February 12, 2019
- Core/Seasonal Beers. One malt meets six hops creating sensory overload in a can. This tropical IPA presents a citrusy scent backed by a balanced blend of tropical fruit and hops leaving your taste buds craving more. Smash at your own discretion.
- Seasonality, Cycles and Unit Roots - CORE Reader.
A winning meal is the key to getting great attendance and keeping kids coming to your site all summer long. While SFSP has its special challenges, in this hour our course, participants will explore exciting menu options for cold meals and hot meals. Since JtB is a purely mechanical strategy itself, we decided to back-test this new approach as far into the past as we could, which turned out to be the beginning of 1988 when the Vanguard Extended Market Index Fund (one of JtB's core holdings) was introduced. First, we had to decide which version of monthly seasonality to use.
Residual Seasonality in Core Consumer Price Inflation: An Update
Ekaterina Peneva and Nadia Sadée
Please note that the analysis below was completed before the Bureau of Labor Statistics published the updated CPI seasonal factors on February 11, 2019.
In July of 2018, the Bureau of Economic Analysis (BEA) released the results of its 15th comprehensive update of the National Income and Product Accounts (NIPAs). These periodic comprehensive updates allow the BEA to introduce various improvements to its measurement methodologies and one major initiative of the latest comprehensive update was an improvement of the seasonal adjustments in the NIPAs. In particular, the BEA extensively reviewed and made improvements to the seasonal adjustment of the gross domestic product (GDP) components.1 The BEA also produces the Personal Consumption Expenditure (PCE) price index and several recent studies on consumer price inflation note that we tend to see a pattern in which the pace of core (i.e. excluding food and energy) inflation slows down from the first to the second half of the year.2 The tendency for a time series to manifest a predictable seasonal pattern despite being seasonally adjusted is often referred to as 'residual seasonality.' While we are not aware of any explicit changes that the BEA has made to address residual seasonality in PCE prices during the 2018 comprehensive update, the BEA routinely updates their seasonal factors and procedures and has been seasonally adjusting more components of the PCE price index over time. For this reason, we take another look at residual seasonality in several measures of core inflation.
In this note, we use both real-time and current-vintage (i.e. the latest available historical data) for 2003-2017 to update and extend many of the results documented in Peneva (2014). In real time, inflation in the first half of the year has come in higher than in the second half of the year in 11 of the past 15 years when inflation is measured by the core consumer price index (CPI) and the core PCE price index (see real-time data panels in Figures 1 and 2). Market-based core PCE price inflation has been higher in the first half of the year in 12 of the past 15 years (see real-time data panel in Figure 3). In the current-vintage data, the pattern for core CPI changes noticeably, with just less than half the years showing inflation higher in the first half of the year (see current-vintage panel in Figure 1). For core PCE and market-based core PCE inflation, the pattern changes only slightly, with 10 of the past 15 years showing inflation higher in the first half of the year (see current-vintage panels in Figures 2 and 3). Given the changes the BEA has been making to the seasonal adjustment procedures, we think it is important to focus more on the revised historical data released during this year's comprehensive update. That said, we also think it is very important to monitor whether any improvements in the seasonal adjustment procedures translate into reduced residual seasonality in real-time data.
Table 1 shows the average deviations in the annualized three-month inflation rate from the inflation rate for the year as a whole for three price measures: the core CPI, the core PCE price index, and the core market-based PCE price index. The table covers the past 15 years and shows results based on both real-time and current-vintage data.3 (By construction, the deviations sum to zero in a given year and on average across the years.4)
Table 1: Average Difference Between the Annualized Three-Month Inflation Rate and the Inflation Rate for the Year as a Whole, 2003 to 2017 (Percentage Points)
| Core CPI | Core PCE | Core Market-based PCE | ||||
|---|---|---|---|---|---|---|
| Real-Time Data | Current Vintage | Real-Time Data | Current Vintage | Real-Time Data | Current Vintage | |
| Jan-Mar | 0.16 | 0.10 | 0.22 | 0.18 | 0.29* | 0.23* |
| Apr-Jun | 0.24 | -0.12 | 0.17 | 0.06 | 0.20 | 0.00 |
| Jul-Sep | -0.15 | 0.03 | -0.23* | -0.15* | -0.12 | -0.09 |
| Oct-Dec | -0.25 | -0.01 | -0.16 | -0.09 | -0.36* | -0.14 |
* Statistically significant at the 10 percent level. Return to text
Source: Authors' calculations using data for CPI from the Bureau of Labor Statistics and data for PCE from the Bureau of Economic Analysis.
Similar to Figure 1, the first two columns in Table 1 illustrate that the pattern of higher-than-average core CPI in the first half of the year visible in the real-time data largely disappears after the seasonal adjustment factors (SAF) are revised. All three-month changes show smaller absolute deviations from the year average but the effect of the SAF revisions is especially noticeable in April-June.
For core and market-based core PCE inflation, however, even in the current-vintage data there is some evidence of residual seasonality. On average, over the past 15 years core PCE and market-based core PCE inflation have been about 1/4 percentage point higher in the first half of the year than in the second (see current-vintage columns in Table 1). In real-time data, the difference is bigger--0.4 percentage point and 0.5 percentage point for core PCE inflation and market-based core PCE inflation, respectively. These results are mainly driven by higher-than-average three-month changes in the very beginning of the year though higher-than-average April-June inflation also contributes to higher inflation in the first half of the year in real-time data. Both the third and the fourth three-month changes of the year contribute to the lower-than-average second half of the year. Of the average deviations in the three-month changes in core PCE inflation, the only ones that are statistically different from zero (at the 10 percent level) are the three-month changes through September. As for market-based core PCE inflation, the average deviations in the three-month changes through March as well as the three-month changes through December in the real-time data are statistically different from zero.
For quarterly inflation rates--that is, the annualized percent change in the quarterly average price level--many of the differences in the three-month changes average out, and as a result, the evidence for residual seasonality is both economically and statistically less significant (see Table 2). The real-time data imply that the annualized rate of core CPI and core PCE inflation tends to pick up 1/4 percentage point between the fourth and the first quarter of the year. In the current-vintage data, the pick-up is much less notable for core PCE and there is no pick up in core CPI.
Table 2: Average Difference Between the Annualized Quarterly Inflation Rate and the Inflation Rate for the Year as a Whole, 2003 to 2017 (Percentage Points)
| Core CPI | Core PCE | Core Market-based PCE | ||||
|---|---|---|---|---|---|---|
| Real-Time Data | Current Vintage | Real-Time Data | Current Vintage | Real-Time Data | Current Vintage | |
| Q1 | 0.02 | 0.02 | 0.14 | 0.07 | 0.12 | 0.11 |
| Q2 | 0.17 | -0.08 | 0.08 | 0.08 | 0.11 | 0.00 |
| Q3 | 0.03 | 0.02 | -0.11 | -0.13 | 0.00 | -0.07 |
| Q4 | -0.22 | 0.04 | -0.11 | -0.02 | -0.23* | -0.03 |
* Statistically significant at the 10 percent level. Return to text
Source: Authors' calculations using data for CPI from the Bureau of Labor Statistics and data for PCE from the Bureau of Economic Analysis.
It remains difficult to tie the pattern in the three-month changes to particular subcomponents of the price indexes. Using current-vintage data, Table 3 decomposes the deviations of the three-month changes in the core PCE price index into the contributions of various sub aggregates. (These contributions are calculated using current PCE shares.) Within the market-based category, the contributions to the average deviation in the first three months of the year from goods and services are about 2/3 and 1/3, respectively, despite the much larger weight of services in consumption. Looking into more detailed categories, durable goods, non-durable goods, and medical services prices each contribute about 1/3 to the average deviation in the first three months of the year. Most of the contribution to above average goods price inflation in the first three months of the year is offset by lower-than-average contribution in the last three months. The non-market component of the core PCE price index explains half of the lower-than-average three-month change through September.
Table 3: Contributions to Deviations from Annual Core PCE Inflation
Current-Vintage Data, 2003 to 2017
| Jan-Mar | Apr-Jun | Jul-Sep | Oct-Dec | |
|---|---|---|---|---|
| Core PCE | 0.18 | 0.06 | -0.15 | -0.09 |
| Market-based core | 0.19 | 0.00 | -0.08 | -0.12 |
| Market-based core goods | 0.13 | 0.00 | -0.03 | -0.10 |
| Durable | 0.06 | 0.01 | -0.06 | 0.00 |
| Excluding motor vehicles | 0.07 | 0.00 | -0.05 | -0.02 |
| Nondurable | 0.07 | -0.01 | 0.03 | -0.10 |
| Apparel | 0.02 | -0.01 | 0.01 | -0.02 |
| Tobacco | 0.02 | 0.01 | -0.01 | -0.02 |
| Market-based core services | 0.07 | 0.01 | -0.05 | -0.03 |
| Housing | 0.00 | 0.00 | 0.00 | 0.00 |
| Accommodations | 0.00 | -0.01 | -0.01 | 0.01 |
| Medical | 0.05 | -0.02 | -0.03 | 0.00 |
| Food | 0.00 | 0.02 | 0.00 | -0.02 |
| Airfares | 0.00 | -0.01 | -0.01 | 0.02 |
| Other | 0.02 | 0.04 | -0.01 | -0.05 |
| Non-market based core | -0.01 | 0.05 | -0.07 | 0.03 |
Source: Authors' calculations using data from the Bureau of Economic Analysis.
Concluding Remarks
Table 4 compares the deviations in the three-month PCE inflation rates over the 15 years ending in 2017 right before and immediately following the 2018 comprehensive update. Similar to the pattern observed in the data before the comprehensive update, current-vintage inflation in the first half of the year exceeds, on average, inflation in the second half but the step down from the first to the second half of the year is now slightly smaller. Given that 15 years is a fairly short time span for this analysis, we are cautious in drawing strong conclusions. We understand that the patterns we observe might be merely the result of chance and idiosyncratic price movements in particular categories. That said, we continue to believe that keeping the observed pattern in mind is helpful when interpreting high-frequency consumer price data.
Table 4: Average Difference Between the Annualized Three-Month Inflation Rate and the Inflation Rate for the Year as a Whole, 2003 to 2017 (Percentage Points)
Before and After the Comprehensive Update
| Core PCE | Core Market-based PCE | |||
|---|---|---|---|---|
| After Comp Update | Before Comp Update | After Comp Update | Before Comp Update | |
| Jan-Mar | 0.18 | 0.19* | 0.23* | 0.27* |
| Apr-Jun | 0.06 | 0.11 | 0.00 | 0.02 |
| Jul-Sep | -0.15* | -0.10 | -0.09 | -0.08 |
| Oct-Dec | -0.09 | -0.19 | -0.14 | -0.21 |
* Statistically significant at the 10 percent level. Return to text
Source: Authors' calculations using data for CPI from the Bureau of Labor Statistics and data for PCE from the Bureau of Economic Analysis.
References
Cowan, Benjamin, Shelly Smith, and Sarahelen Thompson (2018). 'Seasonal Adjustment in the National Income and Product Accounts: Results from the 2018 Comprehensive Update,' Survey of Current Business 98 (August 2018).
Kelly, Pamela A., Stephanie H. McCulla, and David B. Wasshausen (2018). 'Improved Estimates of the National Income and Product Accounts: Results of the 2018 Comprehensive Update,' Survey of Current Business 98 (September 2018).
Macroeconomic Advisers (2007). 'Residual Seasonality in Core Consumer Price Measures,' Macroeconomic Advisers' Macro Focus (March 5, 2007, volume 2, number 3).
Macroeconomic Advisers (2011). 'To What Extent is Residual Seasonality Responsible for the Recent Upturn in Core Inflation?' Macroeconomic Advisers' Macro Focus (June 24, 2011, volume 6, number 7).
Peneva, Ekaterina (2014). 'Residual Seasonality in Core Consumer Price Inflation,' FEDS Notes, October 14, 2014. Board of Governors of the Federal Reserve System (U.S.).
Rudebusch, Glenn D., Daniel J. Wilson, and Benjamin Pyle (2015). 'Residual Seasonality and Monetary Policy,' FRBSF Economic Letter. Federal Reserve Bank of San Francisco. August 24, 2015.
1. For details, see Cowan, Smith, and Thompson (2018) and Kelly, McCulla, and Wasshausen (2018). Return to text
2. For example, see the Macro Focus articles by Macroeconomic Advisers (2007, 2011). For a more recent analysis, see Peneva (2014) and Rudebusch et al. (2015). Return to text
3. To obtain real-time CPI data for a given year, we used the published seasonally adjusted CPI estimates that were available in January of the following year. (Each year, the BLS recalculates the seasonal adjustment factors to reflect price movements from the just-completed calendar year and releases them along with the January CPI numbers in February; these routine calculations can result in revisions to the past five years' worth of seasonally adjusted CPI data.) The PCE price indexes are also revised every year, with revisions resulting from the incorporation of newly available and revised source data (including any revisions to the source data's seasonal factors) and from revisions to the weights used to compute the indexes. For the real-time PCE price data, we use the estimates that were available just prior to any annual or comprehensive revisions (these revisions typically take place in the summer). Return to text
4. An annual inflation rate in this memo is defined as the arithmetic average of the annualized inflation rates for the four three-month sub-periods and can therefore differ slightly from the December-over-December inflation rate. Return to text
Please cite this note as:Peneva, Ekaterina, and Nadia Sadée (2019). 'Residual Seasonality in Core Consumer Price Inflation: An Update,' FEDS Notes. Washington: Board of Governors of the Federal Reserve System, February 12, 2019, https://doi.org/10.17016/2380-7172.2318.
Disclaimer: FEDS Notes are articles in which Board staff offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers and IFDP papers.
Back to TopWhen you can’t figure out why your sales have surged in one month and plummeted in another, it’s easy to shrug your shoulders and mark it up to “seasonality.”
Seasonality refers to fluctuations in your sales revenue that are caused by external factors and occur on a predictable schedule around the same time(s) every year.
To be fair, you can’t really control seasonal shifts in consumer behavior, especially when those shifts are permanently tied to the holiday schedule or growing seasons.
Still, if you lead a sales team, you have a responsibility to figure out the root causes of your own company’s seasonality so you can capitalize on your strong cycles and survive your slow periods.
We asked eight sales professionals what “seasonality” means in their business, and how they manage the ups and downs. Plus: Three quick tips on how to get a better understanding of your own seasonal sales trends.
What causes sales seasonality?
Reason #1: A surge of interest at the end of the calendar year.
In some industries, buyers become especially motivated as the calendar year comes to a close. “In real estate investing, the busy period is the end of the year when people want to sell a house before the new year due to tax reasons,” says Corey Chappell, Closing Options Analyst for 181-Close-Now. “Investors buy houses at the end of the year, and when summer rolls around they turn around and resell.”
The key to thriving in a seasonal business like real estate investment is knowing what to do in between your busy seasons. “Having a down-season game plan is absolutely essential,” Chappell told Nutshell. “Maybe it’s focusing on referrals, killer content, or simply growing your brand awareness. These activities lead to more success during your busy season, and they also help set you apart from your competition.”
Just as a homeowner might want to sell their house before the year’s end to assist with tax issues or avoid upcoming tax law changes, health care consumers are more likely to buy at the end of the year in order to take advantage of their insurance benefits.
“When I owned and operated a medical device business, November and December were our busiest months due to insurance periods ending,” says Albert Ho, Founder of Healthcare Heroes. “Patients would want to ensure that they used up all of their benefits before the end of the year, so they’d buy one or two CPAP masks or a new CPAP machine. To prepare for this busy period I would ensure that we had adequate stock of masks and devices ordered by October. I would also ensure that we were fully staffed for the last two months of the year and minimize [my employees’] vacation time if possible.”
Knowing that the summer months were slower due to people being on vacation, Ho says his team would be extra vigilant about confirming appointments in July and August. “We would make sure to remind patients three days prior to their visit, which really helped to reduce missed and no-show appointments,” Ho says. “Slow periods were also good for training new staff as well as other business functions like renovating the office and decluttering.”
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GET THE GUIDEReason #2: The weather affecting demand of your product/service.
You don’t need to be a fruit grower or resort operator to be affected by the changing seasons. If you’re a B2B company that serves other seasonal businesses, then your sales will naturally follow seasonal patterns as well.
“My company provides digital marketing and people management solutions to small businesses in pest control and lawn care, and because our client base has such a specific seasonality, we have a very specific seasonality,” says Laura Simis, Branding and Communications Manager for Coalmarch.
“All our clients are impacted heavily by seasonality and by weather, so they’re at their busiest in spring and summer.” Simis explains. “Lawn care in particular works on a schedule, so if they’re not getting new customers in March and April and beginning service, they’ve got to work even harder the rest of the year to make up for the revenue they didn’t capture then.”
Simis’s company forecasts their sales goals for the year based around this seasonality, with revenue goals, recurring revenue, and historical performance to predict what interest levels will be throughout the year. And she’s learned a few important lessons from serving a seasonal customer base.
“A productive peak season doesn’t come without careful planning and preparation,” Simis says. “During late spring and summer, when clients are bogged down with making sure their season is going well, we spend a lot of time preparing for our busiest season in the fall. So, our team takes advantage of slower times of the year by getting input from our clients and making adjustments to the marketing strategy accordingly.”
“We’ve also gotten a lot better at understanding how our solutions align with specific concerns that our clients might have throughout the year. For example, the beginning of the year is the best time to sell a website project that we can complete before the busy season kicks in. The middle of the busy season is when clients start struggling to keep up with production, and if they need to hire or have to replace an employee, that’s the best time for us to promote our people management software to help them hire and train new people.”
Reason #3: A summer slowdown due to traveling customers or the school calendar
The long, hot stretch of the summer months can bring a painful drought for many sales teams. Buyers become harder to reach and sales cycles start getting longer because potential customers are off vacationing.
As the CTO of a coupon distributor called PromotionCode.org, Mike Catania has seen his company’s revenue consistently dip during the summer. “The most significant cause is that younger people use coupons at a higher rate, and during the summer there are fewer of them in school so we lose many regular customers and parents who are busy managing their lives,” Catania says.
The silver lining to this kind of seasonality is the high degree of predictability. “A decade in, we’re attuned to the rhythm of seasonality and use it to our advantage,” Catania says. “But it did take a few years to work out the cadence of it where we didn’t panic for the three months of the slow season. By June 10th, we see sales plummet, and by July 15th we’re in the heart of the summer doldrums. Come the last week of August, things pick back up, and we buckle down for the onslaught of the retail season.”
“With much of Europe taking an extended vacation over the summer, it can be a very difficult time for B2B sales professionals” adds iPresent Sales Manager Josh Dhaliwal. In order to win more deals in the slow months, Dhaliwal suggests the following:
- Follow up with your leads: Could you be making more of what you already have with better communication and more personalized lead nurturing?
- Work on your personal brand: Take some time to build your presence on social media platforms such as LinkedIn. Engage in group discussions, interact with your customers’ and prospects’ posts, and develop some thought-leadership content.
- Do an audit of your messaging: Are your communications working as well as they should? Make sure you’re speaking like a human talking to another human, keep your messages customer-centric and tailor them where you can. A/B testing your email subject lines and CTAs could help you find a stronger message.
- Invest in video:Video CTAs get 95% better recall than written ones. Use them in email, on social media, and on your website.
- Spend time on your existing customers: Do something to let them know you’re thinking of them, whether that’s wishing them happy holidays or sharing helpful resources with them.
Reason #4: Holiday spending sprees
For retail businesses, a strong holiday season can make or break your entire year. But not everyone defines the “holiday season” the same way.
“The busiest time for us is the roughly six-week period of Thanksgiving and Christmas,” says Nicole Van Lun, Founder & Creative Director of small-batch artisan skincare company Bubbles and Butter. “However, we begin preparing for the holiday sales season in May/June. This is when we’re communicating with our retail partners on any limited holiday collections and reminding them of our holiday promotions.”
“During the slow season, we strategize on which collections we’ll keep, discontinue, or launch for a special promotional period,” Van Lun says. “We’re also stockpiling inventory for the busy period, and fine-tuning our systems (operations, marketing, fulfillment, etc.) so that we’re a well-oiled machine during the busy season.”
“One way to handle seasonality is to diversify your product offerings,” advises Allen Kaplun, Managing Director of GreenDropShip.com, a B2B supplier of natural, organic, and specialty grocery and body care products. “Our busy season starts a few weeks before Thanksgiving and lasts through Easter, when we experience a healthy flow of orders for baking ingredients and holiday-themed products.
“If that’s all we sold, we would experience a sharp decrease in spring. However, we experience a sharp rise in the order of meltables such as chocolates in May through October,” Kaplun says. “Few other eCommerce retailers are in a position to ship chocolate during the summer. During the back-to-school season we also experience an increase in supplement sales. So, diversification is really key to keep a steady stream of revenue.”
5. Recurring peaks at the end of the month or end of the quarter.
For some B2B businesses like financial services, the peaks and valleys can come a lot more frequently than once a year. “When it comes to finances and loans, the later part of the month and the quarter are when we see the highest peaks,” says Jared Weitz, CEO and Founder of United Capital Source Inc. “Many people look to refinance a mortgage at the close of a month especially in March, June, and September.”
If your team is faced with the stress of frequent busy cycles, it can help to focus the slow periods on employee engagement and culture. “View your slow season as an opportunity to give back to your team and show appreciation for their efforts,” Weitz says. “Enjoy an afternoon away from the office participating in a fun activity or host a meeting to create new goals and projects. You can also use the slow season as a time to evaluate what has been working in your company and what hasn’t, and implement changes that will set your company up for more success when the busy season picks up.”
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GET THE GUIDEHow to figure out your sales seasonality in three quick steps
1) Chart your sales data for at least the past three years.
Are there peaks and troughs that occur around the same times each year? How long do they last? Is your best month and worst month always the same?
Most likely, you already have a general sense of your company’s seasonal sales trends. But actually looking at your past years’ sales reports all at once can help you better define your high/low seasons, and might reveal some seasonal patterns that you hadn’t noticed before.
2) Create a seasonal adjustment of your sales data.
The overall growth trend of your business will make your seasonal trends a little harder to quantify. After all, if your sales are growing steadily, then your December sales would be higher than the previous January’s as a result of your overall growth trend.
What you have to do is identify how large your seasonal swings are, relative to your current year’s performance. We highly recommend reading economist Bill Conerly’s simple breakdown of how to seasonally adjust your sales data in order to create an up-to-date snapshot of seasonal impact, and see whether or not your monthly revenue totals are landing above expectations.
3) Make sure you understand all the reasons why your peaks and valleys occur.
Seasonality can be a self-fulfilling prophecy. If you know that your sales are going to dip in the spring no matter what you do, you might be tempted to pull your foot off the gas when March rolls around.
So ask yourself: Are you really putting the same effort into prospecting during your slow season as you are during your busy season? Do you have a marketing budget at the beginning of the year that is nearly tapped out by the end of the fall? Do you always keep the same number of sales reps on your team? When do those reps tend to go on vacation?
Seasonality Corey
In other words, make sure that you’re not just looking at buyer behavior when analyzing seasonal trends. Your team’s behavior can be driving those trends in ways you might not have even considered.
Seasonality Cores
How does seasonality affect your business, and how do you take advantage of it? Tweet us your thoughts @nutshell, or join the Sell to Win private Facebook group and chip in your two cents there!