Jan 19, 2012
"Seasonally adjusted" and "annual rate" — what they mean
19 Jan 2012
Posted by Andrew Kantor
I realize that many people understand what phrases like “such-and-such was at a seasonally adjusted annual rate of of 657,000″ mean in the real world, but I wasn’t one of them. So at the risk of sounding like a fool, I figured I’d explain it, just in case there are others whose eyes gloss over.
A piece about housing starts begins like this: Privately-owned housing starts in December were at a seasonally adjusted annual rate of 657,000.
What that doesn’t mean: “Construction on about 657,000 homes was begun in December.”
What it does mean: “If every month of the year was like December, about 657,000 homes would be started that year.”
In other words, it’s extrapolating — what if every month was like this? — and adjusting for typical seasonal changes (e.g., up in the spring, down in winter).
A violinist plays in the subway every day, and people toss money into his case. At the end of each day he counts his coins and says, “If every day was like today — and considering I don’t work weekends — I would take in $500 a month.”
The next day people might be more generous and he’d say, “If every day was like today — and considering I don’t work weekends — I would take in $1,200 a month.”
That doesn’t mean he’ll take in $500 or $1,200 that month. It’s just a useful way of looking at a small piece of data: What if every day (or month) was like this one?