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 below 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) and (b) We paste the data in Excel and calculate the 5 year moving average and 5 year weighted moving average. We also calculate the resulting error terms, which are to be used to calculate the MADs for the two moving average methods.
The table containing the above stated components is given below.

(c) The MAD from the 5 year MA forecast has come out to be 135.24.
(d) The MAD from the 5 year weighted MA forecast has come out to be 77.42.
(e) The 5 year weighted MA forecasting model is better since it has a lower MAD value.

Year Factory Orders Forecast (5 year MA) Forecast (5 year weighted MA) Errors (5 year MA) Errors (5 year weighted MA) 1 2,512.70 - - - - 2 2,739.20 - - - - 3 2,874.90 - - - - 4 2,934.10 - - - - 5 2,865.70 2,785.32 2852.307 80.38 13.39 6 2,978.50 2,878.48 2915.436 100.02 63.06 7 3,092.40 2,949.12 3000.629 143.28 91.77 8 3,052.60 2,984.66 3031.571 67.94 21.03 9 3,145.20 3,026.88 3079.329 118.32 65.87 10 3,114.10 3,076.56 3102.964 37.54 11.14 11 3,257.40 3,132.34 3174.014 125.06 83.39 12 3,654.00 3,244.66 3384.257 409.34 269.74 13 - 3,292.68 1956.436 - -

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