What is 'Seasonality'

Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal. Seasonal effects are different from cyclical effects, as seasonal cycles are contained within one calendar year, while cyclical effects, such as boosted sales due to low unemployment rates, can span time periods shorter or longer than one calendar year.

BREAKING DOWN 'Seasonality'

Seasonality refers to periodic fluctuations in certain business areas that occur regularly based on a particular season. A season may refer to a time period as denoted by the calendar seasons, such as summer or winter, as well as commercial seasons, such as the holiday season. Companies that understand the seasonality of their business can time inventories, staffing and other decisions to coincide with the expected seasonality of the associated activities.

It is important to consider the effects of seasonality when analyzing stocks from a fundamental point of view. A business that experiences higher sales in certain seasons appears to be making significant gains during peak seasons and significant losses during off-peak seasons. If this is not taken into consideration, an investor may choose to buy or sell securities based on the activity at hand without accounting for the seasonal change that subsequently occurs as part of the company’s seasonal business cycle.

Examples of Seasonality

Seasonality can be observed in a variety of predictable changes in costs or sales as it relates to the regular transition through the times of year. For example, if you live in a climate with cold winters and warm summers, your home's heating costs probably rise in the winter and fall in the summer. You reasonably expect the seasonality of your heating costs to recur every year. Similarly, a company that sells sunscreen and tanning products within the United States sees sales jump up in the summer but drop in the winter.

Temporary Workers

Large retailers, such as Wal-Mart, may hire temporary workers in response to the higher demands associated with the holiday season. In 2014, Wal-Mart anticipated hiring approximately 60,000 employees to help offset the increased activity expected in stores. This determination was made by examining traffic patterns from previous holiday seasons and using that information to extrapolate what may be expected in the coming season. Once the season is over, a number of the temporary employees will be released as they are no longer needed based on the post-season traffic expectations.

By observing the stock prices associated with Wal-Mart from July 2014 to July 2015, seasonality can be observed. While the adjusted close price in July 2014 was listed as $69.70, the price rose during the winter holiday season to $82.34 in December. This price declined after the holiday season, sitting at $69.87 in July 2015.

RELATED TERMS
  1. Seasoning

    Seasoning is the length of time a debt security has been publicly ...
  2. Seasonally Adjusted Annual Rate ...

    A rate adjustment used for economic or business data that attempts ...
  3. Seasonal Adjustment

    A statistical technique designed to even out periodic swings ...
  4. Seasonal Industry

    A subset of companies that earn the majority of their income ...
  5. Seasonal Credit

    Any type of credit arrangement that permits corporate borrowers ...
  6. Seasons

    The current stage of a proposed business idea or concept. Seasons ...
Related Articles
  1. Investing

    How Seasons Impact Real Estate Investments

    Here is how the seasons of the year impact the housing market.
  2. Small Business

    How Summer Businesses Survive

    Seasonal businesses face particular challenges. Find out how they survive through the cold months.
  3. Small Business

    How to Start a Seasonal Business

    Starting a seasonal small business isn't as hard as you think. With the right planning, you can have a successful business that operates seasonally.
  4. Investing

    Home Depot to Hire 80,000 Spring Seasonal Workers

    Home Depot (NYSE: HD) plans to hire more than 80,000 seasonal workers for its busy spring season, and has revamped its hiring process to make that happen. The changes to its online application ...
  5. Investing

    The Alphabet Soup Of Stocks

    Are the countless stock categories leaving you puzzled? Here we help you sort through the confusion.
  6. Investing

    Target Unveils Its 2017 Holiday Strategy

    Target (NYSE: TGT) is going to use this holiday season to show off some of its new house brands. The retail chain has been changing up its clothing, furniture, and housewares offerings to include ...
  7. Managing Wealth

    How to Use Earnings Season to Make Better Decisions

    Earnings season reflects the state of the stock market, but also demonstrates how the overall economy is performing.
  8. Retirement

    The Seasons Of An Investor's Life

    From a tentative spring to a comfortable winter, learn how to weather the phases of your investing journey.
  9. Investing

    Target Makes a Final Push for Holiday Shoppers

    The holiday shopping season appears on track to be successful for retailers overall, but the battle between individual chains and e-commerce sites has been intense. That competition got the most ...
  10. Insights

    Best Times To Go Shopping

    Whether you love it or hate it, we'll tell you when the best times are to go clothes shopping.
RELATED FAQS
  1. Is the banking sector subject to any seasonal trends?

    Explore the unexpected seasonal trends that can be discerned regarding the banking industry and the financial services sector ... Read Answer >>
  2. What seasonal trends exist in the metals and mining sector?

    Discover the seasonal tendencies that affect the metals and mining sector, especially gold prices as represented in both ... Read Answer >>
  3. When is earnings season?

    Earnings season is the period of time during which a large number of publicly traded companies release their quarterly earning ... Read Answer >>
  4. Is the retail sector also affected by seasonal factors?

    Find out how the retail industry is affected by seasonal patterns in consumer tastes, especially for companies that tailor ... Read Answer >>
  5. How important are seasonal trends in the automotive sector?

    Learn more about the automotive industry, including the strong seasonal sales trends for the industry and some of the major ... Read Answer >>
Hot Definitions
  1. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  6. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
Trading Center