US government to review mystery of slow 1st quarter growth
May 22, 2015, 3:06 PM
WASHINGTON (AP) — There’s something strange about the U.S. economy in the first three months of every year: It frequently grows at a much slower pace than in the other nine months.
And on Friday, the government agency charged with calculating the economy’s growth rate said it would adjust its methods in an effort to resolve the problem.
The changes could paint a much different picture of the economy’s recent performance. Concerns flared when the government said late last month that the economy expanded just 0.2 percent at an annual rate in the first quarter. But many economists have challenged the government’s data, and some have argued the first-quarter figure should be as high as 1.8 percent instead.
At issue is a process known as “seasonal adjustment,” which is not nearly as convoluted as it sounds. Many routine patterns affect the economy, such as the layoff of temporary retail employees after the winter holidays, or a spike in consumer spending around Easter. Seasonal adjustment attempts to factor out those patterns to get a clearer picture of how the economy is actually performing.
Yet what appears to be a seasonal pattern still exists. Alec Phillips, an economist at Goldman Sachs, noticed that from 2010 through 2014, growth in the first three months of the year has averaged 0.6 percent, while it has averaged 2.9 percent in the other three quarters.
And Macroeconomic Advisers, a forecasting firm, has found that the pattern goes back further: Since 1995, outside of recessions, the first quarter has grown at half the pace of the other three.
Many Americans may spend less in the first quarter after ramping up their shopping over the holidays. That cutback would slow growth. But that’s exactly the type of pattern that seasonal adjustment should filter out.
Researchers at the Federal Reserve Bank of San Francisco argued that under a different method of adjustment, first-quarter growth this year would have been 1.8 percent, rather than 0.2 percent. The government seasonally adjusts components of gross domestic product, the broadest measure of the economy, before adding them together. The researchers argued that the final, aggregate data should also be adjusted.
Other economists, including at the Federal Reserve in Washington, have concluded that the government’s figures are largely accurate. The first-quarter weakness over the years may be due to harsh winter weather and “statistical noise,” they concluded.
The Commerce Department’s Bureau of Economic Analysis, which produces the figures, will have the last word. The agency says it “is working on a multi-pronged action plan to improve its estimates of gross domestic product.”
In a blog post Friday, it said it will focus on defense spending, which appears to regularly slow in the first and fourth quarters, and on consumer spending on services, which hasn’t been measured as long as spending on goods.
It will release the results of its review July 30, when it issues second-quarter data.
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