by Jessica McCann

Accurate economic forecasting involves more than number crunching. While statistical modeling and numeric data provide a solid basis, predicting economic ups and downs also takes a bit of gut instinct. And the more guts involved, the better.

Scholars at Arizona State University’s JPMorgan Chase Economic Outlook Center specialize in applied economic and demographic research. Their geographic emphasis is on Arizona and the metropolitan Phoenix area. The center serves as a clearinghouse for economic data contributed by 70 analysts working at locations across the western United States. Center researchers develop forecasts of employment, retail sales, population growth, real estate and related issues that affect the economies of Arizona, the Western states, Phoenix, and Mexico.

“We take our own analysis and combine it with that of our many panelists and create a consensus forecast, a sort of blended view of the region’s leading economic experts,” says Tracy Clark, associate director for the research center, which is one of six centers within the L. William Seidman Research Institute at the W.P. Carey School of Business. “This consensus has proven to be more accurate than any one forecast over time.”

Scholars at the center produce four subscription publications: Arizona Blue Chip Economic Forecast; Blue Chip Job Growth Update: Ranking the States & MSAs; Greater Phoenix Blue Chip Economic Forecast; and the Western Blue Chip Economic Forecast. A fifth publication, the Mexico Consensus Economic Forecast, is available free online. The center also regularly produces data and reports such as the Arizona Index of Leading Economic Indicators, the Arizona Business Conditions Index, and the Arizona Tourism Barometer.

Clark is the center’s lead forecaster. He reviews data every day—applying 20 years of experience to analyze what he sees. The work requires going beyond the cerebral processing of numbers to the visceral understanding of what those numbers actually mean in the real world.

“It’s like driving yourself home every day,” explains Lee McPheters, professor of economics at ASU and director of the center. “From experience, you sort of know where you are at any point in time. Economic forecasting is a mix of that kind of day-to-day experience, the data, and the information we gather from our many panelists.”

As industries change, the economy is impacted in ways beyond what a standard economic model can project. So, while the center’s forecasting method does utilize sophisticated modeling, it also is heavily influenced by experiential and anecdotal information.

A few years ago, for example, if forecasters had looked at the normal indicators for housing growth in Arizona—such as population and interest rates—they might have expected housing permit levels significantly lower than what the state has actually experienced.

“Something that models can’t capture is the fact that after the stock market crashed, we had a huge number of people investing in the housing market,” explains Clark, who holds a master’s degree in economics from ASU. People typically invested in one of two ways, he says. They either bought and sold houses in a very short period of time, or they bought and rented out the houses with the expectation that appreciation would be high enough that they could sell later and earn a tidy profit.

“If that type of activity is 20 percent of your single-family market, and you’ve never had investment being 20 percent of that market in the past, then your model is never going to pick that up because it’s never happened before,” he says. “It’s a new wrinkle.”

Such wrinkles are the fodder of the center’s work. Economic models can evolve and adapt with new information, but only after an entire economic cycle has run its course. In the meantime, analysts like Clark and McPheters must be more fluid in their approach, moving back and forth between data-intensive models and real-life experiences.

“We don’t necessarily set out to do anecdotal research, but we do talk to a heck of a lot of people,” says McPheters, who also serves as senior associate dean to the W.P. Carey School of Business. He shoots a knowing smile to his colleague, and Clark laughs.

“Yes, I drive my wife crazy, because whenever we’re out somewhere, I’m always quizzing people—cab drivers, waitresses, whoever. How’s business?” Clark says. “It’s just the best way to learn about what’s happening out there.”

Factor in the same type of raw anecdotal omniscience from 70 other analysts throughout the West, and Clark is able to develop a unique insight of the economy. That insight is infused within the many newsletters and reports the center produces each month. The publications have gained a reputation for their accuracy and intuitiveness.

The Arizona Business Conditions Index, for example, is released during the first week of each month and considered to be one of the timeliest indicators of up-coming changes in the local economy. Since its inception in 1962, the index has correctly warned with about a four-month lead of all upcoming recessions.

That kind of economic intuition is in high demand. The center’s newsletters have a subscription base of nearly 2,200 people, although readership is much higher because the publications are often shared. The center’s analysts and reports are frequently quoted in the press and are also popular with executives because they offer at-a-glance forecasts on employment, inflation, and other economic indicators. Media professionals—from CNN, the Wall Street Journal and the London Financial Times to Cfnn, The Chicago Tribune and the Arizona Republic—regularly turn to the center for insight.

“I’m basically a story teller,” Clark muses. For example, after the last U.S. recession, the overall economy had 30 months of negative job growth, but Arizona had only 10 months. The national economy just started adding jobs at the beginning of 2004, he says. Job growth is an important factor in consumer spending and other things that determine how fast the economy grows.

“That’s something people need to know and understand,” Clark continues. “And I feel lucky that the work we do here allows us to share interesting stories like that with the public.”

The JPMorgan Chase Economic Outlook Center provides its forecasts as a public service. The publications produced there are not printed at state expense, and all funds from subscriptions are deposited with the ASU Foundation as charitable contributions.

Lee McPheters’ research has emphasizes transportation issues in economic development, with support from the U. S. Department of Transportation, the Arizona Department of Transportation, and Phoenix Sky Harbor International Airport. Contact him at 480-965-5462. Send e-mail to Lee.McPheters@asu.edu. Contact Tracy Clark at 480-965-5543. Send e-mail to Tracy.Clark@asu.edu.