Every year, the Census Bureau (M3 Report) and Federal Reserve Bank (G17 Report) collect market data via surveys of companies nationwide, which is then used as the basis for several NFPA reports. These agencies periodically make revisions and adjustments to the data for current and prior years based on new information gathered and a weighting methodology designed to ensure a proper representation of each industry. These adjustments usually result in changes that tend to carry through to several NFPA reports, but rarely as significantly as this year.
The NFPA reports affected by these changes are the:
- Market Outlook Report, prepared by Steve Crane of C3 Statistical Solutions;
- NFPA Forecast Report: U.S. Customer Markets, prepared by the ITR Economics; and
- Customer Market File, prepared by NFPA using raw data from the U.S. Census Bureau.
Several data series affected by these adjustments include key series for fluid power, such as Construction Machinery, Farm Machinery and Metalworking Machinery. Construction Machinery was the most significantly affected. There are likely other series that have also been adjusted.
Going forward, watch for changes in these data series to update your own internal resources. Also, be aware of possible changes to forecasts and other reports that are based on these data sources. If you have any questions, contact Eric Armstrong at 414-778-3372 or firstname.lastname@example.org.
In addition, Jon Murphy of ITR Economics provides their explanation of the data revisions and expectations of the effects on the forecasts they prepare for NFPA.
Every year, the Census Bureau and Federal Reserve Bank (FRB) revise their figures which are used by ITR Economics to generate the forecasts included in the quarterly report for NFPA (NFPA Forecast Report: U.S. Customer Markets). The data collected by the Census Bureau and FRB is from a survey of companies, and they adjust based upon new information companies provide. The Census and FRB will also adjust the weights as necessary (the survey is designed to be a sample of the industry). These adjustments usually result in changes and do tend to affect our forecasts, but rarely as severely as this year. We at ITR Economics were caught off-guard by the size of the revision but would like to stress that a revision of this size is highly unusual. The Census Bureau reports some of the severity of the revision was due to the massive capital expenditures cancellations stemming from mining we saw in the first half of the year. Firms would report to the Census Bureau their orders, and then would have to revise as cancellations came down the pipeline. We also know the Census redefined a few series, which has caused some of the turmoil.
For the FRB, the situation was similar, but they also rebased their annual data. The FRB reports the data as in index, and the index was rebased from 2007 to 2012. Similar to the New Orders data from the Census Bureau, some of the FRB series were redefined, but the only FRB series where this was a major issue in the quarterly report we prepare for NFPA was Semiconductors & Related Equipment Production (the definition was expanded to include other electrical equipment that is very related to semi conductors).
Regarding the reliability of the data, we at ITR Economics still find this data useful. We are using it going forward and as the basis for our analysis. Additionally, the fact such a massive revision is so unlikely, we feel this was a one-off event rather than a new trend. That said, should it become repeatable, we will begin looking for alternatives. But, at this time, we remain confident of the accuracy of the data provided to us by the US Census Bureau and the Federal Reserve Bank.
We expect a number of forecasts in the report we prepare for NFPA will change in the next issue due in October, but as to how dramatic such changes will be at this time is unknown (we’re still evaluating the forecasts we prepare for the NFPA report). New Orders series (General Industrial Machinery New Orders, Industrial Machinery New Orders, Metalworking Machinery New Orders, and Material Handling Equipment New Orders) will not likely face huge changes. The previous forecast report from us, in July, accounted for the New Orders revision. The FRB revision came after that report. The other series will likely face revisions of varying degrees.
With the release of the next forecast report in October, we will provide a more detailed explanation of forecast changes. In the mean time, please do not hesitate to contact us with any questions or concerns.
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