First Quarters in U.S. Still Weaker Than Others After Revisions

The first quarter is still the lousiest time of year for the U.S. economy, though it now looks a tad less grim, updated figures show.

From 2012 through 2014, gross domestic product grew at a 1.2 percent annualized rate on average from January through March, up from the 1 percent pace the Commerce Department had estimated prior to revisions published Thursday. That’s still well below the 2.4 percent mean for all other quarters.

Persistent weakness at the start of every year triggered debate among economists over whether a statistical quirk known as residual seasonality was responsible. The Bureau of Economic Analysis, which produces the GDP report, has begun an investigation into such discrepancies, and their initial findings are reflected in the new data issued as part of the annual revisions.

The updated statistics also incorporate new information from the various sources that provide data used in crunching the numbers, as well as new seasonal adjustments and other improvements to methodology. The government’s analysts found that figures on federal defense outlays, consumer spending on services and corporate profits showed some seasonal biases.

Fixing the data quirks had the biggest effect on third-quarter growth rates, which had been overestimated from 2012 to 2014. The economy expanded at a 2.6 percent rate on average in the July to September period compared with the 4 percent pace previously published. That’s partly attributable to smoothing swings in federal defense spending around the end of the fiscal year, Nicole Mayerhauser, chief of BEA’s National Income and Wealth Division, said in a briefing with reporters.

First Quarters

The figures for the first quarter of 2014 were less disturbing, with the economy shrinking at a 0.9 percent pace, less than the 2.1 percent drop that was previously published. The majority of the revision came from updates to business investment data, with outlays on nonresidential structures growing more than six times faster than previously estimated.

The first quarter of this year was revised to show a 0.6 percent increase in GDP compared with a prior reading of a 0.2 percent decline.

The BEA analysts said Thursday’s release represents the first of three phases in their attempt to control or eliminate residual seasonality. In the next phase, the agency will do a component-by-component review to determine whether any issues still exist and discuss options for correcting the anomalies with their data providers.

Later, it will issue unadjusted data to complement the figures adjusted for seasonal swings.

Expansion Weaker

The economic expansion over the past three years was weaker than initially projected, with the biggest revision coming in 2013, Thursday’s report showed.

From the end of 2011 to the end of 2014, the economy expanded at a 2.1 percent annualized rate, compared to the 2.4 percent pace reported before. GDP grew 1.5 percent in 2013, the weakest since the throes of recession in 2009, compared with a previously reported 2.2 percent gain.

The data showed American consumers’ contribution to growth in recent years has been more muted, with a sustained pickup in spending not materializing until 2014. Consumption was revised down for all eight quarters from 2012 to 2013, while it grew at a slightly stronger pace last year.

With Federal Reserve Chair Janet Yellen and her fellow policy makers saying their decision on when to increase the benchmark interest rates will depend on data, the focus will be on growth, jobs and inflation figures.

Inflation Outlook

Central bankers’ view that they are “reasonably confident” inflation will move back toward their 2 percent goal over the medium term received a bit of a boost with the revisions.

The measure of prices linked to consumer spending, the Fed’s preferred gauge, climbed 1.4 percent on average from the end of 2011 to the end of 2014, 0.1 percentage point more than earlier reported. Excluding food and energy, the price index climbed a revised 1.6 percent, also a bit firmer.

The news on the household-earnings front was less promising. Personal income was revised down by about $111 billion over the three years ended 2014. The figures showed corporate profits were cut by the same amount.

In addition to the revisions, the BEA unveiled two new data products that will be included in future GDP releases. The agency will report the average of GDP and gross domestic income, which is already used by some economists to supplement their analysis of the economy.

It will also include a category called final sales to private domestic purchasers, aimed at providing a measure of private demand in the economy. The gauge reflects consumer and business spending and excludes that by governments as well as exports and inventories.

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