What may boost economies even more than Taylor Swift? Perhaps Ozempic and other wildly popular weight-loss drugs.
In essence, more use of GLP-1 medications could produce more GDP, according to a recent report from Goldman Sachs economists Joseph Briggs and Devesh Kodnani. The reduction in obesity-related health concerns could potentially boost U.S. gross domestic product by 0.4%, they estimate, and as much as 1% with widespread uptake of the weight-loss medications.
Already, the economic impact is visible.
Novo Nordisk,
the maker of Ozempic and Wegovy, has seen its stock market value soar to $560 billion, more than the GDP of Denmark, where the pharmaceuticals maker is based. During 2023, the Danish economy expanded by 1.8%, with its pharma industry accounting for all its growth, the nation’s statistics office said.
By contrast, health problems in the U.S. have reduced labor-force participation by two to three percentage points over the past three decades, the Goldman economists note. Early deaths subtract a further 0.2 percentage point from annual labor supply growth. Then, there are those who have to care for sick individuals, taking them out of the workforce. In all, that totals about 3% subtracted from the labor force.
Based on an analysis of a number of academic studies, the Goldman economists estimate that obese individuals are less likely to work and are less productive when they do. These estimates imply a 3% per capita reduction in their output. That would translate to about a 1% cut in total output, given the 40% incidence of obesity in the U.S.
If 30 million Americans were to use GLP-1 drugs—which also include
Eli Lilly’s
Mounjaro and Zepbound—and 70% of them experience benefits, their baseline estimate is U.S. GDP could be boosted by 0.4%. At the high end, if 60 million Americans got the weight-loss drugs and 90% of them benefited, that could translate to over a 1% boost to U.S. GDP from the bigger labor force and higher productivity. At the low end of estimates, with 15 million getting the shots and only half benefiting from them, the impact could be negligible.
To be sure, there are many variables in this model of GLP-1 effects on GDP. Pharma companies already are working furiously to expand production of the weight-loss drugs to meet demand. For now, demand is limited to those whose insurance will cover their hefty cost for the health benefits of reducing obesity, or those willing to shell out upward of $1,600 a month to shed 15% to 20% of their body weight. Expansion of coverage by Medicare and Medicaid would probably significantly boost usage. Drugs in pill form are in the experimental stage for those with phobias about the weekly injections needed for current medications.
Beyond GLP-1 drugs, Goldman projects further gains for the U.S. economy from improved health outcomes. At the cutting edge of technology, artificial intelligence could speed the development of drugs to fight a range of chronic conditions, from cancer to autoimmune and age-related diseases. Gene-editing and immunotherapy hold promise against an array of conditions.
Finally, the U.S. has lagged behind other developed economies in progress against early death and disability. Closing that gap could boost U.S. GDP by anywhere from 0.5% to 2.5%. From a coldblooded actuarial viewpoint, however, improved longevity could also worsen the outlook for Social Security.
GDP is a poor proxy for the societal value of healthcare innovation, Briggs and Kodnani write. But who knew a little jab could do so much?
Another shutdown of the federal government appears to have been staved off, at least for another week. Then maybe, just maybe, Congress might be able to complete the 12 appropriations bills to fund the government for fiscal-year 2024, which began last Oct. 1.
“Par for the course” would sum up financial markets’ reaction. At least the worthies in Washington didn’t take the nation’s fiscal house to the brink, as they did last year by threatening default by failing to raise the nation’s debt ceiling. But these continuing shenanigans are actually costing real money, according to one investment veteran.
It’s more than “a billion here, a billion there.” It’s $55 billion annually in increased borrowing costs to the Treasury, according to David Kotok, the head of Cumberland Advisors in Sarasota, Fla. Looking at prices of credit default swaps on U.S. Treasury debt, he estimates there has been a permanent increase of about 20 basis points, or 0.2 percentage points, to U.S. financing costs.
Since the beginning of last year, the cost of insuring U.S. Treasury debt against the default has risen, as shown by the nearby chart. That’s reflected by what Kotok terms the “political dysfunction” that sent CDS prices soaring last year during the debt ceiling fight. The deal that averted the first-ever U.S. default eventually cost former Rep. Kevin McCarthy his job as speaker of the House. So far, his successor, Mike Johnson (R., La.), has held on to the speaker’s gavel but may face similar opposition from his party’s right wing, especially over aid to Ukraine.
While CDS prices have subsided from those peaks, they remain 20 basis points higher than at the start of 2023. On $27 trillion of tradable U.S. government debt, the cost of the D.C. dysfunction equals some $55 billion in extra interest costs, Kotok writes in a client note. For perspective, that’s more than double the annual budget for NASA.
Interest costs have become the main factor driving up the massive U.S. budget deficit. As I wrote last June, the government could borrow trillions with impunity when interest rates were near zero and the Federal Reserve was buying Treasuries by the billions. That has reversed since the Fed lifted its policy rate by 525 basis points and reduced its Treasury holdings.
Late Friday, Fitch Ratings affirmed its AA+ U.S. sovereign rating with a stable outlook. But it also warned that “standards of governance in the U.S. have steadily fallen over the last two decades while political polarization has risen, complicating the budget appropriations process with periodic brinkmanship over the debt limit and government shutdowns.” That already appears to be reflected in higher borrowing costs for the Treasury.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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