ITR Experts Say Internal Forecasting

The Limitations of Logic

By ITR Economics on April 19, 2022

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ITR Economics is the oldest, privately-held, continuously operating, economic research and consulting firm in the US.

We all make assumptions every day, and they make logical sense to us at the time. But relying solely on such assumptions – and neglecting to test your hypothesis – can lead you to misread a market, or worse.

Take US Camper and Travel Trailer Production. With the price of oil, and therefore gasoline, on the rise since its historic crash at the onset of COVID-19 in early 2020, one might reason that demand for motorhomes and camper trailers would be severely diminished. The thinking is that few would want to make such a large discretionary purchase that requires copious amounts of gasoline when prices are so high.

Test the Hypothesis

As seen below, the cyclical relationship between Production and US Crude Oil Spot Prices is less than crystal clear.

US Crude Oil Spot Prices
We charted the annual rate-of-change for Production (green line) against the inverted quarterly rate-of-change for Oil Prices (blue line). We inverted the Oil Prices rate-of-change because the expectation was that Production would reach business cycle lows in response to Oil Prices business cycle highs. With the Prices axis inverted, this would show as similar trajectories through highs and lows for the two lines.

However, we can see that this not the case – not with any kind of consistency. And even with today's high Oil Prices, we can see the Production rate-of-change is not indicating any contraction in Production. In fact, average Production from March 2021 through February 2022 comes in 34.7% higher than Production during those same 12 months from one year prior.

Figuring out the Why

While some would-be motorhome buyers may be dissuaded by rising gas prices, others weigh different factors. Perhaps the robust macroeconomic rise that colored 2021 and has spilled over into 2022 has yielded a significant pay raise or other financial windfall. Persistently low financing costs are also a likely factor. Our analysis at ITR Economics suggests that consumers in the motorhome market share certain characteristics with luxury car buyers – higher fill-up costs are simply not a major concern for them.

Note that sometimes the answer is a combination of "whys" that add up to a larger answer.

What Now?

If you believe that a certain market has a significant influence on your business, you don't have to rely on your hypothesis alone. The data is out there. We have access to more than 10,000 datasets. Our methodology page offers an overview on leveraging such data for business insights.

You can also take it a step further. Our DataCast™ tool offers a quick and simple way to chart various datasets against your own. If you suspect a strong relationship, DataCast enables you to confirm or "debunk" that in seconds, with charts similar to the above. A free trial is available.  

There are myriad options, and we’re happy to help!

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