Inside the Crystal Balls
Number-Crunching L.A.’s Economy
Forecasters Use Different Methods in Predicting Future
Tom Lieser
Age: 60
Title: Senior Economist
Affiliation: UCLA Anderson Forecast
Even if history doesn’t always repeat itself, looking into the past can help predict the economic future, says Tom Lieser, history buff and senior economist at UCLA Anderson Forecast.
Pointing to parallels between the tech meltdown and the aerospace collapse of a decade earlier, Lieser says that studying the economy “is not all computer models.”
As senior economist, Lieser says he spends much of his day staying on top of news that can affect his forecasting work. Key to assessing data and trends is processing as much information as possible. The Internet has become a helpful tool, but one that can also overwhelm.
Most economists look at similar indicators, according to Lieser. Determining the differences in these models with the data gathered from business and politics is all part of the job. Anderson uses quantitative forecasting models to project consumer behavior, but at the same time, he says, “We can’t tell you what color car you’re going to buy.”
History helps in forecasting but “there are always some lessons to be learned that are still relevant. It’s never exactly the same twice,” says Lieser.
For Lieser, a 60-year-old Oklahoma native, economics has been a focus since his days as an undergraduate at Stanford University. From there, he received a master’s from University of Wisconsin and his Ph.D from the Anderson School at UCLA.
After receiving his doctorate, Lieser went into the private sector as vice president and senior economist at Security Pacific Bank. “A lot of business people thought I was a little academic, while now some of the people at the university think that I am more of a businessman, but the combination has been good for me,” he says.
In his spare time, Lieser loves to read American political history. He’s also an avid swimmer but arthritis in a shoulder has kept him out of the water more often than not.
Laura Angela Bagnetto
Steven Cochrane
Age: 49
Title: Director of Regional Economics
Affiliation: Economy.com Inc.
As director of regional economics for Economy.com Inc., an employee-owned research house in West Chester, Pa., Cochrane is responsible for reporting significant economic activity within each region. He also reports on California. Economy.com counts Bank of America, J.P. Morgan Chase and Cisco Systems among its list of clients.
In assembling his research, Cochrane breaks out the nation into four regions Northeast, Midwest, South and West and then looks for significant economic events or trends. In the West, the recent port closures are receiving special attention right now.
The first rule in studying the California economy, he says, is to realize that the state does not act as a unit.
“There is an economy in Southern California, Northern California and the Central Valley,” he says. “They are quite different and seldom move in the same direction.”
In assembling his reports Cochrane, who visits the state every other month, first puts recently released economic data into his models and blends that with information gleaned from news sources. “It’s a bit art and a bit science,” he says.
Forecasting California’s economy has its set of challenges, but since his predictions are mostly technical in nature, Cochrane says it’s easier than it seems. “The data we use is no different than what folks in L.A. use,” he says.
Cochrane spends about half his time on research activities working with models, compiling and writing reports, doing consulting projects for clients. The balance goes to public speaking and managerial duties. And, of course, he takes a lot of media calls.
“Our greatest way of bringing in clients is word of mouth or through the press,” says Cochrane. “It lends credibility to what we do, particularly if we get quoted frequently.”
Cochrane was born in Santa Rosa and received his bachelor’s degree in environmental planning and management from the University of California, Davis, in 1974.
After getting his master’s degree in urban and regional planning and working for Checchi and Co. Consulting in Washington, he received his doctorate in regional science from the University of Pennsylvania in 1989. He started with Economy.com originally called Regional Financial Associates in 1993.
Conor Dougherty
Donald Straszheim
Age: 60
Title: President
Affiliation: Straszheim Global Advisors
Shunning any approach that involves computer modeling, Straszheim researches historical data and the views of executives, managers and government officials to put out his bimonthly “N.Y. to L.A.” report and weekly client e-mail updates.
He focuses on long-term, macroeconomic issues by examining data from the public and private sector dating back to World War II. There’s “too much noise” in short-term predictions, he says.
Straszheim markets himself aggressively. He has shown up on cable television shows and sends weekly e-mails to his clients. “He’ll give a presentation to almost any group that wants one,” says his senior economist Kristine Bergmorse.
“Mathematical modeling makes you quantify what you might otherwise fuzz over,” says Straszheim, in Shanghai last week on a speaking circuit of business and government leaders. “It also, however, tends to lead you to ignore what you can’t quantify. And that can be an expensive mistake.”
Economics is interesting because there are no roadmaps, he says. And sometimes economists fail, as they did after Sept. 11 when they projected that the shortfall would be greater than it was.
In his view, the media pay too much attention to the monthly flow of data. “It’s traders on Wall Street, the economists and media feeding on each other making a story out of noise,” he says. “We never really know what’s going to happen In economics, we don’t have a lab. We live in the lab. We can’t have controlled experiments.”
He founded Santa Monica-based Straszheim Global Advisors last year after heading the Milken Institute since 1997. The firm focuses on U.S. and global economies, business conditions and financial markets. Before Milken, he was chief economist and economic spokesman for Merrill Lynch & Co.
Travis Purser
Peter Navarro
Age: 53
Title: Associate Professor of Economics
Affiliation: University of California, Irvine
The Federal Reserve hikes interest rates, consumer confidence falls, war breaks out in Afghanistan, drought shrivels the coffee crop, oil prices spike each of these “macroeconomic waves” systematically moves the U.S. stock market.
Such is the world view of Navarro, a University of California at Irvine business professor whose 1984 book, “The Dimming of America,” predicted widespread utility shortages that would occur after the regulatory environment failed to generate new power plant construction.
Knowing what the stock market will do is important, he says, because it is a “crystal ball” that “usually tells us what’s going to happen in the economy six to nine months out.”
Navarro, a regular contributor to KNX-AM’s “Business News Hour,” early last month said that the market was in for a terrible September a prediction that was borne out. Driving the recent upward momentum is a perceived “topping” of the bond market and a knee-jerk rotation from bonds into stocks, he wrote in his weekly online column Oct. 21.
Domestically, Navarro likes to look at durable goods which require investments in heavy capital as indicators that a recession is ending.
People buy non-durables, like food and drugs, however, no matter how the economy is doing. When nervous investors head for the relative consistency of such stocks, the economy is probably headed for trouble, he says.
Reluctant to describe himself as an economic forecaster because he doesn’t use any particular economic model, Navarro says, “My daily regimen is to follow very closely the financial markets and the economic indicators that are released.”
Validation of his methodology came in July, he said, when he predicted a month-long stock market rally was over on the day that it ended.
The media, he says, are important to his job sometimes as a “contrarian indicator” of false optimism. “When they get excited, I get really cautious.”
A former policy analyst for the Department of Energy and the Massachusetts Energy Office, he explains his affinity for his profession: “I just think it’s a lot more interesting than chess.”
Travis Purser
Edward Leamer
Age: 58
Title: Director
Affiliation: UCLA Anderson Forecast
Edward Leamer says that when it comes to being an economist, humility is the bottom line.
“Don’t oversell the value of observations they have limited value,” he says.
Still, Leamer’s observations have been particularly accurate and often contrary to conventional wisdom. Two days after the Sept. 11 attacks, Leamer drafted a special report with Christopher Thornberg projecting the economy would not suffer long-lasting damage a forecast that generally turned out to be correct. Of course, he also anticipated that the economy would bounce back sharply in 2002 from the recession and that hasn’t happened.
Leamer specializes in econometrics, the use of mathematical modeling to develop and verify economic theories. Besides forecasting, which he says is small portion of a day’s work, he spends most of his time teaching classes.
Leamer has been critical of economists who analyze data in a way more befitting laboratory science than incorporating wisdom and intuition to make a best guess.
Making predictions based purely on analytical data is “kind of like trying to measure the force of gravity in the middle of an earthquake.”
Like most economists, Leamer is annoyed by the increasing presence of media “talking heads” who he says “are able to enter the public domain without any mechanism for sorting junk science from valid science.”
Despite a record of success, Leamer says forecasting is less about coming up with numbers and more about using wisdom. “We look into historical data and force people to realize there is a real message in the history,” he says.
Originally from upstate New York, Leamer received his undergraduate degree in mathematics from Princeton University in 1966 and his Ph.D. in economics from the University of Michigan in 1970. That year, he took a job as a professor at Wayne State University. He was there just six months before joining the faculty at Harvard. In 1975 he left for UCLA.
Conor Dougherty
Ross DeVol
Age: 42
Title: Director of Regional and Demographic Studies
Affiliation: Milken Institute
Even when he was based back East, DeVol spent his time studying and writing about California.
The director of regional and demographic studies at the Milken Institute came to Southern California at the urging of his mentor at Eddystone, Pa.-based WEFA Inc. (formerly Wharton Econometric Forecasting, now known as DRI-WEFA), Nobel laureate Lawrence Klein.
The Milken Institute wanted to start a regional studies unit that looked at California and Southern California as if they were separate countries, and DeVol, senior vice president supervising the regional econometric services group at WEFA, was the perfect man for the job.
The lure of economics came for DeVol in college, where he became enthralled by the waxing and waning of urban economies. “Economics allows me to apply a very analytical tool set to social issues,” he says.
At Milken, his research focuses on the dynamics of regional economic growth, and he tracks macro and regional economies and speaks to government and regional planning groups across the country.
Regularly quoted by the media, DeVol says he walks a fine line. “I guess I can honestly say I have a positive interaction with the media,” he says, “but you have to be cautious.”
When he’s not speaking to the press, he works out at one of the three gyms where he is a member, a dedication to bodybuilding that comes from his high school days as a football player outside of Columbus, Ohio.
“It’s tough sometimes when you’re traveling,” he says. “I just gave a talk in the Feather River Basin area. Try and find a gym out there!”
Laura Angela Bagnetto
Christopher Thornberg
Age: 35
Title: Senior Economist
Affiliation: UCLA Anderson Forecast
The UCLA forecaster thinks economics has been given a bad rap, so he’s set about to change the public perception of the dismal science.
Thornberg, 35, prefers to focus on real issues rather than academic calculations as he goes about formulating his economic predictions. “We want people to understand. It makes sense to educate people and show how economics affects them,” Thornberg says.
As an economist who interprets the local picture, Thornberg finds data gathering a challenge. While national numbers are relatively easy to come by, there are no GDP figures for Los Angeles alone, so Thornberg and others tracking regional economies have to look to other sources, such as employment and personal income figures.
Since personal income data is reported annually, Thornberg uses additional sources to generate figures that can be calculated on a quarterly basis. In looking at secondary private source data, such as hotel occupancy, airport statistics and building investments, plus the regular models, he determines the economic outlook for the Los Angeles area.
For Thornberg, the old adage holds true. “There’s two things you never want to see being made: sausage and economic forecasts,” he says.
One of two senior economists at the Anderson School, Thornberg spends the bulk of his time overseeing its quarterly economic reports, as well as the occasional special report.
Anderson has been home to Thornberg for some time. Though he had a faculty position for a while at Clemson University, he received his doctorate from Anderson in 1996. When this former economics professor is not interpreting data, he teaches sailing.
Laura Angela Bagnetto
Stephen Levy
Title: Director
Affiliation: Center for Continuing Study of the California Economy, Palo Alto
Levy likes to set the record straight when the rhetoric by economic pundits spins out of control as he did earlier this month when news reports continually cited the estimated economic damage of a port lockout as $1 billion a day.
Not taken into account, he argues, was that automobile and machinery sales could be postponed and purchased later. It’s just the nature of the media to report the hype among economists, he says. There are so many talking heads these days, “you’ve got to scream to get attention.”
Levy is principle author of reports put out by the Center for Continuing Study of the California Economy, a private firm that analyzes growth and makes economic projections for different regions of the state, including Southern California.
Levy regularly briefs private and public sector managers on how economic and demographic trends impact the state in the long-term, which he thinks is not only easier to predict than the short-term, but more important, too.
“I’m a Californian, my whole family lives in California, so the most interesting question is how we grow and prepare for that future,” he says. The projections he makes, sometimes two to four decades out, influence “who gets to speak for the people who aren’t here yet.”
The customers who get Levy’s long-term numbers include agencies like the South Coast Air Quality Management District and the Metropolitan Water District of Southern California.
Despite some dire predictions, the state has remained competitive, he says, noting “There’s always been enough water, enough land. Still, there’s a housing shortage, traffic problems.”
The media is an important component to what he does, even though there can be a “Hollywood aspect” when short-term forecasts are covered, he says. “The editorial pages are one of the major carriers of the message of the need to prepare for growth,” he says, and they do that “very well.”
For Levy, the big question is not numbers but something far more basic: whether the human race will make it. “I don’t think if the economy’s going to recover in the second or third quarter is that interesting,” he says.
Travis Purser
Esmael Adibi
Age: 50
Title: Director Affiliation: Anderson Center for Economic Research
As an economist at Chapman University, Adibi prepares forecasts for the U.S. and California economies, focusing on Los Angeles and Orange counties and the Inland Empire.
His short-term forecasts focus on real gross domestic product and its standard components: employment, interest rates, housing starts and inflation.
Adibi is a fan of econometric modeling, in which masses of data are programmed to determine future trends. But he acknowledges the shortcomings of modeling.
“One of the problems are shocks you can’t anticipate,” he says, such as terrorist attacks, natural disasters or political shake-ups. Such shocks harm the accuracy of short-term predictions more than long-term predictions.
Still, he prefers econometrics over other approaches, like “consensus forecasts” that average many forecasts or the “survey of executives” approach. Econometrics, he says, “is less subjective than anything else.”
Before World War II, Adibi explains, economics was more “human theoretical and abstract. But software and math made it more scientific. You could test theories. So it’s not really a dull subject.”
Adibi admits it is difficult for economists to be “exactly correct,” but what’s more important than precise numbers is to predict economic turning points, such as another recession. “If I say no, and then we have a double dip, that would be very bad,” he says.
Adibi said the Fed’s aggressiveness in pushing down rates, coupled with a tax cut, explains why the recent recession was a mild one and why he believes the economy is in recovery.
He expects that strength in consumer spending and construction and a rebound in business investment will propel recovery through the rest of this year.
Adibi has written for newspapers in Southern California and for several professional journals. He is a member of the Economic Forecast panel and serves on the board of the Orange County Teachers Service Organization Inc.
Travis Purser
Leslie Appleton-Young
Age: 50
Title: Vice President and Chief Economist
Affiliation: California Association of Realtors
Those who think economists sit at their desks and crunch numbers all day should take a look at Appleton-Young’s schedule on a recent day: meeting with brokers and government officials in Beverly Hills and then, more brokers in San Dimas and in Los Angeles.
As vice president and chief economist for the California Association of Realtors, based in L.A., she analyzes the housing market within the state and makes the rounds.
“Buying a house is buying a lifestyle, buying a community. That’s really important to me,” says Appleton-Young. Part of her data gathering comes from her relationship with agents and brokers, but other factors are key, including a focus on inventory, mortgage rates and consumer confidence.
Appleton-Young insists that she doesn’t tailor her findings to the agenda of CAR constituents. “I have received some negative reviews from Realtors, but our forecast is respected statewide,” she says. “The numbers are the only priority. We try to call it as we see it.”
Appleton-Young oversees the CAR’s annual forecast, released in October for the following year, as well as the follow-up report published the following June. Last year, she forecast a 2 percent drop in housing sales for 2002, a number she had to revise upward in the June update after the higher-than-predicted rebound in Bay Area sales.
Laura Angela Bagnetto
Trusting Numbers
Executives, elected officials and media folk take differing views on economic forecasts.
Alex Padilla
President
Los Angeles City Council
I find forecasting very helpful. It gives me a much better idea as to the level of resources I can count on one year, two years and five years from now for projects and investments in my district.
I try to listen to all of them, and the reality ends up being somewhere in the middle (of what they predict).
Forecasts aren’t something I make specific budget decisions on, but they give me a general feel if we’re going to have a budget surplus a year or two down the road. They let you know if you’re going to have to tighten the belt.
Eric Garcetti
Los Angeles City Councilman
Yes, I definitely look at economic forecasting when considering budgeting. I look at what policy decisions we should be making by looking at state, local and national forecasting. I’ll look at everything from consumer confidence to home sales and building statistics, as well as some others in assessing how to make good policy.
Jonathan Kevles
Deputy Mayor for Economic Development
City of Los Angeles
There are two types of forecasting the city budget folks look to. They work with people who provide economic forecast information because the economy determines the budget. The other is for economic development purposes. We look at what the private sector does real estate, manufacturing, international trade.
The UCLA Anderson forecast is extremely helpful. They don’t bend to headlines, they just call it like they see it. Then there’s the LAEDC. The LAEDC and the mayor’s office really work together to identify key growth industries and problems.
You don’t need a forecast to tell you if there’s a prolonged labor problem at the ports the economy is going to be impacted.
Warren Olney
Radio Host
“To the Point” and “Which Way L.A.”
We do use them on our program. I don’t presume to either approve or disapprove of them. But since they are part of the news, we often have them on.
We often have dueling economic forecasts, because I’ve learned over the years that they don’t always agree, and I try to give each of them an opportunity to try to describe how they reached their conclusions and let listeners decide what they want to make out of it.
Lee Perlman
Chairman and Chief Executive
New Age Electronics
We pay attention to everything we get our hands on everything we read, see and hear. Customers and vendors have real data. We pay very close attention to how our customers and vendors see the economy we talk everyday. And then we take a very conservative view. We look for trends in our business and our customers dictate what those trends will be.
Travis Purser
