086. The Seasonal Component

A lot of business activity is influenced by changing seasons of the year. For example, sales of certain seasonal goods such as Honda snowmobiles, Jantzen swimwear, and Hallmark Valentine cards would likely display a strong seasonal component.

Seasonal fluctuations are (regular) movements in the time series that reoccur each year about the same time.

Figure 8.2 shows how each year the unemployment rate tends to go up in May when high school students enter the summer job market, and goes down in November when retail stores hire temporary help to handle the Christmas rush. Notice that no apparent trend exists in the unemployment rate.

Figure 8.2 – Seasonal Fluctuations in Unemployment

For seasonal fluctuations to be detected, the time period in which the data are reported must be less than one year. Since seasonal fluctuations occur within the year, annual data will not capture or reflect seasonal changes; quarterly, monthly, or weekly data are necessary.

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