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Thursday, Mar 28, 2024

Late Bloomer

Bill Watkins has the difficult job of looking into a crystal ball and telling people where the economy in the region and state are heading. As executive director at the Center for Economic Research and Forecasting at Cal Lutheran University, Watkins, 62, has a specific prediction on the manufacturing sector: mobile capital means companies can come and go quickly – and employees need to prepare for a life where several careers are the norm. Watkins’ own life has been a case study. He started his professional career working in loan processing at local banks. Then, after about 20 years, and as his children were entering college, he decided to go back to school to pursue his Ph.D. in economics. He would go on to work for the Fed in Washington D.C. before leading the economic forecasting center at UC Santa Barbara and finally coming over to Cal Lutheran about five years ago. Watkins spoke with the Business Journal from his Westlake Village office, where he mused about the state of the local economy, how the beauty of fall in Santa Barbara changed his life and why he never pursued his love of the outdoors as a career. Question: What is the state of the economy in the greater Valley region as it stands today? Answer: In this region, it’s better than it was but not as good as it could be. I think many of the reasons are self-inflicted. Over the past 20 years, California has had external challenges, but right now the drought is a major challenge. If it doesn’t rain next winter, we’re going to have some serious problems. How big of a deal is the drought? First are the agriculture people. And they need water. And an awful lot of manufacturing processes are water dependent. How can manufacturers deal with it? If water prices become high enough, maybe it would increase their reusing of water. But even if the prices don’t go up too much, it’s still going to raise their costs. The worst would be if it forced us to restrict their usage. Where do you see the local economy heading next? You can’t tell the future. I expect very slow job growth. Coastal California is just becoming what I call consumption communities. Consumption communities? Places like Beverly Hills, where not a lot gets made. All of Coastal California has the potential to become one big consumption place for rich old folks. Look at places like Santa Barbara or Monterey County. Even the San Fernando or Conejo valleys? We do have some significant office and industrial complexes here, but that’s threatened by the price of housing and other challenges. As people get wealthier and move into the area, they will want less and less development. And I can relate, I have a condo in Bishop and unless you want to build a bookstore or a brewpub, I’m not really going to like it. What about large companies like Amgen? They just announced major layoffs. Amgen is so big that we’ve seen average salaries in the area swing by their bonuses. They’re a huge source of prosperity for Thousand Oaks and all of Ventura County. I’d heard rumors, but we never heard numbers. How far could the ripple effect go? While what happens at Amgen affects the San Fernando Valley, that area is buried in Los Angeles data, so it’s very hard to track. We know more about Ventura County. We know they may have workers driving in from as far as Palmdale so it’s very spread out. They’re a major employer and source of economic activity. How is manufacturing doing in general? The amount of manufacturing output in California has actually been climbing. But at the same time, the number of jobs has been declining. Why? There are factories where a big machine can replace a large number of people. It takes a different type of person to take care of this machine now. The problem is that these were well-paying jobs for people without college educations. Is it also related to the products being produced? It’s just becoming electronic. My cell phone has a guitar tuner and a metronome in it. That used to be several different businesses, but now I got it all for just about five bucks. We’re going away from physical things to things that can just be added onto your phone. How does this change the manufacturing economy? Obviously it’s much more automated than it used to be. But it’s also more mobile. A Japanese company could move in here and get to work. But if the cost structure is better in Brazil in 10 years, they’ll pick up and go. Capital is much more mobile. Do you see a threat in this foreign competition? I wouldn’t use the word threat, but rather the bigger source of change. What we’ve seen is a real decrease in poverty worldwide. And that’s tied to trade. The fact is that a $40 an hour worker in Detroit can get replaced by a $10 an hour worker in Shanghai. And the people that buy the goods are happier, the company is happier, the guy in Shanghai is happier, but the guy in Detroit got screwed. What would you suggest to keep that American job? We need to simply find a way to retrain people. If people don’t go into something else quickly, they end up sitting around. And no one wants to hire someone who hasn’t worked in a couple years. Listen, you’re not going to keep the jobs. In a sense, the world is better off for it, but you just need to find a way to take care of our Detroit guy. We need to adapt to the idea that we’re going to have more than one career. You’ve certainly embodied that. I understand you started your professional career as a banker. I was a loan officer for about 20 years at lots of places. I worked for Union Bank, Channel Islands Bank, West Valley bank, which is now defunct. Why did you decide to then get your doctorate in economics? It was something my wife and I had always talked about – doing a Ph.D. someday. That time was sort of perfect with my children leaving for college and all. Economics just provides a different way of looking at things and I always found it interesting. I always enjoyed the classes and was just fascinated with the topic. Your first job after grad school was at the Fed. What did you do? I worked as an economist in monetary affairs, one of the three big divisions in the Fed. My job was to participate in a team that tracked bank assets and what they would do in response to anything we would do. How did you come to run a research center? I was hiking with a professor in Montana when I was working at the Fed. He said, “You know, we’ve got this position opening up and I’d sure like to see you apply for it.” So I flew out to Santa Barbara in October, and Santa Barbara is just wonderful in October. The weather is perfect and people are bicycling up State Street wearing the minimal amount of clothing. So I just call my wife back in D.C. and tell her, “I want this job.” That was 1999. I started at Santa Barbara in 2000 running their economic forecast project. About five years ago, my colleagues and I all came here. Why did you leave Santa Barbara? They cut back their forecast to just Santa Barbara County, so we chose to come here. It was to start two entities here. One was the center for economic research and forecasting, but the other, which was extremely exciting, was the masters in ecnomics program. Why start that program? Well, in my experience, master’s programs aren’t that hard. I worked 30 hours a week when I was in grad school. I bought a set of golf clubs before my Ph.D. program, but I never got to use them. So we wanted to set up a program where people could be completely prepared for any Ph.D. program in the United States, or alternatively, be ready to go into any business and be immediately productive. That’s been a lot of fun. Who uses your research? A lot of banks, local banks mostly, but big banks too. Some newspapers. We’ve done quite a bit of work for governments. We do some work for SCAG (Southern California Association of Governments), the transportation commission here, the city of Ventura, city of Thousand Oaks. Do you do San Fernando Valley forecasts? Unfortunately not, but we’d love to. The problem is it’s not one geopolitical entity. Part of it is Los Angeles County, Los Angeles city, Burbank, Santa Clarita. There’s just no way to do the data without so many assumptions that it just doesn’t make sense. How do you put together the forecasts? It’s done different ways in different places. Some places have models in their head and just sit there and think. We like to work more scientifically. We have formal statistical models. But statistical models are not enough by themselves because they’re completely backward-looking. So we think our competitive advantage is that we watch what’s going on in the areas we forecast. What do you mean? Well, if you want to forecast Shasta County, California and you don’t know they just found a spotted owl in your woods and they’re gong to shut down some lumber mills, then you have a bad forecast. How much of it is gut? Statistics are straight up. But we have to estimate based on experience and predict what companies are going to do. Locally, we spent a lot of time thinking about water and how it will impact Ventura County growers. We take data and try to develop the story that explains the data. We think of storytelling as a major part of what we do, because it helps us and our clients understand what is happening. What’s your track record? First off, if I were to say we were 100 percent successful over the past five years that would mean nothing for the next forecast. That being said, we’ve been pretty accurate in this cycle since the recession. We realized early on a few key components. First off, it’s just realizing it’s a different world. We’ve been pretty close on jobs, but we’ve definitely struggled on GDP. So what is it like to be an economist in today’s online, connected world? I spend a lot of time seeing what other economists are saying and trying to sort out the world. And one thing that has changed is the ease of doing that. Now it’s easy. They all have blogs. So you can very quickly find papers online and get all your info. That said, there’s a lot more data to look at. Then there’s writing, working with the models and, depending on what I’m teaching, there’s that. What’s the next major change you think is coming in the economy? There are certainly big changes, but they’re absolutely unpredictable. We call them turning points. I once had a professor that said only idiots predict turning points. They’re extremely difficult. We just look forward and see what could happen. You can bet that the next big thing is something nobody has seen coming yet. As a professor, how much of your time is taken up with academics? I teach three classes in our master’s program and I co-teach one in undergrad. I’ve been teaching economic development, international economics and monetary economics. What does all that leave for spare time? I try to make it when I can. One thing that I enjoy is working in the morning. On Saturday’s, I might wake up four or five hours before the family and work. Occasionally I take a whole weekend off, but it doesn’t happen very often. What are your hobbies? I might go fishing, take the kids to the ice cream store, play guitar. What kind of music? I like playing old blues, Mississippi-style blues. I love that music. Ever think of giving it a go in music? You’ve got to be able to sing to have a shot. I can’t sing. If you weren’t in economics or banking, what do you think you’d be doing with your life? If it wasn’t for my wife, I would’ve been dead on a mountain a long time ago. I may have been a climber or something. Maybe a fishing guide. But I don’t think it could have kept my attention for 20 years. Did you ever think of taking this knowledge and experience and trying your hand at business in practice? No. One of the common things between a bank lender and a university professor is that they’re both risk-averse professions. I am not a big risk taker. Most self-made people roll the dice at some point. That’s not me.

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