It’s Q1 Again, Do You Know Where Consumer Spending Is?

Residual seasonality isn’t a residual, but it is seasonal. The concept was introduced several years ago mostly because Economists were finally being embarrassed about their meteorological predilections. It had become common, far too common, to blame snow, cold, and general wintry like conditions during the winter. Thus, something else had to be brought forward to explain why what looked like a weak economy each and every Q1 couldn’t have been a weak economy.

What was hit upon was this residual seasonality, the idea that there was some quirk in the statistics for especially GDP that unfairly subtracted more in any Q1 than was reasonable. The Bureau of Economic Accounts (BEA), the keepers of GDP, disagreed initially but conducted a study anyway. The conclusions of that study also disagreed, but they enacted residual seasonality anyway.

And still the economy stayed weak, only for much more than any single Q1.

The problem was never too much snow nor statistics. The hitch has been Christmas. Americans, as is their choice, love to splurge during the holiday season whether or not doing so is a wise decision. After having broken slightly from prudent practice, by the beginning of the following year consumers have to pay for what they had just done by foregoing in the first part of any year additional spending; ipso facto, figurative residual seasonality.

It is, of course, somewhat inaccurate to blame a holiday any more than it is to blame a season. It’s not the fault of Christmas nor where it always falls on the calendar. The big deficiency continues to be, year after year, lack of income and labor market growth. Both are gaining, but positive numbers do not necessarily equate to actual, meaningful growth.

So it begins again for 2018. Retail sales estimates released in the middle of last month for January were predictably down on a seasonally adjusted (as well as hurricane aftermath aftermath) basis. Unusual snows were once more blamed, as if people who can’t go out for one day or perhaps two will just spend less over an entire month for the physical weather impediment.