A large retail organisation has a number of home-furnishing outlets in a particular region, selling products such as carpets, curtains, domestic furniture and fittings. The organisation has been affected badly by the downturn in domestic property sales in the region over the last few years, as it has found that much of its business comes from customers redecorating or refurnishing a home they have just purchased. The company has collected and analysed data over the past two years to try to assess the impact that regional property sales have on its business. Two variables in particular have been specified:
● the number of house sales in the region on a monthly basis (000s)
● gross monthly sales in the organisation’s outlets in the region (£00,000s).
Data has been obtained for the last 24 months on these two variables and the data analysed using a spreadsheet package applying simple linear regression with the number of house sales as the X variable. The results are:
Explain the principles of simple linear regression in the context of this problem. Assess and comment on the reliability of this analysis for forecasting purposes.