Frequently Asked Questions

Guidelines for Citing BEA Information | ID: 1069 | Created: Apr-23-2015
Answer

How does BEA account 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.

Recently BEA expanded efforts to address residual seasonality in its GDP statistics. As part of the 2015 annual revision of the national income and product accounts, BEA began to directly seasonally adjust a number of the Census Bureau quarterly services survey data used to estimate personal consumption expenditures for services; it began to seasonally adjust measures of federal defense spending on services and some equipment categories in response to seasonal patterns that have more recently emerged in the underlying source data; and it expanded seasonal adjustment of components of private inventory investment, net interest, and corporate profits as a result of having longer timespans on which to analyze seasonal trends.

While BEA cannot determine the precise impact of these seasonal adjustment improvements on GDP, it can compare average quarterly growth rates of the updated GDP estimates with those of the previously published estimates. The results show that for the quarters 2012Q1 to 2015Q1 (the period open to revision), the average rate of change of real GDP for first quarters was revised up 0.4 percentage point; for the other three quarters, the combined average rate of change was revised down 0.5 percentage point, thereby reducing the variations in average rates of change among the quarters. The largest difference was to the average rate of change for third quarters, which was revised down 1.4 percentage points, mainly reflecting the new seasonal adjustment of federal defense spending on services.

Longer term, BEA will begin two projects to improve seasonally adjusted GDP. First, BEA will conduct a component-by-component review to identify the origins of residual seasonality. With this analysis, BEA, in partnership with its source data agencies, will develop improvements to mitigate residual seasonality. Second, BEA will develop not seasonally adjusted estimates for GDP and it major components that would be released in conjunction with BEA’s seasonally adjusted GDP estimates and could be used to identify changes in seasonal trends. Both of these projects will begin in the fall of 2015.

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