Problem 17 (Ch. 12)
Many supply managers use a monthly reported survey resultknown as the purchasing managers index (PMI) as a leading indicator toforecast future sales for their businesses. Suppose that the PMI and yourbusiness sales data for the last 10 months are as follows:
| Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| PMI | 42.1 | 43.0 | 41.0 | 38.2 | 40.2 | 44.1 | 45.8 | 49.0 | 48.7 | 52.0 | |
| Sales (1000s) | 121 | 123 | 125 | 120 | 118 | 118 | 122 | 127 | 135 | 136 | |
a. Constructa causal regression model using PMI as the causal variable. How well does yourmodel fit the data?
b. Supposethat the PMI is truly a leadingindicator. That is, the PMI value in one period influences sales in the followingperiod. Construct a new regression model using this information. Is the newmodel better or worse than the model you made for part (a)?
c. Pickthe best model from parts (a) and (b), and create a forecast for sales givenPMI = 47.3.
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