Track 12 · Time Series and Forecasting · Lesson 2 of 11
Trend, seasonality and cycles
Identify the trend, seasonal, cyclical and irregular components of a series and decide whether seasonality is additive or multiplicative.
30 minAdvanced7 graded exercisesMembers
Backpack orders jump to more than three times their usual level every August. A buyer who mistakes that seasonal surge for growth will over-order in September; a buyer who ignores it will run out in August. Naming the components of a series is the first step of every forecast.
Most business series can be described as a combination of four components:
- Trend: the long-run direction (growth, decline or a change of level).
- Seasonality: a pattern that repeats with a fixed, known period tied to the calendar — months of the year, days of the week, hours of the day.
- Cycle: rises and falls that are not of fixed length, typically lasting several years (business or construction cycles). They are often merged with the trend as the trend-cycle.
- Irregular (noise): what is left — unpredictable, short-lived variation.
Included with a Formula Quest membership
It has 7 graded exercises with feedback, hints and worked solutions. After it you will be able to:
- Name the trend, seasonal, cyclical and irregular components of a series
- Tell a fixed-period season from a cycle and from a structural break
- Compute a crude seasonal index and an average annual growth rate
- Choose between additive and multiplicative seasonality from the size of the swings