A large automobile parts supplier keeps track of the demand

A large automobile parts supplier, keeps track of the demand for a particular part needed by its customers, automobile manufacturers. The time series plot below shows monthly demand for this part (in thousands) for a five year period. What is the dominant component in this time series?

Solution

The dominant component is seasnality. A seasonal index is a way of measuring the seasonal variation -- that is, to measure the change that is due to seasonal changes in demand -- of a variable, typically sales. For example, a beachfront hotel will have much higher occupancy in the summer than in the fall.