THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, January 15, 1996 TAG: 9601130215
SECTION: BUSINESS WEEKLY PAGE: 08 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY MYLENE MANGALINDAN, BUSINESS WEEKLY
LENGTH: Long : 113 lines
Every small business owner wants to be able to control her company more efficiently. If she could make adjustments for dips or peaks in the economy, she would, whether it meant storing more inventory or trying to raise her cash flow.
A trio of Old Dominion University professors hope to give small business owners that opportunity for advanced planning.
They devised the Old Dominion Forecasting Project with the Hampton Roads small business owner in mind.
While economists have tracked the region's economy for years, the Old Dominion Forecasting Project intends to provide a clearer picture of where Hampton Roads is headed.
``I think it will give us a better handle on public policy questions, such as the ripple effects on the Hampton Roads economy of military downsizing,'' Old Dominion president James V. Koch said. ``This can tell us who will be affected and by how much.''
Old Dominion, the largest university in southeastern Virginia, will make regular forecasts about every three months, focusing on sectors such as the port, tourism, employment, home construction and retail sales.
Someday, Koch said, the forecast may include more sectors as well as special looks at exclusive developments such as the arrival of Gateway 2000's computer plant in Hampton or Avis car rental's new operations headquarters in Virginia Beach.
Koch himself was the inspiration for the modeling project, said Gilbert Yochum, chairman of the economics department at Old Dominion.
Koch, who recently returned to the Norfolk campus from a sabbatical leave, wanted to apply the university's resources, namely its brainpower, to help the community.
So Yochum, economics professor Vinod B. Agarwal and finance professor Mohammad Najand collected local, state and national data beginning last June to compile a set of local economic indicators that they believed would most benefit the community. These consist of quarterly and annual forecasts of nine different indicators.
``One of the biggest problems making forecasts for the local economy is the availability of information,'' said Agarwal.
``We tried to make this information accessible and amenable,'' Yochum said.
The threesome put out local indicators that forecast the progress of the tourism, housing, shipping and retail industries for the entire Hampton Roads metropolitan area except for the North Carolina portion.
While the model does not take into account the military presence in Hampton Roads, it will reflect how changes in the military budget change other segments of the region's economy, Yochum said.
``It's clear the prime mover of this economy is military spending,'' Yochum said. ``We're looking at the other indicators that are bringing money into the local economy from outside the area.''
Almost all economic forecasts use past trends to gauge the future, and so can be tardy in detecting an immediate turn in the economy. Old Dominion also relies on the past, but uses the information differently, Yochum said, allowing the forecasts to be more up to date.
``We process the information in a way that's not been before,'' Yochum said. ``The beauty of this model is it's taken from engineering. It's similar to the model used to correct rockets when they go off course. It will self correct itself.''
Using what are called econometrics and state space modeling to devise the indicators, the professors borrowed state space from the field of aeronautical engineering, because it is a quantitative model that takes momentum and other contributing factors into account.
``One advantage of the state space model with regard to other methods is you don't impose a model on your data,'' Najand said. ``You let the data determine what the model should be.''
Most economists and others determine what model they want to use to manipulate the information data before they plug in their data, Najand said. Not so in this case.
State space modeling allows the use of any combination of variables whereas other regression models or ARIMA (auto regressive integrated moving averages) models use a limited number of variables.
State space modeling can tell you ``the relationship of one variable in regard to another variable for a period of time,'' Najand said. ``It tells you exactly how the relationship is forming.'' ILLUSTRATION: RECIPE FOR THE FUTURE
Cover, Illustration by KEN WRIGHT/The Virginian-Pilot
Graphic
OLD DOMINION UNIVERSITY'S ECONOMIC FORECAST FOR HAMPTON ROADS
1st 1st % change
quarter quarter 1st quarter
1995 1996
Civilian employment 679,614 690,488 +1.6%
Civilian unemployment 36,126 31,863 -11.8%
Taxable sales (retail) $2.526 $2.673 +5.8%
billion billion
Hotel room revenues $52.1 $54.8 +5.2%
million million
General cargo
tonnage 2,232,965 2,393,738 +7.2%
Value of single family
housing permits\ $136.6 $146.8 +7.5
million million
SOURCES: Bureau of Labor Statistics; Bureau of the Census; Virginia
Department of Taxation; Virginia Port Authority.
Research by MYLENE MANGALINDAN, graphic by ROBERT D. VOROS/The
Virginian-Pilot.
Old Dominion professors Gilbert Yochum, Vinod B. Agarwal and
Mohammad Najand will make regular forecasts about every three
months, focusing on sectors such as the port, tourism, employment,
home reconstruction and retail sales.
by CNB