Flash and a Touch of Brash

Forecaster Michael Evans mines miIlions from controversy

In the uncertain world of economic forecasting, where most commentary is clothed in the blue serge prose of prudence, Michael Kaye Evans, 40, is a flamboyant exception. Evans delivers his often outrageous, generally gloomy opinions with a resounding finality. His manner has made him a figure of almost constant controversy. Lyle Gramley, a member of the President's Council of Economic Advisers, calls Evans "the Larry Flynt of econometrics." Yet he is the darling of conservatives on Capitol Hill, where he appears often to testify.

Typically, Evans is now the most vocal of a small (but not modest) band of experts who assert that the U.S. is already in recession. That conflicts with the views of most other economists, who expect the slump to start this summer. In one of his last reports for Chase Econometrics, a computerized forecasting service that he is leaving in September, Evans notes that housing starts, retail sales, personal income and especially new durable goods orders have either slowed or fallen sharply. His conclusion: "You can't have an 8 1/2% drop in new orders in one month and avoid a recession."

In fact, Evans has been crying recession for more than a year. Reminding him that he has so far been dead wrong elicits the characteristically brassy reply, "Yes, and I'm going to keep on saying it until I get it right." He expects the decline in gross national product to last from the second quarter of this year through the first quarter of 1980. The slowdown, in Evans' view, will cause inflation to drop from its present 13% rate to about 8% by 1979's end. Chances of a leveling off of retail food prices are particularly bright because of the huge grain stockpiles and the possibility of another bin-busting crop this fall.

Evans, who majored in economics and mathematics at Brown University, is a pioneer in econometrics, in which hundreds of related equations are fed into a computer to determine what would happen if, say, a 45-day auto strike occurred this fall. In 1963 Evans joined Professor Lawrence Klein at the Wharton School. But Evans broke with him after half a dozen years and later struck a deal with Chase Manhattan Bank to create Chase Econometrics. Forecasting by econometrics became immensely popular with corporate and Government clients, and today is a $100 million-a-year business.

The field is dominated by three firms, each with its own style. Wharton Econometric Forecasting Associates, under the scholarly Klein, is austere and academic. Data Resources, headed by Harvard's Otto Eckstein, is cerebral and expanding. Under Evans, Chase Econometrics has been outspoken and controversial. Even Chase was not immune to his barbs. When the bank was having trouble in 1975, Evans said: "I have no Chase stock, but if I did, I'd sell it."

Evans damaged his reputation last year when, in a study for business lobbyists, he predicted that the stock market would rise 40% over two years if the capital gains tax were reduced from 49% to 25%. That far-out conclusion only bolstered critics, who charge that Evans sometimes cooks the books to come up with results favorable to his clients. Then Evans called Federal Reserve Board Chairman William Miller "a tool of the Administration." Chase decided that it had had enough and early this year agreed to buy Evans out.

Already he has opened a new Washington-based firm, Evans Economics, which will specialize in corporate productivity studies and commodity futures. With a net worth of about $3 million, Evans jokes, "I'm now a member of the oppressed minority of millionaires." He has just bought a new house in tony Potomac Falls, Md., complete with a room for a grand piano where he can indulge one of his two passions, playing classical music. Evans' other consuming interest is food. He plans in September to eat his way through three-star restaurants from Lyon to Paris. If the outspoken economist is bothered by the constant criticism, he hides it well. Says he: "You know my motto: 'Often wrong but never in doubt.'

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