The seasonality of the economy
|Topics:||🛒 Consumerism, Marketing, 💰 Capitalism, 🙋♂️ Management|
It is the duty of managers to determine how their businesses are faring, however this becomes hard due to the normal seasonal variations. For instance the Christmas season provides a great example where there is extensive shopping and spending. It occurs annually and usually has a huge impact on the profitability of many businesses. Many companies tend to look forward to such a season as they are likely to benefit from the economic boom that occurs during the period. It is based on this fact that many companies tend to position themselves favorably through marketing and advertisement to capture the consumer’s purchasing power. Music stores, hobbies and sporting goods have the largest impact from the Christmas season.
It is important to note that seasons have a huge impact on the employment statistics as more and more companies tend to hire temporary workers to aid in fulfilling the increase in demand. For instance a company such as Walmart every year it is forced to hire more workers in response to the growth in demand in the holiday season. In specific in 2014 the company had anticipated to hire approximately 60,000 temporary workers to offset for the increased activities during that holiday season. Based on such an example we can then define the seasonal component as the periodical sum of short term movements that have a length of less than a year. Additionally these seasons are a representation of intra year fluctuations that recur every year with respect to magnitude, timing and direction. Therefore based on this it is usually easy to forecast and estimate. Businesses that are in seasonal industry tend to make no or even very little money during the off season periods. Therefore it is paramount that they make as much money during this period to sustain the business during the off peak periods or lest they can be involved in other business activities to sustain their businesses.
There are very many factors that lead to seasonality. Some of these factors include institutions, climate, calendar and social practices and habits. Climates influence on the changing economic activities is caused by changing weather patterns such as the growth in electricity consumption in the cold seasons as the demand of air conditioners increases. In such a period it is expected that the heating costs would increase due to the demand. This is in line with the rules of supply and demand. When the demand is high the prices go up and when low the prices go down. Additionally the economic activities of farmers tend to be determine by weather as in the case rains fail to come in time then the agricultural sectors tends to be affected which has a ripple effect to the entire economy. Everyone knows of the months that are best for selling swimsuits, flowers and even snow blowers. Due to the fact many investors position their businesses to conform to the seasons, a disruption of the climatic seasons has a huge bearing on their businesses and ultimately affects the economy.
Seasonality can also be affected by institutional effects. They include statutory shutdowns, holidays and other industrial norms which disrupt the normal business calendar. For instance holidays such as Easter which are marked globally tend to disrupt businesses and therefore during these periods there are little economic activities taking place in certain sectors. The government plays a huge impact as it drives the occurrence of certain seasonal patterns. For instance there is always a frenzy year as every accountant labors to meet the tax filing deadline. This is a pattern that occurs every year as most people tend to do it in the last minute. That notwithstanding the school year also drives a lot of activities too as there is always a rush by parents and guardians to get new books and uniform for their kids during the opening of every school term or semester. Final reporting deadlines has an influence in driving unethical behavior as mutual funds tend to be involved in unethical acts such as window dressing whereby they try to make their stockholdings appear impressive so as to boost the December 31st deadline. There have been reports of companies pushing sales at end of every financial year or quarter end to provide a good indication that will be portrayed by the wall street journal. a normal year calendar runs from January to December but the fiscal calendar of many companies run from 1st April to 31st march so as to conform to the seasonality patterns and also address other accounting statutory requirements that they industries require. Some companies choose to stick to a different fiscal calendar as their revenues to expenses best match this period. For instance companies such as Target and Walmart uses the January 31st and not the December 31st deadline since the latter month is their most busy month and therefore they opt to close their books once the holiday season is over.
There tends to be confusion between seasonal patterns and cyclic patterns. As mentioned earlier seasonal patterns are well known before hand and they are fixed. Therefore seasonal patterns are at times referred to as periodic time series. However a cyclic patterns are periods where data exhibits falls and rises that doesn’t occur within a fixed period. Their duration periods of such fluctuations are usually two years. Therefore if the fluctuations in economical activities are not of a fixed and predetermined period then they can be termed as cyclic. Generally it is well known that the average cycle lengths are longer than the seasonal pattern lengths. That notwithstanding the magnitude of cycles is well known to be more variable when compared to the seasonal pattern magnitude.
It is important to note that seasonality also tends to affect the stock market. There is usually a pre-holiday effect on the stock prices in seasonal industries. The pre-holiday effect is characterized by a rise in the stock prices on the final day of trading that precedes the holiday. Based on bbb the market returns is expected to be 10 times more during those days that precede the holiday seasons. There is a general optimism that many investors during holiday periods and therefore most tend to stay out of the market on the days that precede the holidays. The effect is that there is lower liquidity in the market during these periods. Therefore it is important for investors to pay critical importance to the holiday periods before making an investment decision to invest in a company that is heavily affected by seasons. Failure to which they may end up losing their investments as the market every year tends to repeat certain seasonal trends.
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Offered for reference purposes only.