What is Seasonality?
Seasonality in a time series is a pattern that tends to repeat from year to year. As opposed to Cyclicality, which is usually of a shorter time period (weekly, monthly etc.), seasonality is mostly linked with seasonal changes and can be observed on a yearly basis.
Example of Seasonality:
One example is monthly sales data for a retailer. Because sales data varies typically according to the calendar, we might expect this month’s sales (x) to be related to last year’s same month (𝑥𝑡−12). Specific examples of seasonality relate to increases that occur at only certain times of the year. ϒ.
- For example, purchases of retail goods increase dramatically during Christmas. ϒ
- Similarly, gasoline sales generally increase when people take more vacations during the summer months.
Why is seasonality important?
Seasonality is a tool that can be used to examine stock prices and economic trends. Businesses can use seasonality to assist them in making decisions about inventory and staffing. Retail sales are an example of a seasonal metric, with higher expenditure often occurring in the fourth quarter of the calendar year.