Beyond the blackboard | For the undergraduates who create the annual Colby Economic Outlook, the classroom is the real world
For the past 17 years, Donihue's students have taken what they've learned during three years of statistics and macroeconomics classes and applied those lessons to produce a short-term forecast of the national and Maine economies. Donihue sends out 25-30 copies of the report each year; recipients include the governor's office, the State Planning Office and the Maine Revenue Service. The state Consensus Forecasting Commission, of which Donihue is a member, uses the Colby Economic Outlook as a source when coming up with its own forecasts. Depending on the report's focus, a few copies of the Colby forecast might find their way to Donihue's colleagues in Washington, D.C., where he worked for a year during the Clinton administration as a senior economist on the Council of Economic Advisors. (Donihue says this year's report should be available online at www.colby.edu by mid-January.)
The advanced nature of the course is by design, Donihue says. Sure, he could have simply assigned textbook reading and had his students pore over case studies while lecturing them on macroeconomic theory. "But what do you do when the textbook doesn't work?" asks Donihue.
He wants the students in his forecasting seminar to learn more than how to simply plug numbers into an equation to project, say, income growth or a national rise in GDP. Instead, Donihue wants to prepare them for jobs in the real worlds of business and public policy, where he says the majority of his students end up after graduation. "What I do is give them real-world data," Donihue says. "That's what they'll face in the first week on the job."
For Caroline Theoharides, who graduated from Colby with a degree in economics in 2006, the coursework was more geared to graduate-level business school students. "It was a huge undertaking," she says of assembling the report. Theoharides, 23, is grateful for the experience, though, especially since it helped her land a post-college job as a research assistant at the Federal Reserve Bank of Boston, where she says she uses lessons learned in Donihue's seminar on a regular basis. "It was really a bridge between academia and the public policy of the real business world," she says.
Like most analysts, John Davulis, chief economist of Central Maine Power Co. and another member of the state Consensus Forecasting Commission, relies on a myriad of sources to create his forecasts — including Colby's undergraduate-produced report. "From a business point of view, I look at it for the set of numbers and compare it with other forecasts available," he says. "I think the benefit is really to the students in terms of developing an understanding of how economics works."
Real-world learning
On the first day of the seminar, Donihue hands students a set of data without telling them what it is. His goal is to prompt students to dig into the numbers, calculating simple averages and looking for trends in the data. He doesn't want their judgment clouded by preconceptions. For example, if he handed students a set of data titled "Ice cream sales in Maine," they would automatically know to look for a spike during the summer months. In an unidentified set of data, students see that spike and start asking questions.
Students spend the first half of the semester learning various forecasting methods, giving weekly oral presentations and preparing short forecasting reports on their assigned sectors. These activities, says Donihue, help students improve their public speaking as well as organizing potentially complex presentations for the general public. Those skills, says Donihue, will be necessary in the professional world, whether working at an investment bank or in the marketing department at L.L. Bean. Midway through the semester, students begin delving into the data, compiled from sources like the U.S. Census Bureau and the Bureau of Economic Analysis, that will be used to create the Colby Economic Outlook.
Students have confronted much of this data before, whether in past economics classes or in The Wall Street Journal. But once they begin to see how, say, shifts in oil prices affect consumer spending, their understanding of the material deepens. "I can read about how the U.S. economy is doing all day," Theoharides says, "but once you're up to your elbows in data, trying to slog through it, you have a better intuition and thought process in how everything is related."
Creating a forecast for Maine, however, is more time-consuming than compiling the national forecast. A necessary component for creating the state report is the gross state product. One problem: GSP data only comes out annually, and then with a two-year lag, which when trying to gauge future economic activity "isn't very useful," Donihue says. So Donihue and his students collect more frequently released data, such as total retail sales and non-manufacturing employment numbers, to create their own Colby Coincidence Index. By placing emphasis on factors such as tourism, the CCI offers a more accurate picture of the state's economy than the one-size-fits-all index created by the Federal Reserve Bank of Philadelphia, a commonly used — but, to Donihue's thinking, a not particularly sensitive — gauge of a state's overall economic health.
Donihue, a 1979 Colby graduate, began teaching at his alma mater 17 years ago, fresh from graduate school at the University of Michigan, which boasts a well-known economic forecasting program. At the time, Colby was looking to start a similar program, and Donihue began teaching the forecasting seminar his first semester on the job.
From the beginning, Donihue knew he wanted to focus on the real-world applications of what his students were learning in class, and that tying their knowledge of macroeconomics to local issues, such as the decreasing number of manufacturing jobs in Maine, would deepen their understanding of how macroeconomic theories affect their everyday lives.
Economics 473 is not exactly Outward Bound, but Paul Shirilla, chair of the Northeast Regional Advisory Council of the Association for Experiential Education, says Donihue's class offers students an educational experience unlike the one typically found in a traditional classroom. "I think one of the main benefits for students from programs such as that is the ability to really interact with the material," Shirilla says. "[Students] are going to get a lot more out of the material if they have some sort of direct application of that knowledge to allow them to really test it out."
And the fact that these students are producing economic forecasts for Maine "gives kids a better sense of the state they're going to school in," Donihue says. "When you can take them down to meet the governor, that's really special. I don't think you can do that in every state."
For Caroline Theoharides, who grew up in Lincoln, working on the economic forecast for her native state was particularly exciting. "It was interesting to take something I'm passionate about and put it under the lens of a rigorous analytical economic framework," she says. Sometimes studying factors like immigration or the loss of manufacturing jobs hit especially close to home. "These are things my family and my friends' families are seeing all the time," Theoharides says.
Over the years the forecasts have included various concentrations on certain sectors or trends. Last year's Colby Economic Outlook focused on oil prices. Previous reports have explored themes such as consumer spending, the effects of the first Gulf War, the housing bubble in 1996, the trade deficit and the stock market effects of Sept. 11, 2001.
While the forecast usually offers projections for both the nation and the state, this year's forecast focuses solely on Maine and takes a closer look at tracking personal income and employment growth in the state.
But at its core, the Colby Economic Outlook is a learning experience, and Donihue readily admits that students have botched a few predictions over the years. Just before the first Gulf War, Donihue's class predicted that if the United States went to war in the Middle East, the result would be a long, bloody and terribly costly conflict for the United States. The war, the class surmised, would send oil prices above $60 a barrel, where they would remain for quite some time. "As it turned out, the war lasted 100 days and oil prices spiked but then went down," Donihue says. "That was one of our big mistakes. But everybody was wrong — nobody had it right."
The mishaps and incorrect predictions don't bother Donihue, who knows how unpredictable complex economies can be. "Forecasting is predicting the future," he says. "You're not going to always get it right."
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