Groundhog Quarter
Submitted by Atlas Indicators Investment Advisors on February 12th, 2019
A little over a week ago in Punxsutawney PA, a crowd gathered to find out whether winter is over. Try as he may, Phil could not find his shadow, so winter seems to have ended. I know, the weather report might reveal a stark contrast in the results yielded by two methods of forecasting, but Phil has been around since 1961, and his approach has been used since at least 1840.
Despite his current popularity (the city’s population explodes each year on February 2nd), he wasn’t quite the national celebrity until after the 1993 release of the movie titled Groundhog Day starring Bill Murray. In short, Bill’s character Phil (a local news weatherman) is stuck in a time loop which causes him to relive the same Groundhog Day. Yeah, physics has always baffled me too.
Well if the first quarter of the year were given a movie nickname, Groundhog Quarter might suit it just fine. You see, the gross domestic product almost always contracts during the initial three months of the year. According to this article from the Federal Reserve Bank of St. Louis, harsh winter weather impacts the supply of goods and services, while consumption suffers as Americans get through their post-holiday consumption hangover. It happens each year, and is nearly unavoidable, much like Phil going through the same events in Punxsutawney, Pennsylvania.
Like Phil, economists recognize patterns and adjust. Knowing output will slow from January through March, seasonal adjustments are made which help us compare one quarter to another. These adjustments allow us to better understand the nature of the slow start every time we begin a new calendar. Without the accommodation, we might fret every year that the next recession was coming, especially if Punxsutawney Phil saw his shadow.