Weather clouds the outlook for US growth

How much weight should the Federal Reserve put on the economy's first quarter swoon? The conundrum has deepened after an analyst report claimed to have found problems with the seasonal adjustments of some of the data that goes into the gross domestic product calculation.

The US economy grew a meagre 0.2 per cent in the first three months of the year, confounding analyst forecasts for an annualised expansion of 1 per cent and making a June rate increase by the Fed appear less likely.

Michael Gapen, chief US economist at Barclays, said that while this sharp deceleration was in part because of a port strike and freezing weather, it may also be a reflection of calculation issues that are skewing first-quarter numbers.

Official GDP data from the Bureau of Economic Analysis (BEA) are seasonally adjusted to strip out some of the inevitable volatility that stems from factors such as annual holidays and calendar-based adjustments to production schedules.

But the clockwork regularity of first-quarter slowdowns seen in recent years has raised questions over how good a job the seasonal adjustments are doing. From 2010 to 2015 growth in first-quarter GDP has averaged only 0.6 per cent as against an average 2.9 per cent in the remaining quarters.

Some of this can be explained by one-off events such as worries over the euro crisis in the first quarters of 2010 and 2011, as well as the bad weather at the start of 2014 as well as this year. But analysts have been scouring the data for other explanations.

A report from JPMorgan Chase last month said that first-quarter GDP growth has averaged 1.6 percentage points lower than in other quarters over 20 years. It concluded that while it was possible that the data reflected a deeper problem, "it does not seem like the most likely explanation to us" and that the pattern may be a coincidence.

Barclays' report calculates that removing "residual seasonality" from the numbers would lead to growth of 1.8 per cent in the quarter, instead of 0.2 per cent. That is still slower than the 2.2 per cent annual expansion reported for the fourth quarter of last year.

The main source of this seasonality is a monthly construction survey from the Census Bureau which is fed into the GDP data, the report argues, with the remainder coming from exports and defence spending. The origin of issues with the construction numbers may lie in the boom-to-bust cycle in construction between 2005 and 2010, which could have made it harder for statisticians to perform seasonal adjustment calculations, it claims.

An attempt by the bank's analysts to remove residual seasonality boosts first-quarter growth by an average 1.7 percentage points since 2010, while reducing growth modestly in the ensuing quarters.

The BEA has said that it may introduce improvements to seasonal adjustment methods as part of its regular revision of the national income and product accounts this summer.

Nicole Mayerhauser, chief of BEA'S National Income and Wealth Division, said that the agency was aware of the potential for residual seasonality in GDP and its components and was "continually looking for ways to minimise this phenomenon." The Census Bureau did not immediately respond to a request for comment.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Mr Williams said he was watching a new measure of economic activity that "may paint a better economic picture than GDP alone". Produced by the Philadelphia Federal Reserve, the indicator is called GDP Plus and "filters out some of the noise."

However the second quarter of the year has started on a muted note, with retail sales recorded as flat for April, according to official numbers released on Wednesday.

Ms Mayerhauser said the BEA is reviewing the possibility of residual seasonality in measures of defence spending, following research that suggests that the first and fourth-quarter growth rates are lower than those of the third and second quarters on average.

"As BEA continues its seasonal adjustment review, should it identify other areas of potential residual seasonality, BEA will develop methods to address these findings. If research suggests that residual seasonality originates with already seasonally-adjusted source data, BEA will work alongside its source data agencies to determine the appropriate course of action," Ms Mayerhauser said.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation