What Is a Seasonally Adjusted Annual Rate (SAAR)?

What Is a Seasonally Adjusted Annual Rate (SAAR)?

Let me explain what a seasonally adjusted annual rate, or SAAR, really is. It's a way to adjust economic or business data, like sales or employment numbers, to strip out the effects of seasonal changes. You know how most data gets influenced by the time of year? By making this adjustment, you can draw more accurate comparisons between different periods.

Key Takeaways

Here's what you need to remember about SAAR. It's an adjustment used in business to handle changes in data caused by seasons. When you adjust data affected by these seasonal shifts, you get better comparisons across time periods. Using SAAR is especially helpful for looking at business growth, price changes, sales, or any data you need to compare from one period to another.

Understanding a Seasonally Adjusted Annual Rate (SAAR)

I want you to understand that SAAR aims to eliminate seasonal impacts on a business so you can see how the core parts perform year-round. Take the ice cream industry, for instance—it has huge seasonality because more ice cream sells in summer than winter. With SAAR, you can compare summer sales accurately to winter ones. Analysts often use it in the auto industry for car sales too.

Seasonal adjustment is a statistical method that smooths out those periodic swings in stats or supply and demand tied to seasons. It gives you a clearer picture of non-seasonal changes that might otherwise get hidden by seasonal differences.

Calculating a Seasonally Adjusted Annual Rate (SAAR)

To calculate SAAR, you take the unadjusted monthly estimate, divide it by its seasonality factor, and multiply by 12. Analysts begin with a full year of data, then average each month or quarter. The ratio of the actual number to that average gives the seasonal factor for the period.

Suppose a business earns $144,000 over a year and $20,000 in June. The average monthly revenue is $12,000, so June's seasonality factor is $20,000 divided by $12,000, which equals 1.67. The next year, if June revenue hits $30,000, divide by 1.67 to get $17,964, then multiply by 12 for a SAAR of $215,568, showing growth. You can also do this quarterly: take the unadjusted quarterly estimate, divide by the factor, and multiply by four.

Seasonally Adjusted Annual Rates (SAARs) and Data Comparisons

SAAR helps with data comparisons in several ways. By adjusting current month's sales for seasonality, you can figure out the current SAAR and compare it to last year's to see if sales are up or down.

If you're checking if real estate prices are rising in your area, look at median prices for the current month or quarter, adjust for seasons, and turn them into SAARs for comparison to previous years. Without these adjustments, you're not comparing like with like, so your conclusions won't be clear.

For example, homes sell faster and at higher prices in summer than winter. If you compare summer prices to last year's median without adjusting, you might think prices are rising falsely. But with seasonal adjustments, you see if values are actually increasing or just boosted by the weather.

Seasonally Adjusted Annual Rates (SAARs) vs. Non-Seasonally Adjusted Annual Rates

While seasonally adjusted rates try to remove differences from seasonal variations, non-seasonally adjusted rates don't account for those ebbs and flows. For any set of data, NSA corresponds to the raw annual rate, whereas SA matches up with the SAAR.