A "statistical anomaly" could be responsible for exaggerating the weakness in the first quarter gross domestic product, despite the numbers being adjusted by season, according to researchers at the Federal Reserve Bank of San Francisco.
Applying further seasonal adjustment, the Fed estimates GDP growth was about 1.8%, which would be "stronger and much closer to the economy's sustainable rate of trend growth," according to an
"Indeed, an unusual pattern has prevailed for some time in which first-quarter real GDP growth is generally lower than growth later in the year," according to the Economic Letter authors Glenn D. Rudebusch, director of research and executive vice president in the bank's Economic Research Department, Daniel J. Wilson, a research advisor in the department, and Tim Mahedy, an economic analyst in the department. "This regular, calendar-based statistical pattern is a puzzle because the [Bureau of Economic Analysis] seasonally adjusts the GDP data to remove such fluctuations. First-quarter seasonally adjusted real GDP growth should not be consistently higher or lower than growth in any other quarter. Accordingly, the anomalous pattern of generally weak first-quarter growth suggests that the BEA's estimate of GDP growth for the first three months of 2015 may understate the true strength of the economy."
Calling the reported first quarter GDP number "shockingly weak," the authors say many forecasters were "surprised" since other data had been positive.
"[A]lthough the BEA adjusts for seasonal movements at a disaggregated level, the published real GDP data still exhibit calendar-based fluctuations — that is, residual seasonality. After we apply a second round of seasonal adjustment directly to the published aggregate data, we estimate much faster real GDP growth in the first quarter of this year. We conclude that there is a good chance that underlying economic growth so far this year was substantially stronger than reported," the authors write.
