For years we have complained against both the BLS' and the BEA's comical seasonal adjustments, which "serve" just one purpose: to goalseek the data to a desired, politically-mandated outcome, and which culminated last May when the Department of Commerce announced it would seasonally adjust last year's woeful Q1 GDP data not once but twice in order to get a better result. Now, it appears that there indeed was a problem: government statisticians announced that they have found "evidence that efforts to adjust the country's measure of economic growth for seasonal fluctuations have not been fully successful."
The Bureau of Economic Analysis said this week that a component-by-component investigation found evidence in quarterly GDP data over different time spans, Reuters reports.
"We did find some evidence of residual seasonality both over the most recent 10-year period and over a 30-year period," Brent Moulton, associate director for National Economic Accounts at the BEA, told reporters.
What Moulton meant is that in the new normal, where the business cycle itself no longer makes any sense due to central bank intervention, seasonal adjustments are worthless. Confirming this, the BEA said that seasonal effects have lingered in some cases even after the data was seasonally adjusted. Economists believe residual seasonality has been most prevalent in first-quarter GDP data, with growth underperforming in five of the last six years since the recovery started in mid-2009.
Lending credence to that theory, the government sharply revised up the 2015 first-quarter GDP growth estimate to a 2.0 percent annual rate from the previously reported 0.6 percent pace. But it also revised down the second-quarter GDP estimate for the same year to a 2.6 percent rate from 3.9 percent.
Ironically, in revising the data by shifting contributions from one quarter to another, the government economists merely perpetuated the error by using judgment to attribute "growth" to times during the year when they saw these as appropriate, a subjective assessment. Certainly, it does not explain why the Fed proceeded to launch a rate hike in a quarter, Q4 of 2015, that grew at the slowest pace in nearly two years.
More from the BEA:
Moulton said the treatment of monthly data in the derivation of quarterly national income and growth estimates was a pervasive problem. "There are two things that can happen here. One is a series may be tested for seasonality at monthly frequency and may not show any signs of seasonality," he said.
"What we found in our review is that in some cases those series did at quarterly frequency show significant seasonality, suggesting there is some seasonal factor that needs to be adjusted to at least a quarterly frequency."
Moulton said even if a series is adjusted at monthly frequency, which is the case with most of the source data for GDP, there may still be residual seasonality in some cases once the figures are combined to produce quarterly data.
The solution, he said, was to test all monthly GDP source data series at both monthly and quarterly frequencies.
The Department of Commerce promised it would work with other agencies to ensure that residual seasonality was removed from historical data by 2018. This is another way of saying that growth that had previously been reported as taking place previously, will be slashed, and reapplied in future times as appropriate, once again depending on the bureau's political narrative.
Most importantly, the BEA said it would also start publishing nonseasonally adjusted GDP and gross domestic income estimates in 2018. "These estimates will allow users to isolate data revisions more distinctly from revisions to seasonal factors."
Yes they will, but one wonders why the BEA will wait two years before this critical data is released?
One also wonders even with the underlying data "what difference will it make" - when "fringe websites" such as this one deconstruct the data and show that it is fundamentally wrong or outright manipulated, they get heckled by the same cadre of economists none of whom had any inkling of today's abysmal data.
Finally, one thing that remains no matter how the seasonal adjustments are allocated: on a year over year basis, the US economy continues to slow dramatically, and as the following chart shows the 2.4% GDP annual growth compared to last year was the lowest since 2010.