094. Cyclical Variation

Many businesses are affected by swings in the business cycle. When the economy in general turns up, their business activity may accelerate, while an economic downturn brings on a drop in business. Some industries often exhibit movements in the opposite direction of the cycle. The entertainment industry, for example, has been known to experience counter cyclical movements. Presumably, when economic conditions worsen, many people seek relief from harsh reality by escaping to the movies.

The cyclical component can be identified by first obtaining the trend and seasonal components as described earlier.

The statistical norm is then calculated by multiplying the trend projection by the seasonal index. This is called the Norm because it represents the values that would occur if only the trend and seasonal variations were present.

The cyclic and irregular components are obtained next by dividing the original data by the statistical norm, which contains T and S. That is, since T=T×S×C×L

The results are then multiplied by 100 to express the answer in percentage form. Note that if annual data are used, they will, by definition, contain no seasonal variations. The seasonal index would be unnecessary. The values of the time series would consist only of

Y=T×C×I.

The components CI could be found directly by dividing only by the trend values:

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