Chapman Has Eye on O.C.’s Economic Tack

Twenty years ago, Chapman University economist James L. Doti presided over the school’s first forecast of the Orange County economy. About two dozen people showed up, most of them trustees of the Orange-based school.

From those humble beginnings, a local phenomenon emerged. Equal parts meticulous econometrics and masterful marketing, the Chapman forecast has become an annual rite of the Orange County business community. Today, more than 900 executives hoping to divine the direction of the economic winds will gather on the Chapman campus.

The forecast, perhaps more than any other factor, has put the once-obscure little university on the map, raising its academic profile and fund-raising abilities in one fell swoop.

Newspapers and television stations will report on the crystal-ball utterances of Doti--now the school’s president--and Esmael Adibi, who Doti handpicked to head Chapman’s Anderson Center for Economic Research.

Chapman is one of a handful of Southland universities to parlay economic forecasting into a public relations machine. UCLA became the region’s first, and its annual forecast of the California and U.S. economies, now in its 47th year, is nationally recognized.

In Orange County, Chapman has a rival in Cal State Fullerton, which began presenting its annual forecast on the local economy in 1992. Other Southern California schools, including Cal State Long Beach and UC Santa Barbara, have garnered publicity from their economic forecasts.

Banks, Businesses Rely on the Reports

To be sure, the forecasts are useful for businesses and government agencies, which rely on them for planning everything from employment levels to capital investments. Lenders sometimes require companies seeking loans to justify their internal projections with outside forecasts.

“In a business like ours, every product or service you provide is going to be greatly affected by job growth,” said Paul Kranhold, spokesman for the Irvine Co. “So we pay great attention to these forecasts.”

The rise of universities in predicting economic trends comes as banks and corporations have cut their forecasting departments amid mergers and consolidations.

But the real motivation behind universities trying to make a name for themselves in foretelling the economy is that it’s a way to both explain and promote local business development, said Tracy Clark, managing editor of the Western Blue Chip Economic Forecast, which tracks other forecasters.

“The real genesis was a need by some smaller and regional universities to focus on their region,” said Clark, who also is an economist at Arizona State University.

A forecast also provides a means for faculty and students to put their brain power to use--helping to crunch numbers and dissect data. And it helps a university establish important outside contacts.

“It raises the stature of a university, at least within their own community,” said Mark Zandi, chief economist at Regional Financial Associates, a research and consulting firm in West Chester, Pa. “It’s also an entre into public policy. Government looks to them for guidance.”

The Chapman forecast was started because Doti saw a need for a strictly local take on the Orange County economy, which often diverges from statewide trends. It’s a niche that has paid off well.

When a major retailer was considering expanding into Orange County, it bought the Chapman report and consulted Adibi about the intricacies of the local economy. It decided to come here.

Doti likens the economic forecast to “tentacles going out” to the business and academic communities and candidly acknowledges that it has become a powerful marketing tool.

“Higher education is an increasingly competitive academic environment,” he said. “If we didn’t do things in a very special way, we’d be buried or forgotten about.”

Money also provides a powerful incentive. Chapman raises about $600,000 annually for scholarships, and it took in $25 million in donations for its new business and technology center. Many of the school’s links to major donors were forged by the forecast, Doti said.

So successful has Chapman been in the forecasting business that other schools have emulated it.

“Years ago, we patterned our forecast after Chapman’s,” said Mark Schneipp, director of UC Santa Barbara’s Economic Forecast Project. His predictions of the Santa Barbara and Ventura county economies are closely watched in those communities. “It’s a full marketing deal,” he said.

Those who do the forecasting, however, say it is an intrinsic part of who they are.

“This is very much a part of the mission of the Cal State system--to be part of the community and to be involved in the communications business,” said Anil Puri, director of Cal State Fullerton’s Center for Economic and Environmental Studies, which produces the school’s annual forecast.

Most use similar methods--essentially sophisticated mathematical models. But the outcomes vary because of differences in the models, and because each economist starts out with a certain set of assumptions that they feed into their formulas. One may assign greater weight, for instance, to the export market’s influence on local employment.

Respectable Record for Predictions

Over the years, Chapman has racked up a pretty good record on predicting the local economy. That’s the reason, observers say, that Doti and Adibi are now held in such high regard.

It’s a precarious perch, though. Economists who forecast are going out on a limb, putting their reputations and careers on the line with each authoritative pronouncement.

A few who have managed to be right in a singularly spectacular fashion have been anointed so-called “gurus.”

Think of veteran Wall Street economist Henry Kaufman, who is revered for his accurate prediction on interest rates in the late 1970s. David Hensley, the former director of UCLA’s Business Forecasting Project who is now with Salomon Smith Barney in New York, earned respect for being the only economist to foresee the depth of the California recession, and the first to predict the state’s comeback.

Naturally, no economist is right all the time. No one will remember a few bad calls, said Zandi. But if a forecaster is consistently wrong, his image will ultimately suffer.

“The true test is not a year or two or four,” he said. “Are they still doing this 10 years down the road, and do they still have a following?”

Chapman missed the severity of the recession of the early 1990s, as did nearly every other institution in California. And a year ago, it underestimated the strength of the local economy, just as others did. Its December 1997 forecast of 2.8% growth in Orange County payrolls this year will likely be low by a full percentage point.

Adibi said the reason could be that the U.S. economy has proved to be far more resilient to the global financial crisis than previously expected. However, he also expects the government jobs data to be revised downward in a later counting.

Chapman also low-balled the rate of housing appreciation in Orange County this year by a wide margin, a miss it still is investigating.

Economists say that people who use forecasts do not expect pinpoint accuracy, just clues about the general direction of the economy. Even so, they say, it matters greatly if they’re way off mark.

“It means there’s something wrong with our methodology,” said Cal State Fullerton’s Puri.

It means more than that.

Consider UCLA’s current economic forecasting director, Larry Kimball, who is a highly respected professional with a good overall record. He’s still haunted by a comment he made in 1993, “If you want a job this century, leave California.”

If they can be faulted for anything, though, local forecasters tend to be overly optimistic, Zandi said.

“They tend to be lost in the trees of their own economy,” he said. “That’s hard to avoid because you’re buddies with business people and government officials. You’re thinking about the same things and get lost in the details, and that ultimately biases your view.”

Not surprisingly, economists are adept at giving themselves plenty of wiggle room. They often qualify their forecasts by warning of possible unseen events that could throw their models out the window. And many have taken to heart the old saw, “If you don’t forecast well, forecast often.”

More worrisome is that the forecasting business is getting infinitely trickier, as the economy itself has become significantly more complex and vulnerable to unpredictable global forces.

A decade ago, an unstable political situation halfway around the world would have been of little consequence to the Orange County economy. Today, it matters greatly because of the region’s reliance on foreign trade. What’s more, technology is changing so rapidly the data collected by the government--on which all forecasters rely--have yet to adequately reflect the effect of such developments as the Internet.

With the global situation in flux, predicting the economy for the coming year presents a knotty challenge.

Yet amid the problems lie great opportunities for career-minded economists.

“You’re always out there taking a chance when you make a prediction,” said Puri. “That’s the price you pay, and you take your chances.”