The Bureau of Economic Analysis on Thursday revised away the contraction in gross domestic product in the first quarter, erasing an ugly patch in the ongoing economic recovery. It also marked down growth over the past few years, finding that average growth from the last quarter of 2011 to the first quarter of this year was just two percent, rather than the 2.2 percent previously estimated.
Here's why they did it:
The Bureau constantly revises its economic output statistics to try to better capture the complicated reality of the U.S. economy.
Each quarterly estimate is updated three times as new data is available. Every summer, the Bureau updates its previous estimates for the past several years to include new data sources and tweak its methodology for calculated gross domestic product. And every five years, it does a comprehensive overhaul of all of its GDP statistics going back to 1929.
This summer's revision updated the past three years' worth of GDP statistics to better account for federal refundable tax refunds.
It also changed its formula for adjusting statistics to remove predictable seasonal fluctuations.
Seasonal adjustments became a source of significant controversy this year, after the economy shrunk at a 0.2 percent annual rate in the first quarter.
Economists at the Federal Reserve and White House, as well as in the private sector, argued that the economy was not as weak as that number suggested. They blamed one-off factors such as labor strikes at West Coast ports and tough winter weather in the Northeast for the slowdown.
Some analysts, such as economists at the Federal Reserve Bank of San Francisco and Barclays, noted that the economy also contracted in the first quarter last year and has been slow at the beginnings of other recent years. They suggested that the Bureau of Economic Analysis was making a mistake in its seasonal adjustments that depressed measured growth in the first quarter.
The Bureau agreed that there was a problem. The revisions released Thursday updated the seasonal adjustments for consumer spending and business inventories. It also corrected the adjustments for government spending on defense-related services, which it had previously identified as a possible culprit.
Those changes, taken together, made the entire economic recovery that began in June 2009 appear weaker than it previously did. Growth over that time has averaged 2.1 percent, rather than the 2.2 percent previously estimated.
Those weren't the only changes to the quarterly GDP report announced Wednesday.
The Bureau will also start reporting a measure of economic growth that may be more accurate than the usual GDP statistic. It will be an average of GDP and Gross Domestic Income, which is effectively the reverse of GDP: Rather than total output, it tallies up total income received by all people and sectors.
The Federal Reserve Bank of Philadelphia already publishes the averaged statistic, calling it "GDPplus." Now the statistic will be included right in the quarterly report.
Lastly, the Bureau will change the report to include a measure of growth meant to strip out factors that regularly swing from quarter to quarter without saying much about the underlying economy.
This measure, final sales to private domestic purchases, is the sum of consumer spending and private investment in physical assets like land or machines.
The White House favors focusing on this statistic for a more forward-looking growth metric.
"Real PDFP growth is generally a more stable and forward-looking indicator than real GDP, as it excludes volatile components like inventory investment, net exports, and government spending," Council of Economic Advisers Chairman Jason Furman wrote in April. "Indeed, PDFP is a more accurate predictor of next-quarter GDP than GDP itself."