Still Need a Leading Indicator? Let NFPA’s SOFP Help

Several months ago, NFPA reviewed the strong relationship between our opinion-based survey results from the State of the Fluid Power Industry Survey (SOFP) and the industry shipments data collected through our Confidential Shipments Statistics (CSS) program. The article was met with a great deal of positive response and requests for updates, so we’re rerunning the article for those members who may have missed it the first time around and have included updated data and analysis concerning the SOFP/CSS relationship.

Over the years, NFPA has brought a variety of leading indicators for the fluid power industry to our members’ attention.

Several include:

• Total U.S. Industrial Production;
• Purchasing Managers Index (PMI);
• Durable Goods New Orders;
• Retail Sales Excluding Autos;
• and NFPA’s State of the Fluid Power Industry Survey (SOFP).

Why use Leading Indicators? Leading indicators can be key pieces of information to assist you in your company’s strategic planning process.  A reliable leading indicator allows your business to anticipate changes in the industry before they actually occur, giving you the competitive advantage.

What is NFPA’s SOFP? The SOFP is a monthly opinion-based survey that is conducted within our manufacturer (SOFP-M) and distributor (SOFP-D) membership that includes seven multiple choice questions concerning the current and future state of the industry that are compared to previous benchmarks. Results are shown in both a percentage and indexed format, much like the Purchasing Managers Index (PMI).

Why is SOFP a Leading Indicator? An analysis performed on the SOFP data revealed that there is a high correlation between SOFP data and NFPA’s fluid power industry data, available in NFPA’s Confidential Shipment Statistics Report (CSS). Both data sources follow a similar pattern, with the SOFP data leading the CSS data by three to five months depending on which combinations of data you use. Such a strong relationship and high correlation allow us to conclude that the SOFP data is a very reliable leading indicator for fluid power industry data in CSS.

Figure 1.

Figure 2.

Figure 3.

In figure 1, we see three trend graphs with SOFP Current 12/12 Ratio Data in red and CSS Shipments 12/12 Ratio Data in black. Both data series move in a very similar pattern, but the SOFP data seems to react before the CSS data does. This is the first sign that the SOFP data may be a leading indicator. To verify this, in figure 2, we use NFPA’s Stats Toolkit to run a correlation analysis on all three data series comparisons to identify how strong the relationship is. The analysis shows that all three have a very strong relationship when we apply a monthly lag to the SOFP data (i.e. move the SOFP data series forward month-by-month and analyze the correlation between the two data series each month) and single out the highest correlation percentage. Further trend analysis, in figure 3, shows that when the highest correlation percentage lag is applied to the SOFP data series and is re-graphed, both data series appear to have an even stronger relationship and move together in a very similar pattern, which verifies that the SOFP data series is a reliable leading indicator for the CSS data series.

Members receive access to data and analysis from SOFP, CSS, and the Stats Toolkit by participating in the SOFP and CSS programs. For more information on how to participate in these valuable member benefits, please visit https://nfpahub.com/stats/ or contact Eric Armstrong at earmstrong@nfpa.com or (414) 778-3372.