By Howard Schneider
WASHINGTON (Reuters) – Make no mistake: the U.S. economy’s dismal first quarter was, in fact, a dismal first quarter, not a statistical fluke in the way U.S. gross domestic product is measured, Federal Reserve staff concluded on Thursday.
The Fed staffers explored a puzzle noted recently by economists like Justin Wolfers and discussed across the business cable networks – that first quarter GDP growth seems to routinely lag the rest of the year.
This happens with such frequency that it was suggested the problem may be more with how the economy is measured, particularly in the formulas for making seasonal adjustments. Economic activity ebbs and flows with some regularity through the year, such as vacation spending in the summer and holiday shopping in the fall, and accurate estimates of growth need to adjust for that.
If the seasonal adjustments applied to the first quarter were biased in some way, it could cause the sort of systematic disappointment that seems to force policymakers into an annual first quarter debate over whether the sudden slowdown is temporary or likely to last. Fed officials have been scratching their heads over just that issue in recent weeks when GDP estimates for the first quarter came in near zero.
Staff said they conducted a variety of statistical tests to see if something was funny about Q1 GDP estimates and they concluded that, in fact, bad weather, “statistical noise,” and unspecified “idiosyncratic factors” in the economy were more likely to blame — not an underlying data problem.
“Our analysis here does not find convincing evidence of material residual seasonality in GDP in recent years,” Fed staffers Charles E. Gilbert, Norman J. Morin, Andrew D. Paciorek and Claudia R. Sahm wrote in a research note.
Which doesn’t help their bosses much. If the Q1 slowdowns are real slowdowns, that still begs the question: will it last?
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)