Healthcare Costs To Rise To Almost 20% of GDP In Next Decade, Jobless Claims Remain At Record Lows

February 16, 2017
The U.S. Centers for Medicare and Medicaid Services announced on Wednesday that healthcare costs will rise to 19.9% of GDP over the next decade; Federal Reserve Chair Janet Yellen rejected suggestions that the U.S. central bank would respond to Republican proposals for tax reform and increased spending with interest rate hikes; January housing starts declined as building permits rose; Initial jobless claims increased slightly but remain at historically low levels.

Policy Watch

  • The U.S. Centers for Medicare and Medicaid Services announced on Wednesday that healthcare costs will rise to 19.9% of GDP over the next decade, up from 17.8% in 2015, as medical spending will increase 5.4% in 2017 over 2016. The report cited the aging of the baby boom generation and overall economic inflation as primary contributors to the projected increase in spending. Healthcare outlays were up 4.8% in 2016 over the prior year, totaling an estimated $3.4 trillion. Prescription drug spending growth slowed to 5% from 9% last year, though it is expected to increase an average of 6.4% per year between 2017 and 2025 as new specialty drugs enter the market. The projections were made under the assumption that the Affordable Care Act will remain intact, which the Republican-led Congress has vowed to repeal and President Trump has promised to replace. Medicare spending is anticipated to rise as a larger elderly population requires more medical services. The report estimates the insure rate of the population will reach 91.5% in 2025 from 90.9% in 2015. [Reuters]
  • Federal Reserve Chair Janet Yellen rejected suggestions from members of the House Financial Services Committee that the U.S. central bank would respond to Republican proposals for tax reform and increased spending with interest rate hikes. Yellen said that the only factor her policy committee would consider is if demand-based inflationary pressure threatened the bank’s 2% inflation objective. The chairwoman called on lawmakers to focus their efforts on raising the long-run growth rate of the economy through steps that elevate productivity and increase labor supply. Yellen affirmed the Fed’s dual mandate the promote maximum employment and price stability. She reiterated comments made to the Senate on Tuesday regarding the great uncertainty around the economic outcomes of President Trump’s proposals, specifying it is difficult to discern how the U.S. dollar would react. [Bloomberg]

Economic Indicators & News

  • January housing starts declined 2.6% from December to an annualized pace of 1.246 million units as building permits, a key forward-looking housing market indicator, rose 4.6% to an annualized pace of 1.285 million units. The rate of new residential construction is 10.5% above the year-ago period. The decline was led by a 7.9% drop in multi-family units with five or more units. Single-family starts rose 1.9% over the December level. Meanwhile, new permits were issued at a rate 8.2% above the year-ago level, which indicates sustained buyer demand amid continued supply imbalance and increasing prices. Regionally, starts were the highest in the Northeast gaining 29.6%, followed by the South and Midwest while they contracted in the West. The market consensus was for 1.232 million starts last month. [Census]
  • Initial jobless claims increased by 5,000 during the week ending February 11 to total 239,000 from the prior week’s unrevised level of 234,000 to remain at historically low levels. New claims have now held below the critical 300,000-threshold for 100 consecutive weeks, the longest such streak since 1970 – a time during which the labor market and population were much smaller. The four-week moving average accounting for week-to-week volatility rose by 500 to 245,250. Lagging continuing claims, meanwhile, fell by 3,000 to 2.076 million while the moving average for the metric gained 4,250 to 2.080 million. The market consensus was for 246,000 new claims last week. [DOL]

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