Real GDP Seasonal Factors

In recent weeks there has been much discussion about the seasonal adjustment factors for GDP understating growth. The evidence seems pretty strong and BEA says they are working on an adjustment.

But remember, the seasonal adjustment factor have to sum to one (1.00). If you change the seasonal adjustment factors to add two percentage points to first quarter growth you must also subtract two percentage points from the other quarters. Changing the seasonal adjustment factors will not change the annual value of GDP. If annual growth was reported to be 2.5% before the correction it will still be 2.5% after the seasonals are changed. This also means that the annual values for other economic data, like productivity will not change either.

Maybe the good thing that could come out of the issue is that people will give less weight to the volatile monthly and quarterly economic reports and more weight to the longer run growth rates.

Remember, the game of estimating monthly and quarterly data releases was originally started by the brokerage houses to increase volume — their profits are extremely sensitive to market volume.

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