Shattering Ice
Markets and Economy

Seasonal Distortion in Economic Metrics

First-quarter growth was lower than expected, causing some to wonder whether early-year optimism was justified. But the winter season tends to pause business activity, and that could be skewing output measures.
Jim Glassman, Head Economist, Commercial Banking
May 16, 2018

At the start of the year, economic forecasts were optimistic: global growth was accelerating, and the recently passed tax reform law was expected to spur a wave of new domestic capital investment. But the anticipated growth surge failed to materialize—instead of speeding up, US economic growth slowed to a 2.3 percent pace, down from a 2.9 percent growth rate in the fourth quarter of 2017.

Did the economy really stumble, or were other factors at play? Winter may not be the best season to take growth estimates at face value. Quarterly GDP figures are always skewed by seasonality, since the economy ebbs and flows over the course of the year. The winter months tend to see a pause in some types of business activity, even when the underlying growth trend is strong.

The US Bureau of Economic Analysis (BEA) attempts to correct this distortion by making a seasonal adjustment to its quarterly estimate, but the magnitude of the winter slowdown can vary considerably from year to year. When other concrete economic indicators are showing no sign of a slowdown, waiting to see what the springtime brings can help paint a better picture of overall growth potential.

Sources of Seasonal Variability

Large sectors of the US economy are highly seasonal. Agricultural activity slows dramatically in the winter, as does construction and other outdoor trades. Conversely, utility expenditures can spike during a cold snap, while an above-average flu season can hike up healthcare spending while keeping people away from work. If quarterly GDP growth estimates weren’t seasonally adjusted, the economy would almost always appear to contract in the winter and rebound over the summer—obscuring the underlying growth trend.

To make meaningful estimates of economic growth, the BEA relies on data from recent years to create seasonal corrections. Since 1971, first-quarter GDP estimates have required an average seasonal correction of about 4 percent. But seasonal distortions can be quite volatile, varying from year to year depending on the weather. A mild winter might see economic activity lag the long-term trend by less than 3 percentage points, whereas harsh winters may cause up to 5 percentage points of disruption.

This variability complicates the seasonal correction process. It can be difficult to know whether the economy fundamentally slowed in the first quarter, or if business activity was simply delayed due to unusually bad weather. Given the inherent volatility of first-quarter growth estimates, it is best to look for corroboration from more concrete economic indicators.

The Layoff Story

A true economic slowdown will impact the labor market, but there is little sign that the first-quarter GDP stumble affected demand for labor. Layoffs—the most reliable and timely barometer of business conditions—remain near an all-time low. Estimated GDP growth may have slowed over the winter, but employers are still hiring.

Since almost all employees are covered by unemployment insurance, jobless claims give a more complete picture of business conditions. And since they provide a real count of every newly unemployed worker in the country—not an estimate generated from statistical samples—layoff figures cannot be skewed by an unrepresentative sample.

Layoffs also give insights into the economic outlook. Given the investment in hiring and training that every employee represents, a decision to reduce staff likely reflects an expectation that demand will not return soon. So when businesses retain their staff during seasonal slowdowns, it is because they anticipate better times ahead—which seems to have been the case for many businesses this winter. GDP may not have grown rapidly, but the decision to hang onto staff shows that businesses are still optimistic.

Only time will tell whether this winter’s GDP slowdown was a seasonal distortion or marked a true shift in the economy’s trajectory. But based on the strength in the labor market, it would not be surprising to see growth rebound over the summer as pent-up demand from the first quarter creates new business opportunities in the spring.

View our economic commentary disclaimer.



Weekly insights on the economic issues that matter most to your business.


How We Can Help

Our Services

Rely on our world-class products and services to help take your business to the next level.

Learn more about Our Services

Our Expertise

Benefit from industry experts who specialize in serving the specific needs of your business.

Learn more about Our Expertise


Find out how we can help your business.

Contact Us


Copyright © 2018 JPMorgan Chase & Co. All rights reserved.