# Understanding Seasonality: Business and Economic Examples

![Seasonality: Predictable changes that occur over a one-year period in a business or economy based on the seasons.](https://www.investopedia.com/thmb/jRc5cQOi50unqQAMGI7YW7_093o=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Seasonality_final-376c4ee52b194c29b8e767caa23cf960.png)

*— Investopedia / Michela Buttignol*

## What Is Seasonality?

Seasonality is a recurring pattern in time series data that occurs every calendar year, affecting business activities and economic indicators. Unlike cyclical effects, which vary in duration, seasonality happens within the same fiscal year. By exploring how companies adjust inventories, staffing, and economic analyses based on expected seasonal changes, we see seasonality's significant role in financial planning.

### Key Takeaways

*   Seasonality refers to predictable changes in economic or business data that occur annually, influenced by calendar or commercial seasons.
*   Understanding seasonality allows businesses to strategically manage inventories, staffing, and other operational decisions to align with expected fluctuations.
*   Correcting for seasonality in financial and economic data provides more accurate comparisons and insights by adjusting for predictable patterns.
*   Seasonal industries often experience the bulk of their sales or operations during specific times of the year, affecting employment and market strategies.
*   Recognizing seasonal patterns is crucial for investors and economists to accurately interpret fluctuations in markets and trends.

## How Seasonality Impacts Business Decisions and Economic Analysis

Seasonality describes regular changes in business activities that happen in specific seasons. A season may refer to a calendar season such as summer or winter, or it may refer to a commercial season such as the holiday season.

Companies that understand their business seasonality can better time inventories and staffing, reducing costs and boosting revenue.

Considering seasonality is crucial when analyzing stocks because it impacts investor profits and portfolios. Businesses with seasonal sales may show big gains in peak seasons and losses in off-peak seasons. Without considering this, investors might trade securities based on current activity, ignoring seasonal changes.

[Tracking economic data](https://www.investopedia.com/articles/active-trading/072115/building-effective-watch-list.asp) also requires considering seasonality. Economic growth can be affected by different seasonal factors including the weather and the holidays. Economists can get a better picture of how an economy is moving when they adjust their analyses based on these factors. For example, roughly two-thirds of U.S. gross domestic product (GDP) is made up of consumer spending—which is a seasonal measure. Higher consumer spending leads to economic growth.

Conversely, reduced consumer spending can shrink the economy. Without accounting for seasonality, economists wouldn't see the economy's true movement.

> **Important**
>
> Seasonality also affects industries—called seasonal industries—which typically make most of their money during small, predictable parts of the calendar year.

## Real-World Examples of Seasonality in Action

There are many different instances where seasonality can be observed as it relates to the regular transition throughout times of the year.

For example, if you live in a climate with cold winters and warm summers, your heating costs likely rise in the winter and fall in the summer. You expect the seasonality of your heating costs to recur reasonably every year around the same time.

Similarly, a company that sells sunscreen and tanning products within the United States sees sales jump up in the summer as demand for their products increases. On the other hand, the company will likely see a significant drop in the winter.

Another area affected by seasonality is [retail sales](https://www.investopedia.com/articles/stocks/10/the-four-rs-of-retail.asp). Retail sales measure consumer spending and demand and are reported every month by the U.S. census bureau. Data fluctuates at certain times of the year, primarily during the holiday shopping season. This period falls into the fourth quarter of the year—between October and December. Many [retailers experience seasonal retail sales](https://www.investopedia.com/ask/answers/041715/how-important-are-seasonal-trends-automotive-sector.asp), seeing a big jump in consumer spending around the holiday season.

## Important Considerations for Businesses Affected by Seasonality

### How Seasonality Influences Temporary Workforce Decisions

Large retailers like Amazon hire temporary workers to meet holiday season demand. In 2018, Amazon planned to hire about 100,000 workers for the expected holiday activity.

Meanwhile, retailer Target said it would hire 120,000 for the same holiday period. Like others, these retailers used past holiday traffic to predict future demand. Once the season is over, many temporary employees are no longer needed based on the post-season traffic expectations.

### Techniques for Seasonally Adjusting Data

A lot of data is affected by the time of the year, and [adjusting for the seasonality](https://www.investopedia.com/terms/s/seasonal-adjustment.asp) means that more accurate relative comparisons can be drawn between different time periods. Adjusting data for seasonality evens out periodic swings in statistics or movements in [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) related to changing seasons. By using a tool known as [Seasonally Adjusted Annual Rate](https://www.investopedia.com/terms/s/saar.asp) (SAAR), seasonal variations in the data can be removed.

For example, homes tend to sell more quickly and at higher prices in the summer than in the winter. As a result, if a person compares summer real estate sales prices to median prices from the previous year, he may get a false impression that prices are rising. However, if he adjusts the initial data based on the season, he can see whether values are truly rising or just momentarily increasing by the warm weather.

## The Bottom Line

Seasonality, a predictable pattern of change within a single year, plays a crucial role in both business and economic analysis. Understanding these seasonal fluctuations can inform decisions on inventory, staffing, and investment strategies.

Businesses that align their operations with seasonal trends optimize costs and revenues, while investors gain insights into stock and economic movements. Companies and economists must adjust for seasonality to ensure accurate analysis and planning. By leveraging seasonal data, stakeholders can make informed choices that align with the cyclical nature of their industries.