How Non-profit Organizations Saved Q1 GDP

For years the BEA traditionally used healthcare (i.e. Obamacare) as the "plug" variable to boost GDP at time when it, well, needed boosting.

However, now that Trump is in control, and Obamacare is on its way out one way or another, this will no longer work especially since healthcare spending is likely to significantly moderate in coming years as the GDP boosting mandatory tax that is Obamacare is repealed in some fashion over the coming quarters. And yet, in today's GDP report personal spending was reported to nearly double, with Personal Consumption Expenditures jumping from only $9.7 BN annualized as per the first estimate, to $18.6 BN in the just released second revision, a nearly 100% increase.

What drove this? The answer was interesting as a new "plug" category appears to have emerged: non profit organizations. As the chart below shows, while healthcare was revised sharply lower in the second revision, this was more than offset by a $11.9 billion annualized increase in expenditures of "nonprofit institutions serving households."

But what are "Non-profit institutions serving households"? Here is the answer:

Non-profit institutions serving households, abbreviated as NPISH, make up an institutional sector in the context of national accounts consisting of non-profit institutions which are not mainly financed and controlled by government and which provide goods or services to households for free or at prices that are not economically significant. Examples include churches and religious societies, sports and other clubs, trade unions and political parties.

 

NPISH are private, non-market producers which are separate legal entities. Their main resources, apart from those derived from occasional sales, are derived from voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general governments, and from property income.

And another interesting fact: In the national income and product accounts, the services provided by NPISHs - their gross output - is measured as their current operating expenses because these services are not generally sold in markets with observable prices.

In other words, Q1 GDP was boosted by i) nonprofit organizations which ii) could have simply padded their operating expenses (without actually providing any tangible benefits), giving the BEA the impression that the economy was doing better than expected just one months ago, when instead various political, religious and other entities were simply receiving favors from their donors. In this context, one wonders how much of a contribution to Q1 GDP the Clinton Family Foundation was...