Monday, November 1, 2010

Seasonality and Pumpkin Futures

Homer Simpson: Yeah, that's right, Barney. This year, I invested in
pumpkins. They've been going up the whole month of October and I got a feeling they're going to peak right around January. Then, bang! That's when I'll cash in.

a few days later

Homer Simpson's Broker: Homer, you knuckle-beak, I told you a hundred times: you've got to sell your pumpkin futures before Hallowe'en! Before!

I don't know as much as I should about agricultural economics given I have a PhD in it, but I do know that pumpkin futures don't work that way.

But the pumpkin futures story shows the importance of seasonality. Just like the demand for pumpkins changes from October to November, the demand for all goods changes from month to month depending on the season. Unlike pumpkins, turkeys, and Christmas trees the demand for all goods in the economy doesn't change by huge amounts from month to month, but it is enough to make job losses into gains once the season is taken into account.

So economists make seasonal adjustments to price, unemployment, and GDP data so the numbers reflect that purchasing habits reflect the time of year.

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