CMC Professor Manfred Keil is Awarded Prestigious Faculty Fellowship

Manfred Keil, Associate Professor in the Robert Day School of Economics and Finance has been awarded a John Randolph Haynes and Dora Haynes Foundation Faculty Fellowship, one of only eight such awards given each year.

Professor Keil’s submission (An Index of Leading Economic Indicators for the Los Angeles Region) will show how regional recessionary slumps can be predicted using economic forecasting techniques. His proposed research will be to develop an index of leading economic indicators (ILE) for the Los Angeles region, similar to the index currently maintained by the Conference Board for the United States.

Haynes Faculty Fellowships are awarded by the Foundation to social science faculty members teaching at any university or four-year college in the five county (Los Angeles, Orange, Ventura, San Bernardino and Riverside) Southern California region. The fellowships engender intense competition and favor is given to proposals which are well-conceived, imaginative and break new ground on economic, social and political problems.

Keil will receive a cash award of $12,000 to complete his research in the next year.

“For Faculty Fellowship winners, it gives us great satisfaction that an important agency is willing to spend a significant amount of money on us because they believe in our research and the hope that we will produce some useful output,” Keil says. “It also confirms to me that research in regional economic issues is appreciated. To some extent, it validates the approach which Director of the Lowe Institute Marc Weidenmier and I have chosen in similar work on regional economic developments for the Inland Empire Outlook.”

Keil believes the Haynes Foundation greenlit his grant because the question his research plans to address is particularly relevant to the recent economic situation in the Greater Los Angeles area.

“California was one of the epicenters in terms of economic output loss and unemployment during the Great Recession,” he says. “The most recent recession started in December 2007 and ended officially in June of 2009, at least for the U.S. as a whole. However, this does not mean that the recession started and ended at the same time for all geographical areas in the U.S.

“Some states, in particular California, Arizona, Nevada, and Florida seem to have been particularly hard hit initially due to the bursting of the housing bubble there and the coinciding severe losses in construction (and manufacturing) jobs,” he adds.

According to Keil, economic forecasting is generally similar to weather forecasting in that it involves complicated systems of equations to generate outlooks on the future. “It is often true that during many periods a simple rule of thumb applies along the lines of Whatever happens today will happen tomorrow.’ Think of the weather in Southern California (sunshine) or in England (rain).” says Keil. “However, this is not true when it matters the most, namely when rain follows sunshine or sunshine follows rain. I am using this to illustrate a point about the economy. The analogy does not hold for weather patterns in other parts of the country; think of Denver or Chicago.”

Economists refer to this as “static expectations” Keil continues. “Similarly, the rule if the economy is expanding (contracting) today, it will expand (contract) tomorrow’ is correct most of the time,” he adds. “However, it is during the crucial periods when this is not true that economic forecasting becomes particularly useful.”

To further illustrate his point, Keil suggests thinking of the importance of forecasting a rain storm when you are living in areas which might experience significant mud slides. He says the same point applies to economic activity.

“Housing prices in the Inland Empire, for example, peaked during the summer of 2006, and they peaked in the summer of 2007 in Los Angeles,” he says. “Had you been able to forecast the economic downturn, then people would not have continued to buy properties in late 2006/2007 and subsequently have become stuck with mortgages which were higher than their housing values. This would have allowed you to move to other parts of the U.S. where the recession was less severe.”

The Haynes Foundation requires a final report on Prof. Keil’s research within a year after giving the Fellowship. According to Keil, the majority of the work will be done in the summer. “I will try to get some research assistance from CMC undergraduate students, and perhaps a CGU graduate student,” he says.

Established in 1926 by a prominent, reform-minded physician and his suffragist wife, the John Randolph Haynes and Dora Haynes Foundation is a leading supporter of social science research for Los Angeles. It is also the oldest private foundation in the city.

Each year, the Foundation distributes up to $3 million in grants and scholarships to various (mostly local) institutions. These funds, in turn, are used to encourage study and research into the underlying causes of social problems in Los Angeles and to recommend ways of addressing them.

Over the years, the Foundation has funded hundreds of important urban studies in the areas of education, transportation, local government, elections, public safety, demographics, public personal services and natural resources. In doing so, the Foundation has remained true to its founder’s philosophy of promoting “the social betterment of mankind.”