We keep revisiting the concept of “residual seasonality” quite purposefully, even though on its face it is an absurd one. It is in every way emblematic of the current state of Economics and the commentary derived from it. Residual seasonality is the kind of delusion that has become commonplace, a coping mechanism for an economy that continues to be very different from how it “should” be working.
It’s the real economy parallel to 2a7, tax reform corporate profit repatriation, or whatever flavor of the month to dismiss as benign these near-constant monetary problems. The Federal Reserve claims the money system is fine, so it must be. Central bank officials declare the economy in great shape and poised to boom, that, too, must be so.
Prominent and conspicuous exceptions abound, of course. One of those is how the US economy has tended to behave in each and every Q1. For “some” reason, each year starts out in weakness rather than anticipated strength. The rest of each year to some degree follows in bewilderment from it, spoiling every time the planned resurgence.
This residual seasonality is for the mainstream a statistical artifact rather than a real process; but only in the sense that such bias leads to this kind of increasingly ridiculous. In common sense terms, by contrast, the idea is surprisingly (to many) simple:
Our contention behind “residual seasonality” has always been that there is no residual but to some extent an understandable and easily explainable seasonal issue. Each Q1 appears to be unusually weak because, well, it is unusually weak. The reason is simply Christmas. Americans splurge for the holiday and then spend the first several months of the following year to some degree regretting it.
Those clear commercial compunctions take the form of a consumer after-holiday holiday. They go on a spending strike of sorts, if only because their spending was pulled forward into the prior Christmas season.