Time-Series Modeling and Decomposition

Read this article. It provides an overview of techniques associated with decomposition. Part 4, The Business Cycle, presents how this tool is applied in business operations. Why do you think decomposition is useful in understanding seasonality costs?

SEASONALITY

Time series of sub-yearly observations, e.g. monthly, quarterly, weekly, are often affected by seasonal variations. The presence of such variations in socioeconomic activities has been recognized for a long time. Indeed seasonality usually accounts for most of the total variation within the year.

Seasonality is due to the fact that some months, quarters of the year are more important in terms of activity or level. For example, the level of unemployment is generally higher during the winter and spring months and lower in the other months. Yearly series cannot contain seasonality, because the component is specified to cancel out over 12 consecutive months or 4 consecutive quarters.