A closer look at the seasonality effect
While mangoes are available all year round, we know that different parts of the world have their mango season. You know that if there are mangoes on the market, they are either imported, canned, preserved, or out of season. Since we are talking about seasons, one of the most popular ones that people celebrate worldwide includes Christmas. Seasonality is a characteristic that a time frame has where data shows that you can expect or predict a change regularly in a calendar year. It is just like the case of Christmas. If we say holiday season, we would automatically know that it falls on the latter part of December, close to New Year's Eve. Did you know that we also have this in the world of finances, business, and investments?
What is seasonality?
A pattern or change that you can expect or predict in a calendar year is called seasonal. While it has some similarities with cyclical effects, it is an entirely different thing. Seasonal cycles happen in one calendar year. On the other hand, cyclical effects may be shorter or longer than a whole calendar year. Some more specific example of seasons includes summer and winter. The holiday season is also called the commercial season for businesses.
The seasonality effect
Seasonality impacts the customers and the way they spend. Hence, companies should know how seasonality affects their business because they can predict many important things if they do. For example, they will have a great idea about timing inventories, staffing, and many more activities relative to seasonality. Hence, they generate more revenue if they can cut unnecessary costs.
Seasonality is also crucial when it comes to stocks and investments. Why? Considering it, especially from a fundamental point of view, will significantly improve an investor's profitability and portfolio. It should be taken seriously. While there may be significant gains on a peak season, there may also be substantial losses on an off-peak season.
Did you know that seasonality also plays a significant role in tracking economic data? Seasons do not happen all year long. Hence, companies need to adjust their analyses like the quarter-on-quarter to get more accurate data. Seasons like weather and holidays affect economic growth. In fact, two-thirds, give or take, is a fraction that can represent how much consumer spending in the US contribute to the GDP. More spending, which is a seasonal measure, means more growth for the economy. So if we neglect seasonality, it would also mean that we will not have an accurate or even a close figure to what is really happening in the economy.
For additional information, there are entities out there called seasonal industries. They take advantage of seasonality to make money.
Let us cite examples.
Even as a consumer, you will notice the effects of seasonality. Let us say that it is summer. Bikinis and swimwear become more expensive because they are more in demand during summer. When winter comes, they become cheaper, and the ones that become expensive during that time will be the jackets, coats, and sweatshirts because they are in demand. The same is true for bookstores. As soon as the school starts to open, their sales would be more because many students will need their school supplies. Hence, this is also a great time to raise prices.
A recap
Seasonality refers to the
expected changes that happen yearly. It helps businesses and the economy as
they help analyze stocks and economic trends. The most common example of a seasonal
measure is relative to retailing. People spend more on the final quarter of the
year.
