Community Economic Analysis

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

Overview

One of the basic tenets of economic development is knowing where you are at and the foundations of the community’s economy The 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 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)

Trade Area Capture

Trade Area Capture  Actual Retail Sales of Merchandis    State Expenditur Merchandis e e Type for Y State Population e Type       Y in the Community State Community Per Per Capita Income Capita Income   Sales and sales tax data from state Dept of Revenue:

http://www.dor.state.nc.us/publications/FY02 03SalesUseStats.pdf

Per 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/

Trade Area Capture Persons 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

Trade Area Capture  $8,083,909   $4,725,403 ,007 8,320,146      $23,690 $27,785    16,694 Customers 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?

Pull Factor

Pull Factor for Item Y  Trade Area Capture Estimate for Item Municipal Population Y 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.

Pull Factor

Person County Pull Factor (Furniture )  16,694 persons 36,610 persons  0.456

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.

Reilly’s 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

Reilly’s Law

Distance from Smaller Community (Y)  1   Distance Between City X and City Y  Population of Larger Community (X) Population of Small 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/cen2 000.html

Roxboro Community Map

Distance Data (Mapquest)

Distance between Roxboro and:

Danville, VA South Boston, VA Oxford, NC Durham, NC

Mileage

30.11

24.39

26.30

30.16

Population Data

City

Roxboro, NC Danville, VA South Boston, VA Oxford, NC Durham, NC

Population

8,696 48,411 8,491 8,338 187,035

Reilly’s Law Roxboro vs. Oxford, NC

Distance Oxford residents Will Travel to Roxboro  1   26.30

miles  Roxboro Population  8,696 Oxford Population  8,338  13 miles 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 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

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

Potential Sales  Trade Area Population    State Sales State Population      Local Per Capita Income State Per Capita Income   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/FY0 2-03SalesUseStats.pdf

Per capita income from Regional Economic Information System:

http://www.bea.doc.gov/bea/regional/reis/

Potential Sales Persons 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

Potential Sales   36,610     $4,725,403 ,007 8,320,146    $23,690 $27,785  $17,728,10 4 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 $17,728,104 The actual furniture sales in Person County in 2002 was $8,083,909 What 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

Location Quotient  % % of of Local Employment National Employment in Activity in X Activity X Data:  Local and national employment data for particular industries: County Business Patterns:

http://www.census.gov/epcd/cbp/vi ew/cbpview.html

Location Quotient Person 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

Location Quotient Person County Furniture Store

Location Quotient      54 9,901    0.94

19,869 3,431,554   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.

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

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

Population-Employment Ratio

Population Employment Ratio  Population of a Locality Number Trade or of Employees Service in a Particular Activity in that Locality Data:  Census 2000 Data Highlights:

http://www.census.gov/main/www/cen20 00.html

 Local and national employment data for particular industries: County Business Patterns:

http://www.census.gov/epcd/cbp/view/cb pview.html

Population-Employment Ratio Person County vs. Granville County Furniture Store Example

Person County Population-Employment Ratio  36,864 54  683 persons per employee Granville County Population-Employment Ratio  51,582 50  1,032 persons per employee 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?

Comparison and Analysis

Location Quotient  0.94

Population-Employment Ratio Person County vs. 1,032 for Granville County  683 for Potential Sales  $17,728,104 vs. $8,083,909 in Actual Sales

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 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 Furniture Employment Employment Change is Indicative of Growth Or Shrinkage in an Industry Change Can Be Disaggregated Into 3 Components 2001 Furniture Employment 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

National Growth Component

National Growth  n  Local Sector i  1   Base Year Employment Local Sector i    Nat' l Emp Nat' Y Nat' l Emp 1 l Emp 1   Y   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

Avg National Emp Growth Rate 1998-2001

Avg Nat’l Emp Growth Rate    Nat' l Emp Nat' Y Nat' l Emp 1 l Emp 1   Y Data:  Local and national employment data for particular industries: County Business Patterns:

http://www.census.gov/epcd/cbp/vi ew/cbpview.html

Avg National Emp Growth Rate 1998-2001

Avg Nat’l Emp Growth Rate  115,061,18 4 108,117,73 108,117,73 3 1 1    2.14% Annual Growth Data:  Local and national employment data for particular industries: County Business Patterns:

http://www.census.gov/epcd/cbp/vi ew/cbpview.html

National Growth Component Person County (Base=2000)

Sector Construction 2000 Emp Nat’l Rate 818 2.14% Nat’l Comp Change 18 Furniture Stores 73 2.14% 2 Unclassified

Totals

6

10,787

2.14%

2.14%

0

231

Industrial Mix Component

Industrial Mix Component  Local Employment Sector i    Nat' l Growth Rate Sector i  Avg Nat' l Economic Growth Rate   Nat' l Growth Rate Sector i    Sector i Emp Y Sector Sector i Emp 1 i Emp 1   Y Data:  Local and national employment data for particular industries: County Business Patterns:

http://www.census.gov/epcd/cbp/view/cb pview.html

National Growth Rate Sector i

Nat' l Growth Rate Furniture Stores    Furniture Store Emp 2001 Furniture Furniture Store 3 Emp Store 1998 Emp 1998      567,318 509,699 509,699 3    3.77% The national growth rate for furniture and home furnishings store employment is 3.77%

Industrial Mix Component Person County (Base=2000)

Sector Construction 2000 Emp 818 Industrial Mix Rate 4.00% - 2.14% Nat’l Comp Change 15 Furniture Stores Unclassified 73 6 3.77% - 2.14% 11.84% - 2.14% 1 1

Competitive Share Component

Competitive Share Component  Sector i Emp Analy sis Year    Sector   Nat' l i Emp Growth Industrial Base Year Comp Mix Comp   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/cb pview.html

Competitive Share Component Person County (Base=2000)

Sector Construction 2001 Emp 785 Agg Term 851 Competitive Share -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 sectors Prorate the BEA estimated ag production GSP using cash receipts from marketings for the county

Proration Formulas

Non ag Industry GCP Proration  GSP Sector i    Local Employment State Employment Sector i Sector i   Production Ag Proration  GSP Agricultur e    Local Cash Receipts Agricultur e State Cash Receipts Agricultur e   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

Gross County Product Person County Example

2001 GSP Person Co Proportion 2001 GCP

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

Total

11 0 44 292 5 251 23 86 189 802 19 96

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?