as patient demand, outpatient cardiovascular volumes are expected to increase by 25% over the next decade, closely followed by neurosciences at 23%.
Continued health system investment into higher-acuity outpatient care remains crucial.
HENRY KOTULA 