First-Quarter Seasonal Chicanery

Residual seasonality's unconfirmed existence hasn't stopped it from becoming the excuse du jour in the business press. The Associated Press, Bloomberg and Reuters all included it in their roster of potential rationalizations for last Friday's reported contraction. Bloomberg went so far as to claim that it "probably distorted the data." On his June 3 conference call discussing ADP's private-sector payroll report, Moody's economist Mark Zandi said that he believes that "there's something to that."

Spin doctors posing as financial experts are piling on. Joe LaVorgna, described by the contrarians at Zero Hedge as "Wall Street's best paid, yet worst weatherman," claimed that a properly presented first quarter would show annualized growth of 1.2 percent.

Given all the hype and hoopla, it's amazing how easy it was to deconstruct this nonsense.

All that was necessary, for reasons which will soon become quite obvious, was to group the results into four ranges:

1QandFullYrGDPgrowth1985-2014.png

Looking at each range presented:

  • 1985 to 1992 contained virtually no net variance between first-quarter and full-year results. There really was no reason for Liesman to have included these years in his analysis. He appears to have done so to create a false impression about the alleged problem's longevity.
  • From 1993 to 2000, first-quarter versus full-year variances netting out to 10.6 points were significant, amounting to about 40 percent of the total of 24.4 points seen during the entire period.
  • From 2001 to 2007, the variances once again netted out to nearly nothing.
  • Finally, from 2008 to 2014, the net variances involved totaled a whopping 12.9 points — over half of the total.

How can it be that virtually no net variances between first-quarter and full-year results occurred in the red-labeled ranges, while large variances occurred in the blue ones?

The red ranges represent the years during which Republicans held the presidency and during which their economic and philosophies dominated government operations and economic policy discussions. The blue ranges are the years when Democrats held the White House or held philosophical sway. I assigned 2008 to the Democrats because the economy's Keynesian calamity began with George W. Bush's decision to enact a then-seen as significant $170 billion stimulus package early that year.

Contrary to what Steve Liesman claims, the economy isn't "always so weak in the first quarter." It's only weak when we have Democratic Party presidents or when progressive and Keynesian "thought," to use the term very loosely, dominate.

Why is that? That's easy:

  • Far more than Republicans, Democratic administrations have imposed new taxes. These have largely gone into effect at the beginning of each calendar year, dampening first-quarter economic activity.
  • Far more than Republicans, Democratic administrations have imposed new regulations on businesses, entrepreneurs and investors. These have also largely taken effect at the beginning of each calendar year, also impeding economic activity.

In subsequent quarters, the economy adjusts. But as we have seen in recent years, the adjustments have usually been to a level of unprecedented annual mediocrity.

A longtime commenter at my home blog coined the term for results like these many years ago: "The Democrat Effect." Adapted to the current analysis, it is “the rational response by entrepreneurs, businesspeople, and investors to excessive government intervention, overbearing regulation, crippling litigation, and taxation, all of which seriously curtail first-quarter economic activity to a greater extent than initially estimated.”

Those making noise about residual seasonality are trying to falsely "seasonalize" away the visible results of the left's misguided policies, particularly those of President Obama, his White House, and his regulatory apparatus.

In the name of reporting results with integrity, the BEA must leave things alone.