U.S. believes no structural issues in GDP data construction

By Lucia Mutikani

WASHINGTON, July 30 (Reuters) - The U.S. government believes there are no structural problems in the way it calculates gross domestic product estimates, though defense spending was found to have contributed to overstating third-quarter growth over the past three years.

The Bureau of Economic Analysis, the government agency that constructs GDP data, said this week it had looked at GDP data from 2012 to 2014, the first phase in addressing residual seasonality in data resulting from the seasonal adjustment's failure to fully strip out seasonal patterns.

"I don't think there is a problem. At this point there is not something clear in what we are looking at that would suggest in this period of time there is a structural issue in the way we are constructing the data," said Nicole Mayerhauser, head of the National Income and Wealth Division at the BEA.

Following an unexpected contraction in first-quarter GDP, economists cast doubts on the accuracy of the estimates, saying there was residual seasonality in the data that tended to understate first-quarter GDP over the last several years.

Mayerhauser said the BEA refined the seasonal adjustment methods for federal defense spending, consumer spending on services, net interest and corporate profits.

Those changes were implemented with the annual revisions published on Thursday, which showed that GDP increased at an average annual rate of 2.0 percent from 2011 to 2014, three-tenths of a percentage point lower than previously reported.

The improvements to the seasonal adjustment for defense spending found an overstating of GDP growth in the third quarter from 2012 to 2014. Third-quarter growth in 2012 was revised down by 2 percentage points to a 0.5 percent rate, with defense spending accounting for a half a percentage point of the drop.

In 2013, defense spending accounted for four-tenths of a percentage point in the downward revision in GDP to a 3 percent rate from the previously reported 4.5 percent pace.

While the GDP estimate for the first quarter of 2014 was revised up to show it contracting at a 0.9 percent pace instead of a 2.1 percent rate, that was not because of residual seasonality as most economists had argued.

"Certainly with Q3 it's the defense. With Q1 it's not necessarily defense. It really is a mixture of bringing in new source data, but ... a portion of the Q1 revision is coming from updated seasonal factors for construction data," said Mayerhauser.

In the second phase of the project, which has already kicked off, the BEA plans to do a review of each component of the detailed series that goes into GDP and into the measures of gross domestic income (GDI). The BEA hopes to have initial results from that exercise by late spring next year.

The final stage of the program will see the development of a not seasonally adjusted set of statistics, which will complement the seasonally adjusted GDP data. This is aimed at increasing transparency.

With the annual revisions, the BEA also introduced an average of GDP and GDI. That average increased at an average annual rate of 2.2 percent from 2011 to 2014. (Reporting by Lucia Mutikani; Editing by Andrea Ricci)