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September 2010

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This article is in the news archives --- for current news go to the Third Branch News.


By the Numbers—Seasonality and Bankruptcy Filings

The total number of bankruptcy filings has steadily increased in the federal courts every year since 2007. But when the Administrative Office reports 149,319 filings in April 2010 and 9 percent fewer filings the following month, does this decline indicate an actual downward trend? To answer this question, first consider the seasonal nature of bankruptcy filings.

(click to enlarge)

Monthly Bankruptcy Filings, July 2008 - June 2010

Monthly Bankruptcy Filings, July 2008 - June 2010

Many economic phenomena exhibit seasonal behavior. For example, retail sales typically increase during the Christmas season and then decline afterward. The behavior of bankruptcy filings across time exhibits its own seasonal patterns. On a year-to-year basis, filings tend to be higher in March and April and lower in November, December, and January. Looking at bankruptcy filings on a month-to-month basis without taking into account the broader seasonal variation could lead to erroneous conclusions about the direction of bankruptcy filings in the federal courts.

The figure above depicts actual filings along with filings that have been adjusted to account for their seasonal characteristics. The adjusted counts reveal the trend. As the figure suggests, the overall trend has been increasing despite the April-to-May declines.

The adjusted counts were obtained through application of a seasonal adjustment program developed by the U.S. Department of the Commerce, Bureau of the Census. The program calculates the relative weight of each month (i.e., the degree to which each month regularly contributes to an annual total) based on historical monthly behavior and then adjusts each month’s count accordingly. With respect to bankruptcy filings, the March and April counts were adjusted downward, and the November, December, and January counts were adjusted upward.