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Internal Forecasting FAQ

Frequently Asked Questions About Rates-of-Change

By ITR Economics on February, 17 2022

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ITR Economics

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

At ITR Economics, we have been relying on our proprietary methodology for several decades now to maintain our unmatched 94.7% forecast accuracy rating. Our unique set of tools – from rate-of-change calculations to leading indicator trend analysis – are helping businesses make better strategic decisions worldwide. But how you do you go about implementing this methodology within your own business?

We’ve answered your most pressing questions.

Terminology

What do 3MMT, 12MMT, 3/12, 12/12, etc., all mean?

These abbreviations that we frequently reference can refer to moving totals, moving averages, and various rate-of-change metrics. We describe them in detail in this handy one sheet.

What are the Phases of the Business Cycle?

Our methodology includes a unique, four-phase business cycle, broken down into the following:

You can check out each linked video for an in-depth explanation of each Business Cycle Phase and how it relates to our rate-of-change methodology.

Does the 3/12 rate-of-change lead the 12/12?

Yes. Typically, the 3/12 leads the 12/12 by approximately three to six months.

What does it mean when the 3/12 upward-passes the 12/12?

This is an early ITR Checking Point™ indicating that the 12/12 rate-of-change may be headed for a cyclical low point. Continue tracking the 3/12 to see if it continues to climb. Typically, it will take three months of the 3/12 above the 12/12 and a tentative 12/12 low to confirm that you have hit the cyclical low and that your annual growth rate is undergoing a trend reversal.

How many months does my company need to be in the new business cycle phase before it is established in that phase?

Three months generally make a trend.

[ Download now → Learn how to calculate your rates-of-change with our free eBook ]

Data Requirements

How many years of data history do I need in order to identify trends using rates-of-change?

You can begin tracking your rates-of-change with a minimum of two years of data. However, this will not show you any trend on a chart. You typically want to see two business cycle peaks and troughs in your dataset before you begin analyzing the trend relative to other data streams. We recommend a minimum of seven years of data.

What type of data should I look at?

It all depends on what questions you are trying to answer. Are you concerned about where your sales are in the business cycle? Then you want to look at your sales, revenue, or shipments data. Orders data also offers a good window into your future. Are you concerned with capacity issues? Then you may want to look at your production figures. Ultimately, it comes down to what type of business you have and what questions you are trying to answer. The data can be expressed in either currency or in units, depending on your company’s needs.

What types of data have you seen clients use?

Our clients use total sales, regional sales, divisional sales, product sales, orders, units sold, units shipped, pounds shipped, raw material prices, revenue, and more.

What data should I use if my business deals with a lot of cancellations?

We would recommend you stay away from using orders data and consider using your revenue figures.

What data should I use if raw material prices make my sales figures fluctuate substantially?

We would recommend that you consider looking at your units shipped or pounds shipped. Essentially, identify a dataset that would not be as intensely impacted by the raw material prices.

How granular should the data be?

This depends on who will be using the output of the information and what questions you want answered from the analysis. If you are concerned about your total business, then total sales would be adequate. If you are concerned that your location in one state is performing better than a location in another state, then you would want to look at sales by location. The same would apply for divisions or product lines.

 

Have more questions beyond what we’ve answered here, or looking for further insights? Check out our one-stop shop for methodology resources.

 

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