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The Week In Review: Medical Care Inflation

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by: Steven Hansen
Summary

In 2017, the rate of medical care inflation dropped below the inflation rate of the CPI-U.

Lately, the year-over-year rate of inflation for healthcare is trending up while the CPI-U is moderating.

The concern is not the increased inflation rate in medical care per se, but the how much medical care takes from the consumer's budget.

This post reviews the major economic releases issued this past week. The Consumer Price Index showed medical care inflation continued to be below the year-over-year inflation rate of the CPI-U.

Medical costs inflation outpaced the Consumer Price Index for urban consumers (CPI-U) for the vast majority of time frames since 1950. However, since August 2017, the medical care year-over-year inflation rate has fallen below the inflation rate for the CPI-U. But the damage of high healthcare costs has already been done - since 1984, healthcare inflation is nearly double the inflation rate of the CPI-U.

A slower inflation rate for medical care today ignores the damage done by rapid inflation of the years past.

Since: Medical Care Inflation Higher than CPI-U by:
January 1984 92.9 %
January 2000 27.7 %
June 2009 10.0 %
January 2015 2.6 %

I can remember paying for my child's delivery costs out of pocket (as I had no medical insurance) with the paycheck from my part-time job. Flash forward where:

It's nearly impossible to put a price tag on giving birth in America, since costs vary dramatically by state and hospital. But one 2013 study by the advocacy group Childbirth Connection found that, on average, hospitals charged $32,093 for an uncomplicated vaginal birth and newborn care, and $51,125 for a standard caesarean section and newborn care.

Yah gotta have health insurance to not to be placed in dire straights just to visit a doctor's office for a hang nail today.

Although the year-over-year inflation rate for medical care is currently lower than the CPI-U, the trend line is showing increasing inflation pressures while the CPI-U is moderating. Healthcare costs need to deflate. From healthsystemtracker.org:

This is a gentle reminder for those who believe healthcare costs have moderated. The only thing that moderated is the rate of cost growth. Healthcare consumes too much of U.S. spending.

Economic Releases This Past Week

The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.

Other Economic Release Summary For This Week

Release Potential Economic Impact Comment
October JOLTS Rate of growth constant

The rate of unadjusted private non-farm job openings improved relative to last month. The unadjusted data analysis shows rate of growth is about average seen since 2010 - and about average values seen in 2018. With this JOLTS, itis predicting little change in the employment situation we have seen this year.

November Conference Board Employment Index Signs economy is slowing This Index - which forecasts employment for the next 6 months - marginally declined with the author's saying "slower economic activity, tighter labor markets and higher labor costs are likely to lead to weaker job growth in 2019".
November Producer Price Index Positive economic potential

The Producer Price Index year-over-year inflation moderated from 2.9 % to 2.5 %. Energy prices was the major factor in this decline - and but was partially offset by services inflation lead by transport and warehousing. The bottom line is that the goods portion of the PPI declined more than the services portion increased. I doubt this PPI moderation will continue next month.

November Consumer Price Index Lower inflation should help economically

According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 2.2 % year-over-year (lower than the 2.5 % last month) - unchanged month-over-month. The year-over-year core inflation (excludes energy and food) rate marginally grew from 2.1 % to 2.2 %, and continues to be above the target set by the Federal Reserve. Energy was the main driver for the year-over-year decline.

November Import and Export Price Index

Lower inflation should help economically

Year-over-year import prices and export prices declined significantly more than expected. Month-over-month price index for fuel imports decreased (and non-fuel imports also marginally declined) - and the price index for agricultural exports marginally increased. Import Oil prices were down 11.0 % month-over-month, and export agricultural prices were up 1.8 %.

  • with import prices up 0.7 % year-over-year;
  • and export prices up 1.8 % year-over-year..
November Retail Sales No real change in retail contribution to the economy

Retail sales were slightly up according to US Census headline data. There was upward adjustment of last month's data. The real test of strength is the rolling averages which declined. Things to consider:

  • it is not inflation adjusted.
  • still, our analysis says this months' year-over-year growth was about average for the growth seen since the Great Recession.

November Industrial Production Little change to Industrial productions contribution to the economy

The headlines say seasonally adjusted Industrial Production (IP) improved month-over-month. Our analysis shows the three month rolling average again declined. Still, Industrial production remains in a long term upward growth trend.

October Business Inventories For now little impact economically

Headlines for business sales data (retail plus wholesale plus manufacturing) show an improvement. However, the rolling averages declined. Inventories significantly grew this month. Month-to-month volatility is common so the growth of inventories is not yet a concern.

Surveys n/a This week there was the NFIB Small Business Optimism which posted a modest decline in November while continuing its exceptionally strong two-year trend. Increases in compensation tied a near 30-year high as owners seek to attract more qualified candidates. An increasing percentage of owners reported capital outlays and higher sales.
Weekly Rail Counts Signs economy is slowing The rolling averages and the year-over-year growth continues to slow - and now the intuitive sectors are in contraction YoY. There is a correlation between rail growth and economic growth - and rail is saying the economy will slow.

This week the economically negative news seems to balance the positive developments.

Our Economic Forecast for December:

The Econintersect Economic Index for December 2018 continues to show this economic growth cycle continues and remains well into territory associated with normal expansions. With the mixed economic picture and stock market turmoil one might expect our forecast to significantly degrade. But the Econintersect Economic Index (EEI) only insignificantly declined this month and remains well into territory associated with normal expansions. Over the last three months the index's growth rate is almost unchanged. Still we are seeing mixed trend lines - which usually happens when there's an overall reversal in trends. Our major worry is the rapid deceleration of growth in rail transport data - a usual flag for a slowing economy. Additionally the building sector is in contraction, but "this time" the reason is affordability - and this sector needs help from other sectors to bring the economy into a recession.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.