Thread: Estimating a trend line, basic question

Basic question here, suppose you are looking at annual trends for sales and you have complete records for 2005 - 2008 and for the 2009 record the year is obviously not over yet, only 8 months in.

Lets say we were interested in total sales for the year. I was told you could "estimate" the general trend line,or estimate of the sum of sales for the year, by taking the total number of sales thus far for 2009/8 (January through last present record of august) * 12 (total months in year)= estimate of 2009's trend line.

I was told doing so would give a decent educated estimate as to what to expect the trend line to look like for 2009. Could some one please explain why this works, if it even does?

Many thanks

You have assumed that your average monthly sales over the last four months of the year will be the same as the average monthly sales over the first eight months. If there is a reasonable expectation that this may be the case, you should have a very good estimate. On the other hand, if your sales are substantially seasonal, you will not get a particular good estimate.

Example 1: U.S. Toy Sales - Is it very likely that your average sales in November and December are WAY MORE than the other 10 months. Using the average of the beginning eight months should UNDERestimate the annual total.

Example 2: U.S. Tax Preparer - Is it very likely that your average sales in March and April are WAY MORE than the other 10 months. Using the average of the beginning eight months should OVERestimate the annual total.