Community Economic Analysis

1
Community Economic Analysis

• Kathy Tweeten
• North Dakota State University
• Alan Barefield
• Southern Rural Development Center
• Randy Reynolds
• Piedmont Community College

2
Overview

• One of the basic tenets of economic development
  is knowing where you are at and the foundations
  of the communitys economy
  
• The tools presented in this session will provide
  a snapshot view of the communitys economic
  makeup and its issues and opportunities

3
Trade Area Capture

• Provides an estimate of the number of people
  drawn to a community for retail purchases of a
  particular good
  
• Assumptions
• 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)

4
Trade Area Capture
Trade Area Capture

• Sales and sales tax data from state Dept of
  Revenue http//www.dor.state.nc.us/publications/F
  Y02-03SalesUseStats.pdf
  
• Per capita income from Regional Economic
  Information System http//www.bea.doc.gov/bea/reg
  ional/reis/
  
• State Population from Census estimates
  http//www.census.gov/popest/archives/2000s/

5
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

6
Person County Example
Trade Area Capture

• The estimate is that 16,694 customers will buy
  furniture in Person County
  
• Compare 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?

7
Pull Factor

• The Pull Factor measures the proportion of the
  population of an area that purchases the good
  locally
  
• If the Pull Factor is greater than 1.0, then the
  area is attracting customers from outside the
  geographic area
  
• If 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.

8
Pull Factor

• The Pull Factor measures the proportion of the
  population of an area that purchases the good
  locally
  
• If the Pull Factor is greater than 1.0, then the
  area is attracting customers from outside the
  geographic area
  
• If 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.

9
Reillys Law of Retail Gravitation

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

10
Reillys Law
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

11
Roxboro Community Map
12
Distance Data (Mapquest)
13
Population Data
14
Reillys LawRoxboro vs. Oxford, NC
Distance Oxford residents Will 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?

15
Roxboro Community Map
16
Reillys Law Limitations

• Assumes homogeneous population
• Only use for independent communities surrounded
  by countryside
  
• Should only be used for similar sized
  communities
  
• Assumes everyone shops locally overestimates
  shopping population
  
• Estimate average trade boundary individual goods
  or services will have different boundaries

17
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

18
Potential Sales

• State Population by Place from Census estimates
  http//www.census.gov/main/www/cen2000.html
  
• Sales and sales tax data from state Dept of
  Revenue http//www.dor.state.nc.us/publications/F
  Y02-03SalesUseStats.pdf
  
• Per capita income from Regional Economic
  Information System http//www.bea.doc.gov/bea/reg
  ional/reis/

19
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

20
Potential Sales

• 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 states
  income, the potential furniture sales in Person
  County is 17,728,104
• The actual furniture sales in Person County in
  2002 was 8,083,909
  
• What inference can be drawn from this?

21
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

22
Location Quotient

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

23
Location QuotientPerson County Furniture

• 2002 Person County Furniture and Home Furnishing
  Stores employment 54
  
• 2002 Person County Total Employment 9,901
• 2002 North Carolina Furniture and Home Furnishing
  Stores employment 19,869
  
• 2002 North Carolina Total Employment 3,431,554

24
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.

25
Population-Employment Ratio

• Measures the number of people (customers) who
  support a trade or service activity
  
• Quotient is the number of customers per trade or
  service sector employee
  
• No critical value must be used in relation to
  other communities of similar size and demands

26
Population-Employment Ratio

• Must use in comparison to other communities
• Should use other communities of comparable size
  and characteristics
  
• Uses the entire population in its estimate could
  yield biased results if the population is either
  young or old

27
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

28
Population-Employment RatioPerson County vs.
Granville CountyFurniture Store Example
Granville County Population-Employment Ratio

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

29
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

30
Shift Share Analysis

• Helps to measure the efficiency of local firms
• Measures the movement of the economy into faster
  or slower growth sectors
  
• Also measures the communitys portion of the
  growth occurring in a particular economic sector

31
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

32
Shift Share Disaggregation
Employment Change is Indicative of
Growth Or Shrinkage in an Industry
2000 Furniture Employment
2001 Furniture Employment
Change Can Be Disaggregated Into 3 Components
National Growth A Changing Tide
Raises (or Lowers) All Ships
Industrial Mix A Changing National
Industry Affects Local Firms
Competitive Share Isolates the Competitive
Advantage or Disadvantage of Local Firms
33
National Growth Component
National Growth

• 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

34
Avg National Emp Growth Rate1998-2001
Avg Natl Emp Growth Rate

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

35
Avg National Emp Growth Rate1998-2001
Avg Natl Emp Growth Rate

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

36
National Growth ComponentPerson County
(Base2000)
37
Industrial Mix Component
Industrial Mix Component

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

38
National Growth Rate Sector i

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

39
Industrial Mix ComponentPerson County (Base2000)
40
Competitive Share Component
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 industry
• Data
• Local and national employment data for particular
  industries County Business Patterns
  
• http//www.census.gov/epcd/cbp/view/cbpview.html

41
Competitive Share ComponentPerson County
(Base2000)
42
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/

43
Gross County Product

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

44
Proration Formulas
Non ag Industry GCP Proration
Production Ag Proration

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

45
Gross County ProductPerson County Example
46
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.

47
Questions?