Definition of the seasonally adjusted annual rate (SARA)
What is a seasonally adjusted annual rate (SAAR)?
A seasonally adjusted annual rate (SAAR) is a rate adjustment used for economic or business data, such as sales figures or employment figures, that attempts to remove seasonal variations from the data. Most data is affected by the time of year, and adjusting for seasonality means that more accurate relative comparisons can be made between different time periods.
Key points to remember
- A seasonally adjusted annual rate (SAAR) is a rate adjustment used in businesses to account for changes in data due to seasonal variations.
- By adjusting the data affected by seasons, more accurate comparisons can be made between different time periods.
- Using seasonally adjusted annual rates is useful for comparing business growth, price appreciation, sales, or any data that needs to be compared from one period to another.
Understanding a seasonally adjusted annual rate (SAAR)
A seasonally adjusted annual rate (SAAR) seeks to eliminate seasonal impacts on a business in order to better understand how essential aspects of a business behave throughout the year. For example, the ice cream industry tends to have a high level of seasonality as it sells more ice cream in summer than in winter, and using seasonally adjusted annual sales rates, summer sales can be compared. with precision to sales in winter. It is often used by automotive industry analysts to record car sales.
Seasonal adjustment is a statistical technique designed to equalize periodic fluctuations in statistics or movements in supply and demand associated with seasonal changes. Seasonal adjustments provide a clearer view of non-seasonal changes in data that would otherwise be overshadowed by seasonal differences.
Calculation of a seasonally adjusted annual rate (SAAR)
To calculate the SAAR, take the unadjusted monthly estimate, divide by its seasonality factor, and multiply by 12.
Analysts start with a full year of data and then find the average number for each month or quarter. The ratio of the actual number to the average determines the seasonal factor for that period.
Imagine that a business earns $ 144,000 in a year and $ 20,000 in June. Her average monthly income is $ 12,000, which makes the June seasonality factor as follows:
The following year, income in June climbed to $ 30,000. Divided by the seasonality factor, the result is $ 17,964, and multiplied by 12, that is $ 215,568 of SAAR; indicating growth. Alternatively, the SAAR can be calculated by taking the unadjusted quarterly estimate, dividing by its seasonality factor, and multiplying by four.
Seasonally adjusted annual rates (SAAR) and data comparisons
A seasonally adjusted annual rate (SARA) facilitates data comparisons in several ways. By adjusting the current month’s sales for seasonality, a business can calculate its current SAAR and compare it to the previous year’s sales to determine whether sales are increasing or decreasing.
Likewise, if a person wants to determine if property prices are increasing in their area, they can look at the median prices for the current month or quarter, adjust these numbers for seasonal variations, and convert them to SAAR which can be compared to numbers. for previous years. Without making these adjustments first, the analyst does not compare apples with apples and, therefore, cannot draw clear conclusions.
For example, houses tend to sell faster and at higher prices in summer than in winter. Therefore, if a person compares the selling prices of real estate in the summer to the median prices of the previous year, they may have the false impression that the prices are on the rise. However, if they adjust the initial data according to the season, they can see if the values ââare really going up or if they are just being increased momentarily by the warm weather.
Seasonally adjusted annual rates (SAAR) vs. unadjusted annual rates
While seasonally adjusted (SA) rates attempt to suppress differences between seasonally, unadjusted seasonally adjusted (NSA) rates do not take into account seasonal ebbs and flows. Regarding a set of information, the NSA data corresponds to the annual information rate, while the SA data corresponds to its SAAR.