First quarter GDP came it at a very weak +0.5%.
Despite obvious weakness, that GDP estimate is likely overstated.
Moreover, hopes for a huge second quarter bounce are highly overrated.
Those are pretty bold statements so let’s consider the case.
Seasonal Adjustment Flashback
Dateline May 22, 2015: The Wall Street Journal reports First-Quarter Growth May Look Better After Upcoming Statistical Tweaks.
The Commerce Department on Friday said it is planning a series of steps to smooth out statistical quirks that may be affecting quarterly gross domestic product data.
The move could make first (and fourth) quarters of the year a little less bad and the rest of the year a little less good.
This year, a phenomenon known as residual seasonality became a hot topic of discussion in some economic circles after Commerce reported a paltry 0.2% rate of expansion for GDP in the first quarter of 2015. That wasn’t the only time the the economy opened on a bad note: Since 2010, first-quarter GDP has averaged a rate of 0.6%. For all other quarters, it’s 2.9%. The trend appears to hold up going even further back, though it may have become exaggerated since the latest recession.
First Quarter Analysis
Despite the fact that first quarter 2015 was genuinely impacted by weather, the BEA elected to revise its methodology, seasonally bumping up first and fourth quarter GDP estimates.
This winter was nowhere near as hash as last winter. If anything, this Winter was rather favorable, especially for home construction in the South and West. Yet, despite seasonal adjustment methodology revisions, GDP rose a mere 0.5%.
At best, the BEA methodology revisions subtract from second and third quarter GDP reports.
At worst, first quarter GDP was really negative and no bounce at all is coming.
If one believes in the middle ground, first half GDP will be barely positive.
For further discussion, please see Stagflation-Lite Coming Up? 1st Quarter GDP 0.5% as Consumer Spending Decelerates.
Mike “Mish” Shedlock
