What is seasonality?

Seasonality: When a time series exhibits regular, predictable changes that repeat yearly, it is said to be seasonal. Seasonal refers to any regular variation or trend that happens again or recurs throughout the year.

While cyclical effects, such as increased sales due to low unemployment rates, may span periods shorter or longer than one calendar year, seasonal impacts are distinct from cyclical effects in that seasonal cycles are seen within a single calendar year.

Understanding Seasonality

Seasonality describes recurring cycles depending on a particular season and periodic swings in specific economic segments. A season may relate to a commercial season, like the Christmas season, or it can refer to a calendar season, like summer or winter.

Businesses aware of their seasonality may plan and schedule personnel, inventory, and other choices to align with the anticipated seasonality of the related activities. This lowers costs and boosts income.

When examining equities from a fundamental perspective, it is crucial to consider seasonality since it may significantly affect an investor’s portfolio and earnings. It may seem that a company with more robust sales during certain seasons makes large profits during those times and significant losses during off-peak times. Investors may decide to purchase or sell assets based on the current activity without considering the seasonal shift that will eventually occur as part of the company’s seasonal business cycle.

When monitoring specific economic statistics, seasonality should also be taken into account. The weather and the holidays are two examples of seasonal elements that might impact economic development. By modifying their studies according to these variables, economists may get a more accurate picture of an economy’s direction. For instance, consumer expenditure accounts for around two-thirds of the GDP (gross domestic product) in the United States; this is a seasonal metric. The economy expands in proportion to consumer spending.

On the other hand, the economy will contract if people tighten their purse strings. Economists could only discern the economy’s real direction if seasonality were addressed. Addressedonality also impacts sectors of the economy known as seasonal industries, which often generate most of their revenue during brief, predictable periods of the year.

Seasonality Examples

Seasonality is the regular transition that occurs at various periods of the year and may be seen in various situations.

For instance, your heating bills will go up in the winter and down in the summer if you reside in a region with frigid winters and mild summers. You anticipate that your heating expenses will fairly reoccur at around the same time each year due to seasonality.

Similarly, a US-based firm that offers tanning and sunscreen products experiences a spike in revenue throughout the summer due to increased consumer demand. However, the winter months will likely cause a sharp decline for the business.

Another industry that is subject to seasonality is retail sales. The United States Census Bureau releases monthly retail sales reports, measuring demand and consumer spending. Specific periods of the year, especially around the Christmas shopping season, see fluctuations in the data. This time frame is within the year’s fourth quarter, from October to December. Many shops experience seasonal retail sales, and they observe a significant increase in customer spending over the Christmas season.

Particular Points to Remember

Workers who are temporary and seasonal

Big retailers—including the e-commerce behemoth Amazon—may bring on temporary staff to handle the spike in demand for their products that comes with the holidays. The business said in 2018 that it would bring on over 100,000 more workers to counter the anticipated increase in shop traffic.

Target, a store, said that it would recruit 120,000 people for the same Christmas season. Like most stores, these choices were determined by past Christmas season traffic trends and extrapolating potential expectations for the next season. Based on the post-season traffic projections, many temporary workers are no longer required once the season ends.

Taking Seasonality Into Account

The time of year impacts various data; therefore, accounting for seasonality allows for more precise relative comparisons across various periods. Seasonality-adjusted data balances out sporadic fluctuations in statistics or shifts in supply and demand associated with seasonal variations. The Seasonally Adjusted Annual Rate (SAAR) tool may be used to eliminate seasonal fluctuations in the data.

For instance, summertime is when residences tend to sell faster and for more money than wintertime. Because of this, one may mistakenly believe prices are increasing if they compare summer real estate sales prices to the median prices from the prior year. He can determine if numbers are growing or just temporarily rising due to the warm weather; however, if he modifies the original data according to the season,.

Conclusion

• Seasonality is the term used to describe the predictable variations in a company or economy over a year that depend on the calendar or commercial seasons.
• Stocks and economic movements may be analyzed with the aid of seasonality.
• Seasonality is a valuable tool for businesses to consider when making choices about labor and inventory.
• Retail sales are one instance of a seasonal metric; they usually see more spending in the fourth quarter of the year.