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GDP and Residual Seasonality - 7/19/16

For several years, economists have been unnerved by government published estimates of first quarter gross domestic product.  With little exception, data characterizing economic performance during the first three months of a given calendar year have been disappointing.  Typically, the U.S. economy bounced back during second quarters. 

However, many economists have been questioning the methodology used to compute first quarter gross domestic product data.  This year, the initial estimate of gdp growth was just zero point five percent.  After two revisions, the estimate has more than doubled to one point one percent.  Getting GDP right is important.  GDP performance influences both government budgetary and business decisions. 

As reported in the Wall Street Journal, growth typically slows after the holidays, but the government’s seasonal adjustments are supposed to account for the softening of economic activity between a given December and the ensuing January. 

When adjusted data continue to exhibit seasonal effects, statisticians refer to the phenomenon as residual seasonality.  The problem becomes particularly acute when monthly data, which may retain some residual seasonality, are rolled up into quarterly values.  Economists are working to fix the problem.   

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.