Thursday, January 26, 2006

Solano's economic forecasts of years past, present and future

January 26, 2006

Economic forecasts of years past, present and future

By Nathan Halverson

FAIRFIELD - The economy of today looked a bit different 15 years ago.

An economic forecast by the Association of Bay Area Governments in December 1989 predicted manufacturing would be one of the fastest-growing industries in Solano County in 2005.

Instead it is the only employment sector that has shrunk since 2000.

Today, the association will release its two-year forecast at an economic summit in Oakland.

But who holds these forecasts accountable? Actually, the forecasters do.

"We don't have the luxury of the weather guy to correct our mistakes daily, but we try to do it often," said Sean Snaith, director of the Business Forecasting Center at the University of the Pacific, which just put out its own business forecast. "It's an old adage in forecasting, 'If you have to forecast, forecast often.' "

While the Association of Bay Area Governments forecast got the overall manufacturing sector wrong - outsourcing was far from a buzz word yet - it nailed what it called "high technology manufacturing."

The 1989 forecast estimated its high-tech manufacturing workforce of 690 people would blossom into a sector employing 5,690 workers by 2005. Today, companies such as Genentech, which has a major manufacturing facility in Vacaville, are making that forecast a reality.
The 15-year-old forecast also accurately predicted employment for the construction sector, especially when adjusting for the differences between the predicted population and the actual one.

The science of forecasting comes from the field of econometrics, which uses advanced mathematical equations to take a vast array of variables and forecasts them into the future.

Forecasts are an important tool in selling Solano County to companies looking to locate here, said Mike Ammann, president of the Solano Economic Development Corp.

"We use forecasts to make future employers understand that Solano is the place to be," Ammann said. "We use them to show a company that moves here that Solano County can sustain them moving here."

Yet Ammann said forecasts need to be used in perspective. He said they should be used as one view into the future, but other scenarios should be considered. Ammann said he likes to look at what is most likely to happen, what would be the best thing to happen, and what would be the worst thing that could happen.

"It's not a 'I'm right and you're wrong.' It's a matter of how do we predict the future so we most effectively allocate our resources," he said. "That's why we do forecasting."

While forecasts aren't always perfect they give an idea of how to plan for the future, Snaith said.

"Trying to have some knowledge about the future is necessary to make labor or capital decisions," Snaith said.

Snaith's December 2005 forecast looks three years into the future.

"The further out you try to predict, the larger your forecast errors become," he said. "The nuances of the business cycle make it hard to predict a decade into the future."

Reach Nathan Halverson at 425-4646 ext. 267 or

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