Seminar Connects Data Sources With Macro Models

NABE’s Professional Development Seminar, held April 13-15, offered participants a unique opportunity to connect the dots—from the statistics produced by the federal government to the macro models that provide some of the nation’s most widely cited forecasts.

It was a soup-to-nuts tour of the key data series that are integral components of forecasters’ models, followed by detailed roadmaps through some of the most respected models and the projections they generate.

About 130 people attended the seminar at the Georgetown University Conference Center in Washington, D.C. Marking its sixth year, the seminar is sponsored by the NABE Foundation as part of its core mission of supporting educational activities for professionals and economics students.

The Foundation awarded 11 scholarships to the Professional Development Seminar this year, announced Jack Kleinhenz, chairman of the Foundation board. (See a listing of the scholarship winners below in this article.)

In keeping with this year’s theme “The Macro Economy: Data and Models,” PDS co-chairs Rosemary Marcuss and Paul Thomas and their committee assembled a roster of speakers that included top data agency officials with expertise in how the economic indicators are compiled and prominent private sector forecasters whose macro models use those statistics.

Pairing Data Producers With Users: Two Sides of the Coin

This unique pairing of data producers and users is the signature formula for the PDS, and it is an approach that participants have told NABE that they have appreciated from the beginning of seminar in 2004.  Duncan Meldrum, founder of the seminar and president at the time it began, described the formula this way in a 2004 letter to members: “Our goal was to get the providers and users of data to meet each other and exchange information so that each could do their jobs better.”

Each year, the evaluation forms include enthusiastic comments from participants who valued the opportunity to hear from data producers and the economists who use the statistics in their work.  Also, attendees from past seminars have told NABE that they came to appreciate the contacts they made with data agency economists, whom they call with questions and use as a resource in their work.

Economists Explain Key Data Programs

Each session of the 2009 PDS began with a presentation by an economist from a data-producing agency; presenters represented the Bureau of Economic Analysis, the Census Bureau, the Bureau of Labor Statistics, and the Federal Reserve Board.  The first session on April 14 focused on gross domestic product and the national income and product accounts, produced by the BEA.   Other sessions focused on employment statistics, compiled by the BLS, as well as price data from BLS and other major data programs produced by Census and the Federal Reserve.

The data-producer presentations were followed in by comments and detailed examples from private sector economists who talked about how they use those data series, concerns they have about measures themselves or methodologies.  Public policy analysts were among the data users who told seminar attendees how they use key statistics for official forecasts and budget projections that become critical to policy debates in Congress.

In the first session, BEA economist Kyle Brown talked about the GDP and the national accounts, followed by Ben Herzon of Macroeconomic Advisers LLC who discussed the St. Louis firm’s model.   Other sessions followed on the consumer price index and producer price index, regional economic data, flow of funds statistics from the Federal Reserve, housing and construction data, corporate profits estimates, and international economic statistics.

At the luncheon on April 14, NABE President Chris Varvares, president of Macroeconomic Advisers, offered a detailed look at the firm’s macro model—from the ground up.  The firm is among those recognized for its accurate forecasts of the U.S. economy.

Varvares described the model’s structure, choice of data series used, and how the firm’s analysts assess the likely impact of fiscal and monetary policies, as well as other variables.  He also emphasized that “models are not a substitute for good judgment” and reminded attendees that they need to remember to “look out the window” for a reality check as they finalize their projections.  Using more than one model is essential in making sure forecasts are sound, he added.

Ray Fair Describes Model, Its Elements

In an afternoon session on April 14, Ray Fair of Yale University, whose widely used model is available on his website, and Brian Bethune, NABE member and director, U.S. financial economics at IHS Global Insight, discussed their models and forecasting approaches.

Fair told the seminar attendees that based on his model and others he had reviewed, “the 2008-2009 recession was not predictable.”  His latest projections show that the largest impact from the economic stimulus package will be in 2010 rather than this year, Fair said.  He also offered his views on the causes of the recession and how much each factor contributed to the downturn.  See his forecast at: [http://nabe.com/mem/stat/09/Fair.pdf]

Bethune argued that while macro models provide “good discipline,” they “are not the right tool to pick turning points” in the business cycle. His firm’s models showed in late 2007 that “if you peeled back the layers, you could see the financial sector was due to get a big shock.”   Even so, it was difficult to predict the magnitude of the downturn, he added.

Price Estimates Show No Social Security Increases

The PDS session on the CPI and other key price measures began with a presentation from Michael Horrigan of the BLS, the agency that compiles these indicators.  His detailed roadmap through the CPI and producer price index series showed the complexity of the agency’s monthly data gathering program, as well as the widely used price reports. Also, he pointed out the wealth of information available from the consumer expenditure survey (CES), one of the data sets used to construct and update the CPI. [Link to Horrigan presentation: http://nabe.com/mem/stat/09/Horrigan.pdf]

John Peterson of the Congressional Budget Office followed with his perspective on price measures and how they are used to calculate increases in such major budget items as Social Security benefits.  Because the consumer price index for urban wage earners and clerical workers (CPI-W) has declined, he said CBO projections indicate that Social Security benefits will not increase for the next three years.

Social Security benefits and some other transfer payments are increased each year according to a formula that, in the case of Social Security retiree payments, bases the increase paid in January on the change in the CPI-W over the year ended in the third quarter of the prior year.  The 5.8 percent increase paid this past January, the largest since 1982, was announced last fall by the Social Security Administration, based on the change in the CPI-W.  Congress set that escalation formula in the mid-1970s.

Scholarship Recipients

The NABE Foundation selected 12 scholarship recipients for the Professional Development Seminar.   “It‘s a true honor to review the many applications and see such qualified and outstanding people apply for these awards,” Kleinhenz said.

To apply for the scholarship, the Foundation set the following basic criteria: one must either be a graduate student, professor or young professional working in the field of economics.  The Foundation Board reviewed numerous applications and essays before awarding four partial scholarships of $200 and seven full scholarships of $395.

Full scholarships were awarded to: Nirvani Cheddie, Clyde, N.Y.; Sviatlana Francis, Washington, D.C.; Amal Kandeel, Arlington, Va.; Alfredo Marquez, Lake Elmo, N.Y.; Plamen Nikolov, Cambridge, Mass.; Siddartha Vaidyanathan, Evanston, Ill.; and John Witjenburg, Arlington,Va.  Partial scholarships were awarded to: Fernando Gomez-Baquero, Albany, N.Y.; Aylin Kumcu, Silver Spring, Md.; Enrique Lopezlira, Mesa, Ariz.; and Zulima Leal, San Juan, Puerto Rico.

See the full program line-up at http://nabe.com/pds09/program.html