David Fein sat down with Kevin Hopkins, editor of BVDataWorld’s monthly National Economic Report (NER), to find out more about both its history as well as how business valuators can use the data to improve the accuracy of their valuations.
David: Thank you for your time, Kevin! Let’s start with your history, your background, and how NER came to be.
Kevin: Mathematics has always fascinated me. I studied math in high school, much of it on my own. But at the time, I didn’t know anything about economics.
My other main academic pursuit in high school was debate, and so I became intensely interested in legal and political issues as well. And so, when I went to college, I wanted to be a lawyer and maybe get involved in politics after I graduated—and I also wanted to major in math. But my academic advisor steered me toward majoring in political science and history, pointing out that they would be more useful to that career path than mathematics would be. And so I went down that road. But then, in my third year, I had a wonderful professor of economics named Frank Ward who introduced me to the subject of economics, which I immediately loved—in part because economics played such an important role in the political issues I was interested in. And, more importantly, Professor Ward taught me that the language of economics was mathematics, and that, if I wanted to be an economist, I had to become an expert in math. I realized I needed to get back into mathematics and I wound up obtaining a double major in math and economics.
After graduating, I went to graduate school at the University of Missouri at Columbia, where I was a graduate instructor in economics. The next year, I transferred to UCLA, which had one of the best economics programs in the nation, to continue my studies. But, while there, I received an offer that I couldn’t refuse—to work as an economist and writer for Citizens for the Republic, the political action committee headed by then-former California Governor Ronald Reagan.
David: That is so interesting. Tell us more about your role.
Kevin: When Governor Reagan decided to run for President, I was asked by my boss, a well-known economist named Martin Anderson, to I move over to the presidential campaign committee with him. With my background in economics, I was asked to write a large number of Gov. Reagan’s economic and energy policy papers and assisted future Federal Reserve Chairman Alan Greenspan in writing Gov. Reagan’s National Economic Recovery Plan. Subsequently, after Mr. Reagan won the election, Martin Anderson brought me to The White House as his economic policy advisor. I later became head of the Office of Policy Information, where I wrote a weekly publication on economics and policy, with a focus on economic data and statistics—a precursor, in a way, to what—25 years later—would become the BVDataWorld National Economic Report.
I worked at The White House and the Presidential Re-election Committee for a total of four years, and then moved over to the Hudson Institute, a Washington, D.C., based public policy institute, where I continued to work on economic policy issues, including employment and labor policy, which became the foundation for a book that two colleagues and I wrote called “Help Wanted: How to Survive and Thrive In the Coming Worker Shortage.” And then, after that, I moved to San Diego, where I worked in the mayor’s office as an economist. Since then, I’ve served as an economic analyst and strategic advisor for a number of both large companies and Internet startups, primarily in the financial services field.
David: That’s interesting. What was your official role at the White House?
In January 1981, I was appointed Special Assistant to the President and chief staff member of the Cabinet Council on Economic Affairs., where my primary responsibility was writing economic policy documents and proposals. Later, in March 1982, I was named Director of the White House Office of Policy Information, as I mentioned before.
David: That must have been an incredible experience. So how did you start working on NER?
Kevin: In 2008, I was hired by the National Association of Certified Valuation Analysts (NACVA) as a writer and economic analyst for KeyValueData (KVD), and is now is also marketed as BVDataWorld. KVD had an existing economic report that they had been selling, but KVD wanted something more compelling and concise. This led to the creation of the first version of the National Economic Report (NER), which was a 15- to 20-page monthly report, written in a narrative (i.e., newspaper-article) style, and accompanied by a separate, quarterly Excel file that provided data tables and graphs across 48 data categories. We also created a couple of other documents that were focused on industry-specific topics (The Industry Monitor) and location-specific topics (The Metro Area Monitor). We published all three of these publications for about a year but ended up suspending the two Monitors and focusing just on the NER.
For the next two to three years, we continued to work on NER as a narrative publication. The only major change came in 2011, when we changed the NER’s structure to a topical format, which highlighted discussions of each data point in separate, easily identifiable section. This format proved to be a lot more scannable and made it easier for valuation professionals to find the specific data that they needed. This new format also included a 7-page report summary that could be dropped directly into valuation reports, if desired.
The NER stayed that way until November 2021 when we introduced a dramatic new format.
David: What was the catalyst for the change?
The changes were driven mostly by the comments from Jim Hitchner, the Managing Director of Financial Valuation Advisors, who had written a review of three of the most popular economic reports written for the valuation market, including the KeyValueData National Economic Report. Mr. Hitchner made suggestions for improvements for each report. It turned out to be one of the most important developments in life of the NER. Mr. Hitchner gave our report a largely positive review, particularly with regard to the details and precision and the content, and how easy the report was to read. However, he also recommended some changes, all of which we implemented.
David: What were the specific changes?
Kevin: The three recommendations were: (1) to combine the data tables with the text of the report; (2) to expand the number of data points we covered and (3) to add footnotes to both the tables and text. In response, specifically, we:
- Doubled the length of the report.
- Added 83 data tables to bring the total number of data tables to 131.
- Added endnotes to every table and every substantive statement in the report (a total of around 250 endnotes per issue).
- Turned the quarterly data supplement into a monthly publication.
David: Did the categories also change?
Kevin: Yes. We significantly expanded the topical coverage. The previous version of the NER had eight categories:
- GDP and the overall economy
- Employment and unemployment
- Finance and stock markets
- Economic sectors (automotive and housing and, for a time, health care)
- Consumer confidence and spending
In all, there are now a total of 19 categories vs. the original eight.
David: The new version has 19 categories?
Kevin: Yes, 19. Some are new categories, and the others are expanded versions of topics that were covered only briefly before. e We also removed the international data tables that were in the previous version of the report since the quality of international data was not as high and since that data was less relevant to most valuation professionals.
Each of the 19 new categories has from 3 to 20 subtopics along with their accompanying tables. Each subtopic and table is numbered for ease of reference, and the text and tables are closely linked to make it easy to move from the text to the greater level of detail on the tables. The 131 tables in the text report contain the last two calendar years of data, while the monthly data spreadsheet—with the exact same 131 tables—includes the most recent 11 calendar years of data:
The 19 categories in the new version of the NER are as follows:
- General Economic Indicators
- Gross Domestic Product (GDP)
- Employment – Overview
- Employment – Sectors
- Employment – Unemployment
- Employment – Unemployment Rates by Demographic
- Employment – Job Transitions
- Employment – Key Labor Market Metrics
- Financial – Markets
- Financial – Money & Crypto
- Financial – Interest Rates
- Business & Industry – Production & Outlook
- Business & Industry – Profit, Sales, & Investment
- Autos & Housing
- Consumers – Income & Spending
- Consumers – Consumer Confidence
- Energy Prices
David: Okay. Do you cover trends?
Kevin: Yes. Because the text report provides two calendar years of data and the accompanying data spreadsheet offers 11 calendar years of data, it’s easy for valuation professionals to see the trends in the data—and we call out many of these trends in the text. In addition, the first section of the new version of the report looks at overall macroeconomic trends—specifically, the current economic indicators and the leading (i.e., future) economic indicators.
David: What about forecasting?
Kevin: As just mentioned, the new version of the report provides a summary of the future-focused leading, economic indicators. In addition, there are separate discussions and tables covering the U.S. Federal Reserve Board’s 4- to 5-year projections of economic growth and unemployment. There is also a good deal of forward-looking material in the other sections of the report as well.
David: Where does the data come from?
Kevin: Most of the information comes from U.S. government sources like the U.S. Federal Reserve Board, the U.S. Bureau of Economic Analysis, and the U.S. Departments of Treasury, Labor, Commerce, and Housing and Urban Development. There are a number of private data sources for specific topics as well, such as stock market indices (Dow-Jones, Standard & Poors, Nasdaq, etc.), certain housing topics (the National Association of Realtors, Standard & Poors/Case-Shiller), several consumer-confidence scores (the U.S. Conference Board, the Gallup Poll, and others), and so on. Finally, we use standard news sources as references for discussions of current financial events and other commentary.
David: Does the report identify the source of data it uses?
Kevin: Yes, every substantive statement in the report (except those referencing data in the accompanying tables) and each of the individual 131 tables are referenced to endnotes.
David: So not only did the structure change but technology has changed over the years. Can you tell us more about the compilation process?
Kevin: Previously, the text of the report was drawn mostly from news sources, while the data tables came from a wide variety of both government and private sources. All of this information was manually retrieved in a manner that varied from report to report. As you can imagine, compiling this information took a huge amount of effort. Since the original version of the report appeared, reputable data sources have become more widely available and provide more comprehensive historical databases. This has allowed us to create a semi-automated data-extraction and -presentation system for populating both the monthly data tables and the text report itself, which saves a tremendous amount of time and so has allowed us to double or triple the volume of information included in the report
In addition, we’re able to draw probably about 80% of the narrative information from these tabular data sources, which has reduced the amount of unstructured research that needs to be done. And so, while preparation of the current version of the report does take considerably more time and effort than the previous version of the report did, as noted, it also provides about three times as much information—meaning that the time required per unit of information is much less.
I would add that, by presenting data for the last 11 years—in both tabular and graphical format—we’re trying to make it easier for the valuation professionals who use this report to identify and analyze trends over time, as well as to extract and present the data they need for their valuation reports.
David: The old format was also slightly different, right?
Kevin: In the previous version of the report, we provided the data tables only one month per quarter (in January, April, July, and October), along with the narrative report. For the other two months of each quarter, we supplied only the text-based narrative report. Now, with the new version of the report, every month’s issue is the same length, has the same structure and includes updated versions of all 131 of the data tables.
David: So, there’s no difference between the monthly reports and the quarter-end reports?
Kevin: The only difference now between the first month of each quarter and the other months is that the graphs in the data supplement—which, to keep the graphs readable, present only quarterly averages rather than monthly data—are updated only once per quarter. But other than that, yes, every month’s report is the same.
David: The numbers behind the graphs are in the report, so how do you handle updating the graphs and the reports?
Kevin: The graphs are generated more or less automatically from the data tables. But one of the challenges—for both the data tables and charts—is that both the government and many of the private sources re-estimate previous months’ or years’ data as they collect new information or modify their estimation techniques. This means that not only new data must be added each month, but certain previous data points must be updated. Sometimes, this requires the replacement of the data in a given table. For instance, every year, the U.S. Department of Labor re-estimates its entire historical data series, which means that most of the employment-related tables need to be completely redone.
We generally make these changes in the text and data tables only for the months in which the data is updated (and don’t go back and update the previous editions of the report) because we want previous reports to reflect the understanding of economic and financial conditions at the time of the report, since the then-prevailing economic and financial conditions are what determine the value of a business at a given point in time.
David: How do you determine the structure for the sections and the data?
Kevin: The 19 sections were chosen to reflect the major influences on—and indicators of—the country’s financial and economic health. The more influential the indicators, like employment and inflation, the more data and tables are included under those sections.
Where possible and relevant, we also focus on specific industries and sectors of the economy. For example, we provide industry-specific employment data for 12 different economic sectors, since employment levels are one of the major signs of the health of a given sector. And this data, in turn, can be incorporated into a valuation analysis. As one example, during the recent pandemic, employment in many sectors dipped sharply, meaning that—at that particular time—the value of businesses in those sectors was likely to be lower, whereas in other sectors—like health care and financial services—the employment declines weren’t as steep.
David: How would a professional valuator use the National Economic Report?
Kevin: The data in the National Economic Report is designed, in the first instance, to give an idea of the overall U.S. business climate and how that climate is likely to affect the ability of businesses to produce and sell their products and services, the prices they can charge, the cost of production inputs, and the like. For instance, right now, diesel fuel costs are skyrocketing, which makes it not only much more expensive to operate a transportation company, but also more expensive to transport goods that are sourced mostly from specific parts of the country, like many agricultural products—which in turn increases the prices of goods or the components that must be transported over long distances. Likewise, with interest rates surging, housing sales are going down, which is apt to mean financial struggles for many construction and real-estate businesses.
With this information in hand, the valuator can then apply his or her expertise, knowledge of the local economic situation, and knowledge of the company being evaluated in order to draw conclusions about the value of a business. For instance, if manufacturing is struggling, as it is now in many parts of the country, a valuator can infer that the value of a manufacturing business is likely to be reduced.
However, to make valuations as accurate as possible, these large-scale trends must be supplemented by the valuator’s knowledge of local trends and developments that aren’t captured in the broader data. For instance, if a manufacturing plant that employs 30% of the people in a small town moves out of the state, that’s going to be devastating to the local economy and so will degrade the value of all businesses in that area. That’s something that would not show up in the aggregated national data. But it might not even show up in the current local data because the effects of such a change are likely to be felt most strongly in the future. And so, the valuator will need to observe not only current data and trends, but to extrapolate those into the future. Those are insights and conclusions that no data aggregation service can provide.
David: Can you give us some more guidance on how a valuator would determine what would be relevant, and if they need to dig a little deeper into the industry itself?
Kevin: Sure. In terms of industries, the key question is, “Are the trends in individual industries different than they are overall?” Prices are going up everywhere, but in the energy industry, for instance, they’re going up by 30% to 40% year-over-year versus 8% to 10% year-over-year in most other sectors. And, as mentioned earlier, the transportation industry is more affected by energy costs than, say, the legal profession, meaning that the value of a trucking company would be more adversely affected by current inflationary pressures than would a professional-services company like a law firm. Making those kinds of distinctions is one of the keys to applying overall economic and financial trends to the valuation of specific businesses.
Another example in the same sector: overall, the unemployment rate in the country is low, and millions of jobs are going unfilled. But in some fields of work, like truck-driving, the shortage of employees is really hindering a lot of transportation companies. And if a company doesn’t have the employees it needs, it won’t have products or services to sell. And so, again, while worker shortages are common throughout the economy, they are affecting certain sectors, like transportation, more than they are other sectors, like professional services.
David: Maybe the question valuators need to ask about looking beyond national trends is if either the industry or the geography has things going on that are different than the national trends?
Kevin: That’s exactly right, and we’ve just been discussing some industry examples. The situation is somewhat similar for geography, but also somewhat different. In the political realm, there’s an old saying that “all politics is local.” And, at least to a degree, all economics is local, too, because, while local economies are certainly affected by national and state trends, they’re also affected by local economic trends that may not be present in other locations, like the closure of major manufacturing plant or a business moving its headquarters from a higher-cost area like Silicon Valley to a lower-cost area like Nashville, and so forth.
In addition, there are different government policies in different localities. High-tax areas tend to suffer in terms of economic growth more than low-tax areas. Florida is booming now, and New York is struggling, in part because New York has very high state taxes and Florida has no state income tax. To use another example, during the pandemic, certain jurisdictions were requiring all workers to be vaccinated, which led to worker shortfalls in certain professions, like nursing. But in areas without vaccine mandates, these problems were less severe. Even social conditions can come into play. For instance, another reason why Florida is booming and New York is struggling is that New York’s no-bail laws and other lax-on-crime policies have allowed crime to skyrocket there (particularly in New York City itself), while Florida has remained much tougher on crime. And so, local factors can—and often do—have a profound impact the financial well-being of certain industry sectors or local economies, and hence on the valuation of businesses in those situations.
David: Okay, interesting. Valuation is all about predicting ongoing cash flow and risk. Do you have any suggestions on how valuators should take this data and apply it to a valuation? Do you have a couple of tips on what to look for and how to apply it?
Kevin: Sure. First, when valuing a business, you need to understand the operation of the business and the factors that are going to affect its growth and stability, its ability to employ people, and its ability to sell its products or services. And then, based on that understanding, you try to assess which economic factors are going to have the greatest influence on the relevant aspects of the company’s operation.
To use an example, say that you’re valuing a small farm. A farm obviously experiences the same challenges that most other businesses do—for instance, the rising cost of employees, the rising cost of fuel, and so on. But there are other agriculture-specific challenges that may be at play. Fertilizer prices, for instance, are rising faster than many other production inputs, and there are serious shortages in some parts of the country, which may remain for some time to come. Many jurisdictions are also imposing restrictions on water usage or chemical runoffs. These factors not only reduce the value of many local farming operations today, but may do so for far into the future.
Another tip that goes beyond the National Economic Report—or any report on general economic or financial conditions—is to do research on the individual company. Many business credit bureaus, like Experian, Dun & Bradstreet, and CreditSafe, along with private-company data providers like PrivCo, offer very insightful reports on an individual companies’ prospects. For instance, both Dun & Bradstreet and Experian reports supply information on a company’s payment history, probability of delinquency, probability of failure, and the like, as well as many historical financial metrics, like income, profitability, and return on assets—all of which gives valuators specialized insights on a company’s future financial well-being that may or may not be characteristic of other companies in the same industry or geography—or even the company right next door.
David: Thank you, Kevin! Very interesting, and it’s easy to see how important economic information can be to a valuation. We usually like to ask if there is anything you’d like to tell us about yourself, but you already did. Working in the White House must have been an incredible experience. Can you tell us something about working there that not many people know?
Kevin: It’s a place where one individual can have an influence for good far beyond his or her capability to do so in any other segment of life. For instance, I was a speechwriter during the Presidential campaign and wrote a number of speeches on public policy for then-candidate Ronald Reagan, working mostly on economic and energy issues. Once in The White House, other people took over the speechwriting duties, but I occasionally contributed information to the President’s speeches. Most memorably, I wrote two paragraphs on tax policy that made their way into one of the President’s early State of the Union addresses in which he used the paragraphs that I wrote in order to affirm his commitment to reduce taxes on Americans across the board—a policy that even some of his senior staff weren’t too enthusiastic about. But that speech cemented the President’s position on the issue, and while those paragraphs were only tiny pebbles splashing into a very big lake, they played at least a small part in the passage of the President’s historic tax-reduction act a year later that wound up saving the American people and American businesses alike literally billions of dollars in taxes and that helped to create one of the strongest periods of economic growth and job creation in American history.
If you’d like to read more about his tenure at the White House, click here https://www.presidency.ucsb.edu/documents/appointment-kevin-r-hopkins-director-the-white-house-office-policy-information
About the National Economic Report
BVDataWorld’s National Economic Report (NER) is the only monthly economic report in the industry. Each edition of the BVDataWorld NER provides a narrative description and detailed current and historical information for 131 key economic and financial datapoints in 19 high-profile categories, and includes a seven-page national economic summary that can be dropped directly into valuation reports, or serve as a valuation appendix or exhibit. The report is supplemented by a monthly statistical Microsoft Excel® workbook that includes tables and graphs that provide 11 calendar years of historical data on the same 131 key economic and financial topics. The report draws on data from well-known and highly reputable government and private-sector entities. The NER is written by Kevin R. Hopkins, a former White House economist and BusinessWeek senior contributing editor.
About Kevin R. Hopkins
Kevin R. Hopkins. is a former senior economic advisor to the U.S. President. He previously served as Director of the White House Office of Policy Information and as Senior Staff Member for the White House Cabinet Council on Economic Affairs. He has also been a senior contributing editor to Business Week magazine for more than two decades. He attended the Ph.D. program in Economics and Mathematics at UCLA.