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Issue 5, September/October 2005
Federal Reserve Bank of Dallas
Mexican GDP Falls but No One Notices
Two years ago, we reported on
these pages about difficulty in correctly interpreting
Mexico’s GDP reports.[1] The complication involves
Easter’s habit of moving around in the Gregorian
calendar. Sometimes this religious holiday occurs in
the first quarter and sometimes in the second. Because
economic activity is reduced in the quarter in which
Easter falls, when Easter switches quarters from one
year to the next, the situation is ripe for the confusion
we pointed out earlier.
Easter fell in the second quarter
in both 2003 and 2004, so last year the issue was moot.
This year, Easter fell in the first quarter, leading
to possible confusion.
In the opening sentence of its
statistical release on Mexico’s second quarter
2005 gross domestic product, the Instituto Nacional
de Estadística, Geografía e Informática
(INEGI, Mexico’s census bureau) reports that GDP
was 3.1 percent greater than in the second quarter of
2004. This statistic is calculated from data that have
not been seasonally adjusted and, in particular, have
not been adjusted for Easter’s wayward effects.
The report further notes that GDP declined 0.42 percent
in second quarter 2005 relative to first quarter 2005.
The year-over-year statistic is
what the Mexican report has historically headlined—and
with good reason. Until fairly recently, INEGI did not
calculate, or at least did not report, seasonally adjusted
statistics. When analyzing data that are not seasonally
adjusted but are subject to seasonality, it is standard
operating procedure to look at yearover- year changes.
When seasonal effects are irregular with respect to
the calendar, such as Easter’s, the year-overyear
calculation is not valid when Easter falls in different
quarters in successive years. In other words, INEGI’s
lead statistic sometimes suffers from statistical bias.
INEGI’s seasonal adjustment
procedure is sophisticated, taking full account of the
Easter effect. The seasonally adjusted data have been
purged of the potentially distorting effect of Easter
moving around in the calendar. This makes it possible
to report meaningful quarter-over-quarter statistics,
which INEGI does—but does not emphasize. Although
the main reason for emphasizing year-over-year changes
has been eliminated with INEGI’s now more sophisticated
approach to seasonal adjustment, it may still be useful
to calculate such changes. But to be meaningful, these
changes must be calculated from the seasonally adjusted
data. According to INEGI’s own seasonally adjusted
data, Mexico’s GDP grew 1.9 percent from second
quarter 2004 to second quarter 2005. INEGI’s reported
figure of 3.1 percent is biased upward because Easter’s
occurrence in second quarter 2004 depressed that period’s
output.
In spite of the stumbling block
placed before them, analysts are often able to make
sense of the situation. However, their reportage is
often awkward and confusing. In one example of many,
DismalScientist reports, “The Mexican
economy showed a rebound in the second quarter, positively
influenced by the Easter holiday.”[2] Note that
the terminology “in the second quarter”
is confusing. One might think DismalScientist
is referring to growth between the first and second
quarters, but that is not the case. It is referring
to INEGI’s reported growth of 2.4 percent from
first quarter 2004 to first quarter 2005, compared with
3.1 percent from second quarter 2004 to second quarter
2005. Such reportage is typical of articles about Mexican
GDP. In other contexts, reporters often use the expression
“in the quarter” to mean “during the
quarter,” a more appropriate usage.
According to INEGI’s seasonally
adjusted (and Easter-corrected) data, GDP declined by
0.42 percent from first to second quarter 2005. What
sort of “rebound” is this? Even the year-over-year
data show no rebound when corrected for Easter. The
year-over-year figures above for first- and second-quarter
growth (2.4 and 3.1 percent, respectively) become 3.7
and 1.9 percent, respectively. In other words, year-over-year
growth declined, primarily due to severe slowing in
the first quarter (0.18 percent) and an actual decline
of 0.42 percent in the second quarter.
How much clearer to report, simply,
“After averaging growth of about 1 percent per
quarter in 2004, GDP growth fell to 0.18 percent in
the first quarter of 2005 and GDP declined 0.42 percent
in the second quarter.” There is no need to mention
Easter at all.
—Franklin D. Berger
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Southwest Economy
Southwest Economy
is published six times annually by the Federal
Reserve Bank of Dallas. The views expressed
are those of the authors and should not
be attributed to the Federal Reserve Bank
of Dallas or the Federal Reserve System.
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