Archive for the 'GDP' Category

BEA Works to Mitigate Potential Sources of Residual Seasonality in GDP

The Bureau of Economic Analysis (BEA) is working on a multi-pronged action plan to improve its estimates of gross domestic product (GDP) by identifying and mitigating potential sources of “residual” seasonality. That’s when seasonal patterns remain in data even after they are adjusted for seasonal variations.

Each spring, BEA conducts an extensive review–receiving updated seasonally adjusted data from the agencies that supply us with data used in our calculation of GDP. Most of the data the feeds into GDP is seasonally adjusted by the source agency, not BEA. At the same time, BEA examines its own seasonal factors for those series that BEA seasonally adjusts itself. All that work takes place in preparation for BEA’s annual revision to GDP and its major components, which will be released on July 30.

As a result of this ongoing work, BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon.

• One of the areas we’re currently reviewing is possible residual seasonality in measures of federal government defense services spending. Initial research suggests that the first and fourth quarter growth rates are lower on average than those of the third and second quarters. BEA is developing methods for addressing what it has found.
 • Time frame to implement: Improvement will take place with the release of second quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• BEA also will begin adjusting certain inventory investment series that currently aren’t seasonally adjusted.
 • Time frame to implement: Improvement will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• Also as part of this year’s seasonal adjustment review, BEA is planning to seasonally adjust a number of series from the Census Bureau’s quarterly services survey that now have sufficient time spans to which seasonal adjustment techniques can be applied. Currently, these series are smoothed using a four-quarter moving average to attempt to smooth out seasonal trends in the data. While BEA’s review had not identified residual seasonality in the PCE services estimates, applying statistical seasonal adjustment techniques to these indicators will improve the accuracy of the underlying trends in PCE estimates.
 • Time frame to implement:  Improvement will take place with the release of second quarter GDP on July 30.  Period covered 2012, 2013, 2014, and forward.

• BEA will review all series entering the GDP calculations to identify, and where feasible, mitigate any residual seasonality within its existing seasonal adjustment methodologies.
 • Time frame to implement: Review will take place with the release of second-quarter GDP on July 30. Period covered: 2012, 2013, 2014, and forward.

• Longer term–beyond July 30–BEA will continue looking at components of GDP to determine if there are opportunities to improve seasonal adjustment methodologies.  Should BEA identify other areas of potential residual seasonality, BEA will develop methods to address these findings. If research suggests that residual seasonality originates with already seasonally adjusted source data, BEA will work alongside its source data agencies to determine the appropriate course of action.

Additional information will be available in an upcoming article in BEA’s Survey of Current Business that’s slated to be published in mid-June.

Accounting for Seasonality in GDP

BEA’s estimates of GDP are seasonally adjusted to remove fluctuations that normally occur at about the same time and the same magnitude each year.  Seasonal adjustment ensures that the remaining movements in GDP, or any other economic series, better reflect true patterns in economic activity.  Examples of factors that may influence seasonal patterns include weather, holidays, and production schedules. (See “Why and how are seasonal adjustments made?“)

Much of the data used by BEA to estimate GDP are seasonally adjusted by the source data agencies. For example, BEA uses seasonally-adjusted inventory and retail sales data from the U.S. Census Bureau and seasonally-adjusted consumer price indexes from the U.S. Bureau of Labor Statistics. BEA does seasonally adjust some data itself, such as Treasury data used to measure federal government spending. There are also instances where BEA cannot apply seasonal adjustment statistical techniques to its source data because the time series is too short to adequately capture seasonal trends.

BEA and its source data agencies regularly review and update their seasonal adjustment procedures to account for changes in seasonal patterns that emerge over time. Despite regular reviews and updates, changes in seasonal patterns can sometimes lead to ‘residual seasonality’—that is, the manifestation of seasonal patterns in data that have already been seasonally adjusted. There are several reasons that residual seasonality might arise:

  • After the detailed, individual components of GDP are seasonally adjusted, BEA aggregates the seasonally adjusted components to obtain total GDP. In some cases, seasonal patterns may emerge in the aggregate estimates that were not apparent in the individual components.
  • In some cases, the source data may be seasonally adjusted at monthly frequency, but in aggregating to quarterly frequency, seasonal patterns may emerge that were not apparent in the monthly data. To maintain consistency with the source data, BEA does not introduce different seasonal adjustments from those used in the monthly source data.
  • In some cases, the current-dollar values and prices may be independently seasonally adjusted, then the values are deflated (divided by the price) to obtain estimates of real expenditures. Seasonal patterns sometimes emerge in the deflated estimates that were not apparent in the current-dollar values and prices.

BEA is currently examining GDP components for residual seasonality, which may lead to improved seasonal adjustment methods. For example, BEA has recently recognized the possibility of residual seasonality in its measure of federal government defense services spending. Also, BEA is testing for seasonality in a number of not-seasonally-adjusted series from the Census Bureau’s quarterly services survey that now have sufficient time spans to which seasonal adjustment techniques can be applied.  If necessary, improvements to the seasonal adjustment methods for these series will be introduced as part of the regular annual revision to the national income and product accounts, scheduled for release in July 2015.

GDP Up Slightly in First Quarter

Real gross domestic product (GDP) increased 0.2 percent in the first quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2014, real GDP increased 2.2 per- cent. In the first quarter, the dollar strengthened against major currencies, imports and exports were delayed be- cause of labor disputes in key ports, energy prices declined, and several regions experienced severe weather.

April 29 GDP Q2Q

First-quarter GDP highlights
The following contributed to the increase in real GDP:

  • Consumer spending increased, mainly on household services.
  • Inventory investment increased, notably in the nondurable-goods manufacturing industry.

These positive contributions to real GDP growth were largely offset by the following:

  • The trade deficit widened in the first quarter, reflecting a decline in goods exports.
  • Business investment declined, notably in mining exploration, shafts, and wells.
  • State and local government spending declined.

Personal income and personal saving
Real disposable personal income (DPI)—personal income adjusted for inflation and taxes—increased 6.2 percent in the first quarter, compared with 3.6 percent in the fourth quarter of 2014. Personal saving as a percentage of current-dollar DPI was 5.5 percent, compared with 4.6 percent.

Q2Q Percent change April 29

First-quarter prices
Prices of goods and services bought by U.S. resi- dents decreased 1.5 percent in the first quarter, after decreasing 0.1 percent in the fourth quarter of 2014. The first-quarter decline was the largest since the first quarter of 2009.

Energy prices declined more than in the fourth quarter. Food prices also fell.

Excluding food and energy, prices increased 0.3 percent in the first quarter after increasing 0.7 percent in the fourth quarter.

For more information, read the full report.