For once, the Fed gets it right. Actually, it is three times and only certain parts of the Fed, as the agency is by no means monolithic. In the first two, the Atlanta Fed’s GDPNow tracker nailed the preliminary GDP estimate for the second straight quarter. You can appreciate why they unveiled it just recently despite it’s existence going back to 2011. Their last estimate was for 2.4%, only 0.1% off the just-released 2.3% disappointment. That was the same margin by which they captured Q1.

The big debate, however, has been “residual seasonality.” It was kicked off actually by the Philadelphia Fed on May 14 in a paper titled First Quarters in the National Income and Product Accounts which only raised the issue about whether there was a sudden appearance of “unaccounted” seasonal patterns forming in Q1’s. That paper was ignored until the SF Fed took the same task only days later but in much sexier terms, The Puzzle of Weak First-Quarter GDP Growth, and issued it as a letter (to the media, really) rather than a dry, sterile-sounding research project.

The media, captured by the sensational possibility to restore the recovery narrative, went wild with it as if “residual seasonality” would explain why the unquestionable economic boom just up and disappeared (again!). There were many offenders, so many economists that were desperate to wash away continued weakness and, at best, instability, but perhaps CNBC’s Steve Liesman was the worst. His thoughts were, though, quite representative in especially their tone:

But it may not be coincidence. A detailed review by CNBC of 30 years of the government’s gross domestic product data, the most followed measure of U.S. growth, suggests a longstanding problem of under-reporting Q1 expansion.

 

Over some time periods, in fact, first quarter growth is so weak it appears to be measuring a different economy altogether compared to overall growth and the three other quarters. The discrepancy raises the issue of whether investors and policymakers should bet on a second quarter rebound.

That statement doesn’t leave much doubt as to how Mr. Liesman wanted you to feel about the topic, “appears to be measuring a different economy altogether.” In other words, there is no actual weakness just a bunch of academic equations that don’t comport in full to orthodox economics’ view of their activities (the irony of this interpretation, statisticians/economists trying to use flawed statistics as an excuse, is immense). That was the theme that predominated in most commentary, as Q1 was again to be totally disregarded as not representative of the assured strength of the US economy.

It was the New York Fed, at its Liberty Street Economics blog, that came closer to what we now have for estimates. In June, they wrote:

In this post, we argue that unusually adverse winter weather, rather than imperfect seasonal adjustment by the BEA, was an important factor behind the weak first-quarter GDP data.

Given the figures out today, they were correct on the lack of “residual seasonality” though at the same time being steadily disproven about “adverse winter weather” (the whole phrase is, after all, two times redundant). Mr. Liesman had it that Q1 GDP was something else entirely, but the new estimate of +0.6% really isn’t. There is almost no difference between -0.2% and +0.6% in terms of one quarter’s numbers; except the sign. In raw, emotional terms, it may make a difference to say that Q1 was not a contraction in GDP, but in any meaningful sense with all seasonality accounted for, and then some, Q1 was still beyond lousy to the point of unaltered concern.

The worst part, however, is that the winter is verified yet again as not the abnormality. Even at 2.3%, it is clear the economy isn’t even close to what it “should” be given last year’s assertions about it (which have been revised lower; residual seasonality giveth and therefore must taketh from somewhere else). That fact is made much, much worse by the annual revisions that accompanied all this 2015 focus (yes, trend-cycle again). It has taken three years, but the 2012 slowdown has finally shown up in GDP; a cycle of post hoc revisions that should give anyone pause about the supposed minimal possibility of recession in 2015, especially where GDP is about the only figure (the Establishment Survey, of course, the other; but not the labor force) seasonally not contracting.

The appeal of “residual seasonality” was always a Hail Mary attempt to restore last year’s optimism. It clearly failed as it amounted to really uninteresting conversation, and certainly nothing that would alter the conclusive and now-exhaustive evidence about economic instability. It leaves unaffected the fact that the real aberrations in the past especially three or four years were where GDP was more than 2.5%, and that low and deficient growth has been typical. In light of these latest revisions that means such deficiency is the best case, and if they continue to expose trend-cycle over-optimism 2015 may be much worse than thought even at this moment.

Further discussion of revisions and the 2012 slowdown is here.