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Death of Forecasting

Mises Daily: Thursday, April 29, 1999 by

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"If it were possible to calculate the future structure of the market, the future would not be uncertain. There would be neither entrepreneurial loss nor profit. What people expect from the economists is beyond the power of any mortal man."

Ludwig von Mises (1949)
Human Action: The Scholar's Edition, p. 867.



The Wall Street Journal
April 29, 1999

Companies Reduce the Number Of Positions Held by Economists
By TRISTAN MABRY

The oracles of the economy have seen the future of their profession and the outlook is hardly bright.

In a time of general prosperity, traditional economists are joining their own statistics as newly unemployed, displaced by employers' growing dissatisfaction with general economic forecasting and by consolidation among banks and securities firms.

In the past year, numerous companies have either trimmed the size of their economics departments or eliminated them altogether. BankAmerica Corp. closed its 21-person economics group last year and reassigned six economists to other duties.

Wells Fargo & Co. laid off a dozen economists long before merging with Norwest Corp. last November, leaving the merged company with just three economists -- all from Norwest. The economics department at the former Citibank, which once exceeded 120 people but had been shrinking for years, didn't survive last year's merger between Citicorp and Travelers Group Inc. that created the financial giant Citigroup Inc. The economics department at Travelers' Salomon Smith Barney unit did survive the merger and now has about 50 economists.

Robert A. Brusca, formerly chief economist at Nikko Securities Co. International in New York, a unit of Japan's Nikko Securities Co., is among the newest casualties. After 13 years with the Japanese bank, Mr. Brusca's department was eliminated Friday, the result of Nikko's partnership with Travelers Group. "Before I came to Nikko, I was interviewing for four chief-economist jobs at very substantial firms," said Mr. Brusca. "Now, you're lucky to be interviewing for any."

Different Jobs, Rising Pay

But all isn't lost. For while jobs for traditional economists are disappearing, people with economic training are finding new kinds of jobs and their salaries continue to rise. They are being hired either by nontraditional employers such as accounting or consulting firms or by more traditional employers that need economists even if they don't need forecasters.

"This is the first time in all my life that I'm finishing something, and I don't know what happens next, but I don't feel really bad about it," said Mr. Brusca. "There are a lot of new opportunities out there."

But gone are the days when a fuzzy-headed academic clad in chalk-dusted tweed could be left alone to forecast the nation's economic future and to harvest reports on obscure subjects. Newly hired economists are expected to deliver research custom-tailored to specific businesses and to interpret government economic data in such a way that is useful for management.

"In the old days, just getting the numbers had value," said Caroline Scott of Chicago consulting firm McCoy Scott Co. "But now you can go directly to government Web sites on the Internet and download the data for free into a spreadsheet or modeling program."

Changing Needs

Another change is that most chief executives "are aware of the economy on their own without the coaching of an economist," said Van Bussman, head U.S. economist at auto maker DaimlerChrysler Corp. "Where economists can add value is in the interpretation" of economic shifts and trends "to their industry and the firm itself."

At paper company Weyerhaeuser Co., which reduced its economics department years ago from a dozen people to just five, chief economist Lynn Michaelis said his team no longer tries to map out the movements of the entire economy but tries to spot "strategically significant" events that affect wood prices, such as falling demand or shifts in construction starts.

Businesses started to question the value of general economic forecasting in the late 1970s when the country was reeling from the Organization of Petroleum Exporting Countries oil shock, a political event that caused enormous economic dislocations and which the profession was unprepared to explain. More recently, economic forecasters underestimated the length and strength of the current economic expansion that has fueled Wall Street's enormous stock rally.

"Many popular economic models were woefully inadequate," remembered Joel Prakken, chairman of consulting firm Macro-Economic Advisers Ltd. As corporate America squeezed through rounds of downsizing in the 1980s, "one of the places that CEOs looked to cut costs was economics departments," he said.

Financial Sector Joins In

Manufacturing companies were among the first to cut. International Business Machines Corp., which had as many as 50 economists during the 1970s, now has only a few. And it has no forecaster.

These days, it is the finance industry that is cutting back. "It was much later in occurring, but it's the same kind of shift," said DaimlerChrysler's Mr. Bussman. "The financial sector is maybe 10 years behind the industrial sector in this area."

The changes haven't been lost on the profession. Last year, the National Association of Business Economists changed its name to the National Association for Business Economics. The switch was necessary, according to NABE's executive director Susan Doolittle, because "a large percentage of our members no longer have the word economist in their title."

In light of current hiring demands, that percentage is likely to grow. Of 23 job postings in the organization's last newsletter, only 10 include the word "economist." According to the NABE, the median salary of "economics professionals" increased to $80,000 last year, up 9.5% from the group's prior biannual survey in 1996, and the biggest two-year percentage gain since 1986.

The NABE said the major employers of economists also are changing. In 1978, manufacturing firms were home to more than one in four economists while consulting firms hired just 8%. Today, consulting firms hire 19% of economists, while manufacturing has just 7%. Among consulting firms, accounting firms are currently the biggest recruiters, said the NABE's Ms. Doolittle.