Three-Month and 12-Month Moving Averages

By Andrew Paparozzi
In March 9, 2009

Averages Tracking Trends and Catching Turning Points

NAPL Performance Indicators is about tracking and anticipating trends. Moving averages are an effective way to do both.

A moving average is simply the average of values across consecutive periods. For example, a three-month moving average is the average of the values for the current month and the previous two months; a 12-month moving average is the average of the values for the current month and the previous 11 months. Moving averages can be any length. But, in general, shorter lengths will be best at identifying turning points and longer lengths best at identifying trends.

Combining moving averages can be particularly effective. The figure below tracks receivables days outstanding for 24 NAPL Performance Indicators participants on a three-month moving average (black line) and a 12-month moving average (red line).

Throughout 2008 the trend was clearly down: Receivables outstanding declined from 47.7 days during the 12 months ending in January to 47.3 days during the 12 months ending in June and then to 45.8 days during the 12 months ending in December (calendar 2008). What the 12-month average doesn’t show is the dramatic lengthening of receivables toward year-end—from 42.5 days in October to 44.9 days in November and then to 45.9 days in December on a three-month moving average.

Maybe it’s nothing. Maybe the three-month average will quickly return to trend. Or maybe it’s a critical turning point in trend that reflects the economy’s rapid deterioration since last fall. Either way, by faithfully tracking moving averages we get a heads-up. And forewarned is forearmed.

Sources/Additional Information:

  1. Vital Few Metrics Analysis, NAPL, September 2008, call 1-800-642-6275, ext. 4.
  2. Printing Business Conditions, NAPL, February 2009, call 1-800-642-6275, ext. 4.
Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

Leave A Comment