FORECASTING

Seasonal Adjustment

Raquel E. Gabia
• A seasonal adjustment is a
statistical technique designed to
even out periodic swings in
statistics or movements in supply
and demand related to changing
seasons.
• Seasonal adjustments provide a
clearer view of non-seasonal
changes in data that would
otherwise be overshadowed by
the seasonal differences.
Fast Facts
• Provide a clearer view of non-
seasonal changes in data.
• It is intended to smooth out
aberrations in certain types of
financial activity.
• Made to obtain a clear picture
of the general trend.
• A seasonal factor is a
numerical value that is
multiplied by the normal
forecast to get a seasonally
adjusted forecast. One method
for developing a demand for
seasonal factors is to divide the
demand for each seasonal
period by total annual demand,
according to the following
formula:
 A forecast is never completely accurate
forecasts will always deviate from the actua
demand. This difference between the forecas
and the actual is the forecast error. Although
forecast error is inevitable, the objective o
forecasting is that it be as slight as possible. A
large degree of error may indicate that eithe
the forecasting technique is the wrong one or i
needs to be adjusted by changing its
parameters.
Different measures of forecast error.
1. mean absolute deviation (MAD),
2. mean absolute percent deviation (MAPD),
3. cumulative error,
• MAD
–Easy to compute
–Weights errors linearly
• MAPD
–Puts errors in perspective
 MAD and MAPD

 Actual  forecast
MAD =
n

( Dt  Ft
MAPD =
 Dt

3-8
CUMULATIVE ERROR Cumulative
error is computed simply by
summing the forecast errors, while
Average error is the per-period
average of cumulative error., as
shown in the following formula.
E= et
E =et
E = 49.31
n

= 49.32
Tracking signal: monitors the
forecast to see if it is biased high
or low.
A tracking signal indicates if th
forecast is consistently biased hig
or low. It is computed by dividing th
cumulative error by MAD, accordin
to the formula.

Tracking Signal = (Dt - Ft) = E

 9
9.61
3.35
45.16
93.9
0.04
14.9
136.89
17.56
35.28
9.92
375.97
Mean Squared Error (MSE): the average o
the squared forecast errors.
111111
2
 ( Dt  Ft)
MSE =
n

MSE = 357.97
11
MSE = 34.18