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Feature Article - Introduction of Concurrent Seasonal Adjustment
Figure 2: Average Revision on level of seasonally adjusted estimates Housing Finance by Banks for Construction - Number
Figure 3: Average Revision on level of seasonally adjusted estimates Housing Finance for All Lenders for Refinancing - Number
Simulations were conducted for selected components of Housing Finance, comparing the initial seasonally adjusted estimates to their 'final' seasonally adjusted estimate. The results of these simulations are shown in Table 1 below, and summarise the improvements highlighted in the charts above. The average percentage revision between the initial and final seasonally adjusted estimates, under both concurrent and forward factor methods are given in columns 2 and 3 respectively. Column 4 shows that the concurrent method produces seasonally adjusted estimates that are between 17.7% to 18.1% closer to the final estimate.
Table 1. Average revision of the initial seasonally adjusted estimates compared for concurrent adjustment and forward factor method
IMPLICATIONS OF CHANGING METHODOLOGY TO CONCURRENT ADJUSTMENT
While the simulation analysis above provides evidence of the benefits of introducing concurrent adjustment for the Housing Finance series, there are a number of issues that will impact on users of this series.
The estimates of combined seasonal adjustment factors are currently only amended once a year, in the October reference month following the annual seasonal reanalysis. Concurrent adjustment could result in the combined seasonal adjustment factors and the seasonally adjusted estimates being revised each month rather than only once a year.
It will still be necessary to undertake an annual seasonal reanalysis of the Housing Finance series. The annual reanalysis for the concurrent method is used to review details of seasonally adjusted methods used, examine time series for outliers or unusual data, changing seasonality and structural breaks. It is possible that some issues will only gradually emerge over a number of months and may not be as obvious when the focus is on concurrent adjustment. The annual seasonal reanalysis should therefore not result in significant revisions to combined seasonal adjustment factors, as combined seasonal adjustment factors and therefore seasonally adjusted estimates will be revised each month as a result of concurrent adjustment.
Provision of Forward Factors
The ABS currently provides forward factors to ABS clients wishing to undertake their own seasonal adjustment and trend process. Since the concurrent adjustment process will revise seasonal factors at each period, forward factors will no longer be required in the seasonal adjustment process undertaken by the ABS. The concurrent adjustment process will produce forward factors for the forthcoming year, but these will be revised each month after a concurrent adjustment takes place. Forward factors will be available to ABS clients. Clients who require annual forward factors from the ABS should contact Darren Page on Canberra 02 6252 6731 or by email at <firstname.lastname@example.org>.
A sensitivity analysis is presented in page 18 of the 5609.0 publication that looks at how the trend estimates of recent months would be revised if the next month's seasonally adjusted estimates move by a specified amount. This ‘What if?’ sensitivity analysis assumes there will be will be no change to the combined seasonal adjustment factors or the seasonally adjusted series. If there are other revisions affecting the trend data, such as the revision of previous original estimates or of seasonally adjusted estimates under concurrent adjustment, the outcome will be different from that shown by the sensitivity analysis. Typically, since the movement in next month's seasonally adjusted estimate will have a far greater impact than the revision to other months' estimates as part of concurrent adjustment, the results of this analysis still provide a reasonable indication of trend revision behaviour. This analysis will continue to be published under concurrent adjustment.
The ABS is in the process of introducing concurrent adjustment for all seasonally adjusted indicators. The ABS has also demonstrated the advantages of concurrent seasonal adjustment methodology and implemented this method on several main ABS economic indicators such as the monthly Retail Trade (cat. no. 8501.0), the quarterly Business Indicators (cat. no. 5676.0), the monthly Building Approvals (cat. no. 8731.0) and the quarterly Building Activity (cat. no. 8752.0). Users' responses to these changes have been positive.
For further information on concurrent adjustment, please contact the Assistant Director, Time Series Analysis on Canberra 02 6252 6345 or by email at email@example.com.
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