Bureau of Economic Analysis to recalculate gross domestic product


The economy barely showed signs of life in the first quarter, with gross domestic product increasing only 0.2%.

The Bureau of Economic Analysis announced Wednesday that he was aware of potential flaws in the way he calculates quarterly GDP. The office said it was “developing methods to deal with what it found” and that a series of revisions would be completed by July 30.

“In the longer term – beyond July 30 – the BEA will continue to examine the components of GDP to determine whether there are opportunities to improve seasonal adjustment methodologies,” said Nicole Mayerhauser, head of the the office’s national income and wealth division, in an emailed statement to US News. “If the BEA identifies other areas of potential residual seasonality, the BEA will develop methods to address these results.”

The methodology behind seasonal data adjustments is at the heart of the problem, says Brad McMillan, chief investment officer for Commonwealth Financial Network. And while McMillan says he was among a host of economists who suspected something fishy about the office’s seasonal adjustment numbers, recognition of the problem is major news, especially as the Federal Reserve continues to cite stagnant GDP growth as a factor in its decision to delay interest rates.

“What they’re saying is, basically, the things a number of people, including myself, have been talking about for some time. There seems to be a suspicious trend that the first trimester in general seems be weaker than the other quarter, ”McMillan says. “This doesn’t tell us anything that has not been discussed informally on a broad enough basis.”

Seasonal adjustments should theoretically remove weather effects from the data, thereby ruling out the impact of winter on the numbers that go into the calculation of gross domestic product. But the first quarters of 2014 (-2.1% growth) and 2015 (0.2% growth), in particular, were abnormally low.

“The point of the seasonality adjustments is to normalize that. The last couple of years have really put the problem at a critical point, and particularly in the last quarter,” McMillan said. “There seems to be a systemic bias there, and it’s a bias that should be corrected.

And while the GDP estimates are subject to a series of revisions after they are first released, McMillan says the underlying problem the office faces goes beyond what would be considered a “revision.”

“The revisions are based on data. These are based on the process, which makes it much more serious, ”he says. “A review would cover them to get more data. ‘We changed it because now we have more data.’ It is: “We misadjusted the data that we had from the beginning. “”

McMillan said the July adjustments, which the bureau said will be released with second-quarter GDP figures, “will be a matter of two or three tenths of a percentage point.” But two tenths of a percentage point would double (or wipe out) current economic growth in the first quarter.

“The difference of a few tenths of a percent, for example, won’t show up as much when growth is 4 or 5 percent. When growth is consistently lower, then it’s much larger, relatively speaking,” he said. he declared. said. “It’s not going to take it from 0.2 to 4.0, or, similarly, it’s not going to take it from 0.2 to -4.0.”

Minor adjustments in the first quarter are unlikely to save what was a largely disappointing start to the year. in the screening prepared at the March meeting. “

“I think this will likely weigh in to some extent in the Fed’s decision-making process, as it was actually mentioned in the Fed minutes,” McMillan said, noting that the Fed is currently evaluating the timing of a looming interest rate hike that is expected to limit some aspects of GDP growth. “I think economists are going to take it seriously, as they should. I think the markets are going to ignore it … It doesn’t matter in the sense of what investors need to know to make decisions.”

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