Service Industry Expanded in April, but at Slower Pace

WASHINGTON (AP) — A survey of United States service companies showed that the industry expanded at a slower pace in April than in March, as companies reported less business activity and could not raise their prices.

The Institute for Supply Management said on Friday that its index of nonmanufacturing activity fell to 53.1 in April from 54.4 in March. Any reading above 50 indicates expansion. The report measures growth in industries that cover 90 percent of the work force, including retail, construction, health care and financial services.

The decline in the overall index suggested that some service companies may be starting to see less consumer demand, in part because of higher Social Security taxes.

April’s weakness was largely caused by a steep drop in a measure of prices, to 51.2 from 55.9 in March. Nearly 70 percent of the companies surveyed said they did not change their prices last month, while 10 percent reduced them.

A measure of business activity also declined. Still, a gauge of new orders was mostly unchanged, and businesses stepped up restocking, typically a sign that they expect consumer spending to pick up.

Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. Americans increased their spending from January through March at the most rapid pace in more than two years, despite the increase in Social Security taxes that kicked in on Jan. 1.

And other trends may offset some of the impact of the taxes this year. Consumers have cut their debts. Rising home values and stock prices have increased household wealth And average gas prices nationwide have dropped 27 cents from their peak this year to $3.52 a gallon, according to AAA.

In manufacturing, orders fell 4 percent in March, the largest amount in seven months, but a crucial category that signals business investment plans increased. The drop in factory orders reflected a plunge in the volatile category of commercial aircraft, the Commerce Department reported on Friday. Orders were up 1.9 percent in February. But in core capital goods, a category considered a proxy for business investment plans, orders rose 0.9 percent after a 4.8 percent decline in February and a 6.7 percent surge in January.

Weaker economies overseas and the impact of across-the-board government spending cuts have made businesses more cautious, dampening demand for manufactured goods. But even with the March decline, total orders stood at $467.3 billion, 43 percent above the recession low in March 2009.

Study Finds Health Care Use Rises With Expanded Medicaid

New results from a landmark study, released on Wednesday in The New England Journal of Medicine, go a long way toward answering those questions. The study, called the Oregon Health Study, compares thousands of low-income people in Oregon who received access to Medicaid with an identical population that did not.

It found that those who gained Medicaid coverage spent more on health care, making more visits to doctors and trips to the hospital. But the study suggests that Medicaid coverage did not make those adults much healthier, at least within the two-year time frame of the research, judging by their blood pressure, blood sugar and other measures. It did, however, substantially reduce the incidence of depression, and it made them vastly more financially secure.

“There was this view that Medicaid coverage would not do much for the low-income uninsured, either because they had access to charity care or because Medicaid is not good insurance,” said Amy Finkelstein of the Massachusetts Institute of Technology. “This rejects that notion entirely.” Her work on the Oregon study contributed to her receipt last year of the John Bates Clark Medal, a laurel for younger economists considered second only to the Nobel Memorial Prize in Economic Science for those in the profession.

Currently about 50 million Americans, nearly all them poor, receive health care coverage under Medicaid, a federal program administered by the states. But most states do not provide Medicaid coverage to adults without disabilities or dependent children, no matter how poor they are.

Health economists anticipate that new enrollees to the Medicaid program will swell the country’s health spending costs by hundreds of billions of dollars over time. In 2014, at least 18 states and the District of Columbia will provide coverage to all adults with incomes below 133 percent of the federal poverty line. That currently would translate to coverage for all individuals with incomes below about $15,000 and for households of four people receiving less than about $31,000.

Many more states might join in the expansion in the coming months or years. The Affordable Care Act, President Obama’s health care law, has the federal government pay for a large majority of the increased Medicaid costs in perpetuity, making the financial burden on states much smaller.

The unique Oregon study came about when the state found itself with enough money to provide additional Medicaid coverage to about 10,000 low-income adults. Many times that number qualified.

Rather than deny coverage to all Oregonians, the state established a lottery, to distribute coverage randomly. That gave economists and other social scientists a once-in-a-lifetime chance to perform a randomized control experiment — the gold standard in medical and scientific research, but a rarity in much of social science — isolating the effect that coverage had on health and broader well-being.

An earlier round of results from the Oregon Health Study analyzed assessments of health and well-being reported by study participants, as well as data from hospitals and credit agencies. This second major set of results stems from biometric data collected at in-person visits with participants. A huge team of researchers collected blood samples, blood pressure readings and weight measurements from thousands of Oregonians; about half of them had won access to Medicaid in a lottery and half had not.

The researchers found that Medicaid coverage did not significantly affect the prevalence or diagnosis of hypertension or high cholesterol, or the use of drugs used to treat those conditions. It significantly increased the probability that a person would receive a diagnosis of diabetes and be treated, though it did not reduce blood sugar levels noticeably.

Where Medicaid seemed to have the strongest measured impact was on depression. Getting Medicaid coverage reduced the probability of a positive screening by more than 30 percent.

“The authors are almost tilting the spin on the story to be a little more pessimistic than I would have been,” said John Holahan of the Urban Institute, responding to the new findings.

“There are some positive effects on health,” he said, calling the effect on depression “especially strong.”

Confirming previous findings released by the researchers, the new round of results found that adults covered by Medicaid increased their use of a broad number of health services, like mammograms and cholesterol tests. That increased their medical spending by about 35 percent, compared to adults who did not win Medicaid coverage in the lottery.

Some researchers had theorized that getting Medicaid coverage would lead to a spike in use of medical services by low-income adults. Once covered, they might visit the doctor, have conditions checked out and treated, then stop using medical services as much.

But the second set of results from the Oregon study shows that is not the case. There is no spike in use of health services, nor is there any decline later on. Rather, use of the health system increased, and that increase persisted between the first year and the second year of the study.

“They go to the doctor more often, they visit the hospital more often, they use more prescription drugs, they are more likely to use preventive care,” said Katherine Baicker, a Harvard professor, co-author of the study and former economic adviser to President George W. Bush. “There is no evidence of a spike of utilization from pent-up demand.”

Chinese Manufacturing Sector Expanded in December

An important gauge of China’s giant manufacturing sector published Tuesday showed a third successive month of expansion in December and underlined the view that the world’s second-largest economy has settled into a mild rebound that is likely to extend into 2013.

A survey of purchasing managers in the manufacturing sector, released by the national statistics bureau on the first day of the new year, produced a reading of 50.6 points for December. Figures above 50 mean the sector is growing, while those below suggest contraction.

A similar survey released by HSBC on Monday painted a similar picture of solidifying recovery. That index, which is more focused on smaller, privately held businesses than its official counterpart, came in at 51.5 - a full point above the November reading, and the highest in 19 months.

After a marked slowdown during much of 2012, the Chinese economy began to regain some momentum during the last few months of the year. A modest increase in exports, combined with government-induced infrastructure spending and other economy-supporting measures, dissipated fears of a ‘'hard landing'’ during the final quarter of 2012. Analysts widely expect the economy to have expanded about 8 percent in 2012, and to record similar or even slightly stronger growth in 2013.

At the same time, however, analysts caution that the Chinese economy will need to grapple with a host of major challenges and that growth is likely to slow by several percentage points over the next decade.

‘'Looking forward, China’s cyclical rebound still faces strong headwinds,'’ Li-Gang Liu and Louis Lam, economists at ANZ, commented in a research note on Tuesday. ‘'Economic and policy uncertainties in the U.S. and the E.U. suggest that external demand for Chinese exports will remain sluggish.'’

Domestically, the government is grappling with rampant corruption and environmental degradation, a widening gap between rich and poor, and the need to reduce the dominance of state-owned enterprises. For growth to be sustainable, the economy will also need to become more driven by domestic demand, rather than government-induced investment and exports, analysts believe.

China’s rapidly changing demographics — an aging population will cause the proportion of non-earners to soar in the coming years — is adding considerable time pressure.

‘'The problem is not so much how to maintain short-term growth momentum, but how to prepare China for the demographic challenge ahead,'’ Yao Wei, an economist at Société Générale in Hong Kong, said at a media briefing in last month. ‘'Within ten years, China will have worse demographics than South Korea or Japan. The window of opportunity for policymakers is closing very quickly,'’ she added.