To the Prophet Go the Profits

Economics + Computers = $$$ for Eckstein

"Let's see," says Otto Eckstein entrepreneurial economist, "how many clients are speaking with our computer at this moment." The good doctor presses a shiny gray key of a Burroughs 7700 computer, and out whirs the answer: 113. Then he touches another key, and the computer spits the names of those 113 paying customers. Among them are the departments of State, Treasury, Commerce and Justice and two dozen other federal agencies. Then there are Morgan Guaranty, Bank of America, Citibank and a score more banks, and American Can, Dow Chemical, Exxon, Shell, among many other industrial giants.

In scarcely eight years in business, Eckstein has recruited 520 such clients, including two-thirds of the 100 largest U.S. manufacturers, most of the big banks, and plenty of brokerages, utilities, state agencies and, increasingly, foreign governments and corporations. At any time of day, 70 to 120 of them are in dialogue --by way of long-distance phone lines --with the computer at Data Resources, Inc., of Lexington, Mass., of which Eckstein is cofounder, president and largest shareholder.

The questions put to DRI's computer range from economic esoterica ("What is the price of strawberries in Manitoba?") to the effects of broad economic trends on specific products ("How will the change in personal income for August alter the price of chlorine?"). Eckstein, a member of TIME'S Board of Economists, has the answers because he has built by far the world's largest bank of economic statistics--more than 3.5 million series of figures about the U.S. and 127 other countries. These data are constantly updated by his staff of 250 economists and analysts from the huge mass of numbers put out free by governments, associations and corporations. Then the figures are fed into the most capacious computer that Burroughs has ever sold. Eckstein's econometric models, based on thousands of mathematical equations, produce not only forecasts of growth, inflation, interest rates and the like, but also thousands of micro forecasts of specific industries and products. The predictions change as new indicators are reported or major political developments occur. For example, 72 hours after the Arab oil embargo struck in 1973, Data Resources forecast just how much insurance companies' profits would surge because driving--and accidents --would decline.

With fees from these prophecies, personal consulting and other services, DRI's revenues rose 35% last year, to just over $17 million, and profits climbed 70%, to $1,502,000; they are growing somewhat faster this year. That has made Eckstein, at 50, probably the richest American economist. Since DRI went public last November, the shares have bucked the bear market and risen from $11.50 to $18 bid, giving Eckstein and his family a stake of more than $4 million.

Not bad for an academician who did not go into business until he was more than 40. Born in Ulm, Germany, Eckstein fled Hitler in 1938, graduated from Princeton and in 1955 earned his Ph.D. in economics at Harvard, where, as he says in his fast-paced, slightly accented English, "I found a home." He has taught there ever since, except for 18 months in the mid-1960s, when he was a member of Lyndon Johnson's Council of Economic Advisers. (Professor Eckstein's popular course in freshman economics usually draws well over 800 students.)

Upon leaving Government, Eckstein found himself in great demand as a speaker and consultant to business. In one two-day period, he jetted to Chicago, Denver and San Francisco--and concluded that "there must be a better way to disseminate economic data and forecasts." It was on the plane that he conceived the idea of putting his econometric model and other data on a large central computer that clients could tap into.

Eckstein sold his idea to Wall Street's Donald Marron, chief executive of Mitchell, Hutchins, the investment advisory firm.* In 1969 it raised $1.1 million in seed money and became a founding partner in the company. DRI was not the first firm to market econometric forecasts; Lawrence Klein, who developed an econometric model of the U.S. economy shortly after World War II, has been selling forecasts from his famous Wharton School model for five years longer. But Eckstein's marketing flair and his computer time-sharing innovation have made DRI by far the biggest in the field. The most reliable performance rating of the prophets is made by Economist Stephen McNees of the Boston Federal Reserve Bank, who concludes that the three computerized econometric data firms -- DRI, Wharton and Chase Econometrics -- set the standard for accuracy among professional forecasters.

This year Eckstein expects that the G.N.P. will grow 4.8%, consumer prices will rise 6.5%, profits after taxes will expand 13% and unemployment will decline to 6.9% in the fourth quarter. Between now and 1980, there will be a great increase in the number of heads of families aged 25 to 44 who earn more than $25,000, and this will lead to a surge in sales of houses, furnishings, cars and other fairly costly goods. A happy forecast -- and it is even safer to anticipate that DRI will continue to grow faster than most of the indicators that it monitors.

*Which has since merged into Paine Webber.

This file is automatically generated by a robot program, so viewer discretion is required.