The U.S. Census Bureau publishes data on factory orders for all manufacturing, d

Question

The U.S. Census Bureau publishes data on factory orders for all manufacturing, durable goods, and nondurable goods industries. Shown here are factory orders in the United States over a 13-year period ($ billion). First, use the data to develop forecasts for years 6 through 13 using a 5-year moving average. Then, use the data to develop forecasts for years 6 through 13 using a 5-year weighted moving average. Weight the most recent year by 6, the previous year by 4, the year before that by 2, and the other years by 1. Answer the following questions: a) What is the forecast for year 13 based on the 5-year moving average?

b) What is the forecast for year 13 based on the 5-year weighted moving average?

c) What is the MAD for the moving average forecast?

d) What is the MAD for the weighted moving average forecast?

e) Which forecasting model is better?

Year   Factory orders

1          2,512.70

2          2,739.20

3          2,874.90

4         2,934.10

5          2,865.70

6          2,978.50

7         3,092.40

8         3,052.60

9         3,145.20

10        3,114.10

11        3,257.40

12       3,654.00

13

Explanation / Answer

a) for 5 year moving average:

therefore frecast for 13th period =3244.66

b) for 5-year weighted moving average

forecast for year 13 based on the 5-year weighted moving average =3384.26

c)from above part a) MAD for the moving average forecast =208.69

d) from above part b) MAD for the weighted moving average forecast =162.56

e) as MAD is lower for the weighted moving average forecast. therefore weighted moving average forecast is better.

Year actual(A) forecast(F) |A-F| 1 2,512.70 2 2,739.20 3 2,874.90 4 2,934.10 5 2,865.70 6 2,978.50 2,785.32 193.18 7 3,092.40 2,878.48 213.92 8 3,052.60 2,949.12 103.48 9 3,145.20 2,984.66 160.54 10 3,114.10 3,026.88 87.22 11 3,257.40 3,076.56 180.84 12 3,654.00 3,132.34 521.66 13 3,244.66 Total 1460.84 mean 208.69

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