Community Economic Analysis

Kathy TweetenNorth Dakota State University

Alan BarefieldSouthern Rural Development Center

Randy ReynoldsPiedmont Community College

Overview

One of the basic tenets of economic development is knowing where you are at and the foundations of the community’s economyThe tools presented in this session will provide a snapshot view of the community’s economic makeup and its issues and opportunities

Trade Area Capture

Provides an estimate of the number of people drawn to a community for retail purchases of a particular goodAssumptions Local people will buy goods at the same rate as

the state average Income causes a variation in spending

Drawback: Easy to measure capture for Apparel, Automotive, Food, Furniture, General Merchandise, Lumber and Building Materials, and Unclassified (Retail Sales only)

Trade Area Capture

Sales and sales tax data from state Dept of Revenue: http://www.dor.state.nc.us/publications/FY02-03SalesUseStats.pdfPer capita income from Regional Economic Information System: http://www.bea.doc.gov/bea/regional/reis/State Population from Census estimates: http://www.census.gov/popest/archives/2000s/

Income Capita Per StateIncome Capita PerCommunity

Population State YType eMerchandisfor eExpenditur State

Community the in Y Type eMerchandis of Sales Retail Actual

Trade AreaCapture

Trade Area CapturePersons County Example

Data: 2002-2003 Person County Furniture Sales:

$8,083,909 2002-2003 North Carolina Furniture Sales:

$4,725,403,007 North Carolina 2002 Population: 8,320,146 Person County 2002 Per Capita Income:

$23,690 North Carolina 2002 Per Capita Income:

$27,785

Person County Example

The estimate is that 16,694 customers will buy furniture in Person CountyCompare this to the 2002 population estimate for Person county of 36,610 (27,764 over 18 years of age)What does this tell us about the spending patterns in Person County?

Customers 16,694

$27,785$23,690

8,320,146,007$4,725,403

$8,083,909

Trade Area

Capture

Pull Factor

Population Municipal

YItem for Estimate Capture AreaTrade Y Item for Factor Pull

The Pull Factor measures the proportion of the population of an area that purchases the good locallyIf the Pull Factor is greater than 1.0, then the area is attracting customers from outside the geographic areaIf the Pull Factor is less than 1.0, then the area is not filling the wants and desires of its locally-based customers. These customers are going outside the area to fulfill their needs.

Pull Factor

The Pull Factor measures the proportion of the population of an area that purchases the good locallyIf the Pull Factor is greater than 1.0, then the area is attracting customers from outside the geographic areaIf the Pull Factor is less than 1.0, then the area is not filling the wants and desires of its locally-based customers. These customers are going outside the area to fulfill their needs.

0.456 persons 36,610

persons 16,694 )(Furniture Factor PullCounty Person

Reilly’s Law of Retail Gravitation

Provides estimate of maximum distance customers will travel to shop for a specific good or servicePremise is that people are attracted to larger places to shop, but time and distance influence these decisionsThe town being analyzed should be the largest in the analysisWorks best for goods and services where quality, price, etc., are factors influencing purchases

Reilly’s Law

(Y)Community Small of Population(X)Community Larger of Population

1

City Y and XCity Between Distance

Distance from

Smaller Community (Y)

Distance data can be obtained from Internet mapping sites such as MapQuest, Yahoo, etc.: http://www.mapquest.com

State Population by Place from Census estimates: http://www.census.gov/main/www/cen2000.html

Roxboro Community Map

Distance Data (Mapquest)

Distance between Roxboro and: Mileage

Danville, VA 30.11

South Boston, VA 24.39

Oxford, NC 26.30

Durham, NC 30.16

Population Data

City Population

Roxboro, NC 8,696

Danville, VA 48,411

South Boston, VA 8,491

Oxford, NC 8,338

Durham, NC 187,035

Reilly’s LawRoxboro vs. Oxford, NC

miles 13

8,338 Population Oxford8,696 Population Roxboro

1

miles 26.30

Distance Oxford residentsWill Travel to Roxboro

Roxboro will draw residents from 13 miles toward Oxford (this would put the trade boundary around Berea, NC)What does this mean in practical terms?Would this tool work to develop a retail boundary for Roxboro in relation to Danville or Durham?

Roxboro Community Map

Reilly’s Law LimitationsAssumes homogeneous populationOnly use for independent communities surrounded by countrysideShould only be used for similar sized communitiesAssumes everyone shops locally – overestimates shopping populationEstimate average trade boundary; individual goods or services will have different boundaries

Potential Sales

Commonly called a “Leakage Study”

Shows whether a community is capturing its full sales potential or whether that money is leaking out to other communities

Potential Sales

Income Capita Per State

Income Capita Per Local

Population State

Sales StatePopulation

AreaTrade Sales Potential

State Population by Place from Census estimates: http://www.census.gov/main/www/cen2000.htmlSales and sales tax data from state Dept of Revenue: http://www.dor.state.nc.us/publications/FY02-03SalesUseStats.pdfPer capita income from Regional Economic Information System: http://www.bea.doc.gov/bea/regional/reis/

Potential SalesPersons County Example

Data: 2002 Person County Population: 36,610 2002-2003 Person County Furniture Sales:

$8,083,909 2002-2003 North Carolina Furniture Sales:

$4,725,403,007 North Carolina 2002 Population: 8,320,146 Person County 2002 Per Capita Income: $23,690 North Carolina 2002 Per Capita Income: $27,785

Potential Sales

4$17,728,10 $27,785

$23,690

8,320,146

,007$4,725,40336,610 Sales Potential

Given the state per capita sales average of $568 ($4,725,403,007 sales / 8,320,146 persons) of furniture sales per year and the relative proportion Person County income to the state’s income, the potential furniture sales in Person County is $17,728,104The actual furniture sales in Person County in 2002 was $8,083,909What inference can be drawn from this?

Location Quotient

Indicates if a community produces more than is needed for its own use and is selling the excess to nonlocal markets

Also indicates which businesses are not meeting local demand and is a source of dollar leakage from the community

Location Quotient

Data: Local and national employment data

for particular industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

X Activity in Employment National of %

X Activity in Employment Local of % Quotient Location

Location QuotientPerson County Furniture

2002 Person County Furniture and Home Furnishing Stores employment: 542002 Person County Total Employment: 9,9012002 North Carolina Furniture and Home Furnishing Stores employment: 19,8692002 North Carolina Total Employment: 3,431,554

Location QuotientPerson County Furniture Store

The location quotient of 0.94 tells us that the furniture and home furnishings sector of the Person County economy is likely just self-sufficient. It could be difficult for another furniture store to compete given similar service, products, customer tastes, etc.

0.94

3,431,55419,8699,901

54

Quotient Location

Population-Employment Ratio

Measures the number of people (customers) who support a trade or service activityQuotient is the number of customers per trade or service sector employeeNo critical value; must be used in relation to other communities of similar size and demands

Population-Employment Ratio

Must use in comparison to other communitiesShould use other communities of comparable size and characteristicsUses the entire population in its estimate; could yield biased results if the population is either young or old

Population-Employment Ratio

Data: Census 2000 Data Highlights:

http://www.census.gov/main/www/cen2000.html

Local and national employment data for particular industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

Locality that in Activity Service or TradeParticular a in Employees of Number

Locality a of Population Ratio Employment-Population

Population-Employment RatioPerson County vs. Granville CountyFurniture Store Example

Person County has one furniture store employee per 683 residentsGranville County has one furniture store employee per 1,032 residentsWhat does this tell us about the feasibility of a new furniture store in Person County?

employee per persons 683 54

36,864 Person County

Population-Employment Ratio

employee per persons 1,032 50

51,582 Granville County

Population-Employment Ratio

Comparison and Analysis

Location Quotient 0.94

Population-Employment Ratio 683 for Person County vs. 1,032 for Granville County

Potential Sales $17,728,104 vs. $8,083,909 in Actual Sales

Shift Share Analysis

Helps to measure the efficiency of local firmsMeasures the movement of the economy into faster or slower growth sectorsAlso measures the community’s portion of the growth occurring in a particular economic sector

Shift Share Analysis

This analysis is performed in three steps: The National Growth Component –

isolates the national economic growth factor from the analysis

The Industrial Mix Component – isolates the growth of the individual industry or sector

The Competitive Share Component – measures the efficiency of local firms

Shift Share Disaggregation

2000 FurnitureEmployment

2001 FurnitureEmployment

Employment Change is Indicative of Growth Or Shrinkage in an Industry

Change Can Be DisaggregatedInto 3 Components

National Growth – A Changing TideRaises (or Lowers) All Ships

Industrial Mix – A Changing NationalIndustry Affects Local Firms

Competitive Share – Isolates the CompetitiveAdvantage or Disadvantage of Local Firms

National Growth Component

Where: Sector i is the individual economic sector n is the total number of economic sectors Y is the final year (in ordinal terms) in the

analysis 1 is the initial year in the analysis

n

1i Sector Local

1

1Y

i Sector LocalY

Emp lNat'Emp lNat' - Emp lNat'

Employment YearBase NationalGrowth

Avg National Emp Growth Rate1998-2001

Y

Emp lNat'Emp lNat' - Emp lNat'

1

1Y

Avg Nat’l EmpGrowth Rate

Data: Local and national employment data

for particular industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

Avg National Emp Growth Rate1998-2001

Growth Annual2.14% 3

1108,117,731108,117,73 - 4115,061,18

Avg Nat’l EmpGrowth Rate

Data: Local and national employment data

for particular industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

National Growth ComponentPerson County (Base=2000)

Sector2000 Emp

Nat’l Rate

Nat’l Comp

ChangeConstruction 818 2.14% 18

… … … …

Furniture Stores 73 2.14% 2

… … … …

Unclassified 6 2.14% 0

Totals 10,787 2.14% 231

Industrial Mix Component

Data: Local and national employment data for

particular industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

Rate Growth

Economic lNat' AvgRate

Growth lNat'Employment

Local i Sectori Sector

Industrial MixComponent

Y

Emp i SectorEmp i Sector - Emp i Sector

Rate Growth lNat'1

1Y

i Sector

National Growth Rate Sector i

The national growth rate for furniture and home furnishings store employment is 3.77%

3

Emp Store FurnitureEmp Store Furniture - Emp Store Furniture

Rate Growth lNat'1998

19982001

Stores Furniture

3.77% 3

509,699509,699 - 567,318

Industrial Mix ComponentPerson County (Base=2000)

Sector 2000 EmpIndustrial Mix Rate

Nat’l Comp

ChangeConstruction 818 4.00% - 2.14% 15

… … … …

Furniture Stores 73 3.77% - 2.14% 1

… … … …

Unclassified 611.84% -

2.14% 1

Competitive Share Component

The Competitive Share Component shows the growth due to local firm efficiency after accounting for the level of total economic growth and the rise (or fall) of the particular industryData: Local and national employment data for particular

industries: County Business Patterns:http://www.census.gov/epcd/cbp/view/cbpview.html

CompMix Industrial Comp Growth lNat'

Emp i Sector - Emp i Sector

YearBase

YearAnalysisCompetitive

Share Component

Competitive Share ComponentPerson County (Base=2000)

Sector 2001 Emp Agg TermCompetitive Share

Construction 785 851 -66

… … … …

Furniture Stores 54 76 -22

… … … …

Unclassified 7 0 0

Gross County Product

Data Gross State Product Estimates:

http://www.bea.gov/bea/regional/gsp/

County Employment and Cash Receipts Data: Regional Economic Information System: http://www.bea.gov/bea/regional/reis/

Gross County Product

Prorate the BEA estimated industry-specific GSP by local industry employment for nonagricultural sectorsProrate the BEA estimated ag production GSP using cash receipts from marketings for the county

Proration Formulas

Production agriculture must be dealt with separately due to no reporting of production ag employment by Federal data sourcesCash Farm Receipts North Carolina - $8,204,748 Person County - $17,365

i Sector

i Sectori Sector

Employment State

Employment Local GSP Non ag Industry

GCP Proration

eAgricultur

eAgricultureAgricultur

Receipts Cash State

Receipts Cash Local GSP

ProductionAg Proration

Gross County ProductPerson County Example

2001 Person Co 2001GSP Proportion GCP

Agriculture 5,218 0.21% 11Mining 511 0.00% 0Construction 14,101 0.31% 44Manufacturing 58,923 0.50% 292Transportation 7,285 0.07% 5TCPU 11,544 2.17% 251Wholesale Trade 16,766 0.14% 23Retail Trade 25,113 0.34% 86FIRE 52,309 0.36% 189Services 47,977 1.67% 802Federal Govt 10,683 0.18% 19S&L Govt 25,185 0.38% 96

Total 1,818

Sources

Hustedde, Ronald J., Ron Shaffer, and Glen Pulver. Community Economic Analysis: A How To Manual. North Central Regional Center for Rural Development. Ames, IA. November 2001.Snead, Mark C. and Tim C. Ireland. Oklahoma Regional and County Output Trends: 1980-1999. Oklahoma Business Bulletin. Stillwater, OK. October 2002.

Questions?