Construction: Building Across Years

/0 Comments/in , , /by

INTRODUCTION:
Construction is a tricky thing to consider when modeling economic impacts. While the considerations to analyze are outlined in Construction: Building the Right Model, this article will walk through an example of a project that crosses years, as rarely are large-scale developments completed neatly in one calendar year.

EXAMPLE:
Morgan Construction is planning a large-scale industrial development in Omaha. The 100 acre site will be developed in phases over five years. The developer has given us the following spending information.

MORGAN INDUSTRIAL PARK COSTS BY YEAR
Year Description Cost
2020 Site acquisition $495,000
2021 Water, sewer, utility $950,000
2022 Roads and related preparation $500,000
2023 Construction Phase 1 $1,250,000
2024 Construction Phase 2 $2,500,000
2025 Construction Phase 3 $1,250,000
TOTAL $6,945,000

The first year, 2020, contains only $495,000 in site acquisition fees – the purchase of the land. In IMPLAN, land sales are considered to be asset transfers. One person receives money while the other receives tangible property. Thus, the land sale itself has no value in IMPLAN and will not include this in our model.

The five years of construction on Morgan Industrial Park from 2021-2025 can be modeled. As there are different types of construction work being done in each year, we will need to assign the proper IMPLAN Sector to each. For all construction Sectors, there is a bridge to the Definitions of IMPLAN’S 546 Construction Sectors. Using this document, we can search for what type of construction will be happening each year and choose the appropriate Sector.

MORGAN INDUSTRIAL PARK COSTS & IMPLAN SECTORS
Year Description Cost IMPLAN Sector
2020 Site acquisition $495,000
2021 Water, sewer, utility $950,000 56 – Construction of other new nonresidential structures
2022 Roads and related preparation $500,000 54 – Construction of new highways and streets
2023 Construction
Phase 1 $1,250,000 51 – Construction of new manufacturing structures
2024 Construction
Phase 2 $2,500,000 51 – Construction of new manufacturing structures
2025 Construction
Phase 3 $1,250,000 51 – Construction of new manufacturing structures
TOTAL $6,945,000

Now we are ready to set up our project in IMPLAN first by choosing our Region. In this case, we will be looking at the Omaha-Council Bluffs, NE-IA MSA. Our first step on the Impacts screen will be to set up an Event for each year. Note: if we had more detailed information, we could set up multiple Events for each year.

Conx_-_Events.jpg

Next we will create five different Groups; one for each year of the project. Note that they are all identical except for the Dollar Year. The Dollar Year field is changed for each Group so we can model the Event happening in that year.

The Dollar Year can sometimes be a tricky thing to determine and in the case of a multi-year construction project, it can be difficult to determine whether each year’s expenditures should be accounted for in that year’s dollars or if they should be accounted for in base year’s dollars. The answer? It depends on how the initial dollars are estimated. Dollar Year should always reflect the year of the Event Values. Therefore, if separate expenditures value ares known that will enter the economy independently in different years these multiple years of expenditures should be analyzed in separate Events and Groups.

Conx_-_Groups_Years.png

Now we will drop the Event for each year of the project into the appropriate year Group. Make sure that each Event only drops into one Group.

Conx_-_Groups_with_Events.png

Now we are ready to hit RUN and check out our Results.

RESULTS:
The default that we are seeing on the Results screen is the combination of the impacts across the five years. Looking at our Results, we see that the total Direct Output is not equal to the $6,450,000 of Direct Output we entered on our Impacts screen. This is because of the deflation. We entered 5 different Dollar Years on the Impacts screen and we are seeing our Results in 2019 dollars. The $5,921,136 in Direct Output accounts for the different Dollar Years and the reporting of the Results in 2019 dollars.

Conx_-_Results.jpg

You can see the yearly impacts by using the FILTERS and choosing the Event you want to see. For example, choosing to FILTER by Event Name “Roads” and Dollar Year “2022” will see the Direct Output of $500,000 that we entered on the Impacts screen.

TOTAL EMPLOYMENT TRAP:
If we look at the summary table, we see a Direct Employment of 55.19 jobs and a Total Employment of 88.83 jobs. However, let’s not forget this represents 5 years of construction.

When multi-year projects are summed it is fine to add the yearly Labor Income, Value Added, and Output components together, but Employment is a little different. We suggest reporting Employment in terms of average annual jobs or jobs/year for the project. We do this because:

If worker is on the job site over the course of the entire project or over several years of the project, that job will be counted in IMPLAN more than once. (i.e. if a worker is on site for all five years of project IMPLAN counts that as 5 jobs). However, we know that this is in fact just one job sustained over 5 years of the project.
As the nature of the construction project changes so do the workers. In our example, the jobs supported in the first year were utility workers, then road construction workers came in year two, and industrial building workers in years 3-5. Since some jobs are sustained and some are lost every year, the net effect is best reflected in the expression of average annual or jobs on the site/ year of the project.
To account for the jobs over the 5 years of construction, export your results to Excel and then divide the Direct, Indirect, and Induced Employment by 5. Then you can report your Results and Average Annual Employment.

Average Annual
Employment Labor Income Value Added Output
Direct 11.04 $2,975,680.23 $2,345,712.02 $5,921,135.58
Indirect 2.57 $885,899.86 $1,426,760.83 $2,679,850.41
Induced 4.16 $1,034,410.11 $1,864,219.71 $3,202,522.51
Total 17.77 $4,895,990.20 $5,636,692.55 $11,803,508.49

The Basics of Framing Your Analysis

/0 Comments/in , , /by

INTRODUCTION:
When starting an IMPLAN analysis, you should first frame an analysis by identifying the who, what, where, when, and why of the analysis. Each of the first four questions are heavily influenced by the why of your analysis.

Framing your analysis is key to ensuring that studies are, first, prepared properly, and second, created properly inside IMPLAN. Answering the following questions before entering your analysis into the IMPLAN tool is a great way to ensure you’ve thought through the framing of your analysis and have the information you need.

FIVE STEPS OF FRAMING:
Woman.png
WHO ARE THE ACTORS?
Which Industry, Industries, or Commodities are experiencing a change?

Buyers create a demand for products—this is a demand change.
Sellers respond to demand changes by increasing production (Output). So, the seller is our actor.

Paper.png
WHAT IS THE VALUE OF THE ECONOMIC CHANGE?
One or more factors may be known about the change in production or expenditures, including Output (production value), Employment, or Employee Compensation (wages and benefits).

Map.png
WHERE IS THE IMPACT OCCURRING? WHERE DO YOU WANT TO MEASURE THE EFFECT?
These are important considerations when determining a model region.
Where you want to see the results occurring should be influenced by your Why and the audience/stakeholders involved in achieving your end goal with the study. Defining a functional economy may also be valuable to consider. A functional economy encompasses the major labor and production shed of the impact or contribution being modeled, meaning the region captures the local supply chain and areas in which employees are living and spending their income.
Region levels in IMPLAN include:
ZIP Codes
Congressional Districts
Counties
States
US Total
These Regions can be building blocks for Combined Regions or they can be linked together via a Multi-Region Input-Output Analysis (MRIO).
Be aware of aggregation bias – which stems from the loss of detail that occurs when you combine regions together to form a blended larger region.
Consider MRIO which estimates the interregional linkages of trade and commuting effects

Calendar.png
WHEN IS THE IMPACT TAKING PLACE? IN WHAT DOLLAR YEAR ARE YOUR INPUTS?
The Data Year indicates the year of the economy the model is based on, so if you are using a 2017 Data Year, your Region Details, Multipliers etc. will be based on the 2017 economy for the Region. The Data Year should be set to the year of the economy that best represents when the event occurs.
Deflators are applied to input values to convert them into terms of the Data Year before applying the multipliers.
Does the impact occur over a full year, a partial year, or a series of years?
Accounting for inflation – keep in mind that if historical survey data is used, the year of the data source should be used as the Dollar Year.

Brain.png
WHY ARE YOU PERFORMING THIS ECONOMIC ANALYSIS?
It is always smart to consider ALL potential audiences for your study. Ultimately, doing so may help you recognize the level of detail in which your final report should describe your study. Think about your audience:

What are you trying to communicate?
What drives them?

Running Your First New Business Impact

/0 Comments/in , , /by

INTRODUCTION:
Welcome to IMPLAN and economic impact modeling! This article will guide you through what you need in order to run your first analysis. Good news! You only need to know a few things to get going. While it is true that the more data and information you have, the more accurate your results will be, sometimes you are only given small pieces of information.

BASIC INDUSTRY ANALYSIS:
Setting up your analysis will follow the same steps we all learned in grade school: who, what, where, when, and why. We call this framing. The most basic type of analysis in IMPLAN is an Industry Event for a new business. Here is what you will need to know.

WHO: Which Industry is being affected? Is this a cotton farm or a medical device manufacturing company? Is there new construction involved or just new operations of a business? Construction and operations should always be analyzed and reported individually. There are 546 Sectors in IMPLAN to choose from. Pick the one that most closely matches the business that you want to impact.

WHAT: What is the Value of the change? Is it 100 new jobs or $100M in new Sales? To analyze an Industry Event in IMPLAN, you will need to have at least one (but you can input all four) of the following: Employment, Employee Compensation (fully loaded payroll), Proprietor Income, or Output. Output differs by business type:

Industries that do not hold inventory
Output = sales (revenues)
Manufacturing
Output = sales plus/minus change in inventory
Retail and Wholesale
Output = gross margin (or Marginal Revenue)
WHERE: IMPLAN data is available for Congressional Districts, Zip Codes, counties, Metropolitan Statistical Areas (MSAs), states, and the nation. Answering this should be determined by the Region where your impact is happening and in which regional economy you want to measure the impact.

WHEN: Each analysis in IMPLAN needs to have an associated Dollar Year. This is usually the same as the year in which the economic event you are analyzing occurred or is expected to occur. The default in IMPLAN will be the current year.

Each Region in IMPLAN is associated with a Data Year. The default Data Year will be the most recent Data Year available in IMPLAN which is appropriate for current and future projects. Historical Data Years are also available in IMPLAN when analyzing a past economic event that.

WHY: The last question answers why this Event is being analyzed in the first place. It is often a good idea to start with the why question to help guide you through the other required steps, but sometimes it is also useful to think about this throughout your analysis all the way to reporting the results.

IMPLAN Sectoring & NAICS Correspondences

/0 Comments/in , , /by

INTRODUCTION:

Sectors are a way of describing your Industry. All versions of the Sectoring schemes (except the 528) are based on NAICS codes but represent differing levels of NAICS code rollups. Generally speaking, manufacturing Sectors are 4-5 digit NAICS; whereas, agriculture and services are 3-4 digit NAICS. Choosing the correct Sector is vital to an accurate analysis.

 

DETAILS: 

The Sectoring schemes represent rollups of NAICS descriptions, and each Sector has its own spending pattern derived from the BEA expenditures patterns. To see what NAICS codes and descriptions are associated to a particular Sector, you can start typing the words in the Sector directly into the Specification box on the Impacts screen.

Type in a keyword to pull up associated descriptions. Note that subsets of words will also be displayed, so for example the word “wine” will also bring up twine. Curiously, plurals are not always recognized, so if you type in “books” but do not receive fields related to your search try “book“. Alternatively, in our downloads section are spreadsheets that provide NAICS code descriptions and IMPLAN Sector bridges.

One other key element to keep in mind when selecting a Sector is that the Sector also contains the representative ratios of Intermediate Expenditures:Value Added and the Value Added ratios for that Industry in that Study Area. For all these reasons it is very important to ensure that your Sector represents the Industry you are modeling. If you have a line-item budget and want to create your own Sector, please see the section on Analysis-by-Parts (ABP).

Please note also that in data sets prior to 2012 there are no NAICS 23* correspondences, and while descriptions are included in 2012 forward, there are no corresponding IMPLAN Sector Codes because our construction Sectors come from Census rather than NAICS. Please see related articles for this and other information about special Sectors in the IMPLAN Sectoring scheme.

 

USAGE: 

Below is the current (2018 data) IMPLAN Sectoring scheme. Manual bridges can be found in the article 546 Sector Industries, Conversions, Bridges, & Construction – 2018 Data.  

 

546 SECTORING SCHEME (2018)

Special Sector Definitions

/0 Comments/in , , /by

INTRODUCTION:

Certain IMPLAN Sectors require additional explanation, either because they are not NAICS based or they have special properties. Below are the special Sector descriptions (sector numbers are based on the 546 sector scheme for 2018 IMPLAN data sets).1

 

SECTORS 50-59: CONSTRUCTION

IMPLAN construction Sectors are classified by structure type (Census definitions) rather than NAICs codes. For this reason, Sector searches for construction will not pull up corresponding IMPLAN Sectors. Thus, when working with Construction Sectors, the Definitions of IMPLAN’s 546 Construction Sectors can be helpful.

 

SECTOR 449: OWNER-OCCUPIED DWELLINGS

This Sector estimates what owner/occupants would pay in rent if they rented rather than owned their homes. This Sector creates an industry out of owning a home, and its production function represents repair and maintenance of that home. The Sector’s sole product (Output) is ownership and is purchased entirely by personal consumption expenditures (i.e., the household Sector).

There is no Employment or Employee Compensation for this industry. Taxes on production for this Sector are largely made up of property taxes paid by the homeowner, while Other Property Income is the difference between the rental value of the home and the costs of home ownership. Interest payments and mortgage payments are a transfer in the SAM and are not part of the production function for this Sector.

Sector 449 is included in the database to insure consistency in the flow of funds. It captures the expenses of home ownership such as repair and maintenance construction, various closing costs, and other expenditures related to the upkeep of the space in the same way expenses are captured for rental properties.

 

SECTOR 525: PRIVATE HOUSEHOLDS

While not a true special Sector, there are often many questions regarding what Sector 525 produces. This sector covers live-in household staff: maids, butlers, chauffeurs, etc. 

 

SECTORS 526-534: GOVERNMENT ENTERPRISES

IMPLAN Sectors 526-534 represent government agencies that cover a substantial portion of their operating costs by selling goods and services to the public. They operate much like private sector firms, hiring labor and purchasing other inputs to produce goods that are sold through markets. Other Federal\State\Local government enterprises (i.e., those other than postal, electric utility, and transportation services) include things such as government owned and operated liquor stores, airports, sewer and sanitation services, gas, and water supply2. This differs from Administrative Government sectors (components of consumption – i.e., final demand), because administrative do not respond to local market demands.

 

SECTORS 535-538: COMMODITY ONLY SECTORS

IMPLAN Sectors 535-538 are Commodities not produced intentionally by any US industry:

  • Used and secondhand goods are goods that are traded but were not produced during the current year. While used goods are not part of the current-period gross output of the economy, they are part of the supply available for consumption. They come from capital, government institutions, and households.
  • Scrap consists of commodities that are cast off as part of a production process and then resold. Examples include sales of used aluminum cans to recyclers and sales of scrapped vehicles to metal recyclers.
  • Rest of world adjustment  “The rest-of-the-world adjustment to final uses consists of values for exports and imports that have offsetting adjustments to personal consumption expenditures (PCE) and government… This adjustment is required in order to conform the commodity treatment of the I-O use table to the expenditure concepts used for final uses in the NIPAs. This is accomplished by making offsetting adjustments between PCE and gross exports and between Federal Government nondefense purchases and exports and imports…For example, foreigners traveling in the United States consume goods and services, such as accommodations, that are included in the source data for PCE. In order to put the PCE estimate on a NIPA basis, an adjustment is made to account for these purchases.”3
  • Non-comparable foreign imports are goods that are not available anywhere in the nation. They consist of three types of services: (1) services that are produced and consumed abroad, such as airport expenditures by U.S. airlines in foreign countries; (2) service imports that are unique, such as payments for the rights to patents, copyrights, or industrial processes; and (3) service imports that cannot be identified by type, such as payments by U.S. companies to their foreign affiliates for an undefined basket of services.

 

SECTORS 539-546: ADMINISTRATIVE PAYROLL SECTORS

Administrative government activities (e.g., legislatures, police protection) are not subject to local market forces (i.e., not driven by local demand); as such, they are held exogenous to the multiplier model.

IMPLAN Sectors 539-546 represent the payroll/value added of these administrative government Sectors. This is necessary because, while the Commodity purchases of these government institutions are already represented in the SAM, there is no payroll Commodity; thus, these Sectors are included as a bookkeeping element to account for these institutions’ payrolls. By definition, these Sectors have no intermediate purchases and thus will not generate indirect effects. For these sectors, Employee Compensation or Employment should be used as Event values; entering the operational value of the government as an Output value will greatly overestimate the impact. When modeling government programs or budgets, you will need to use the appropriate spending pattern associated to the budget activity. 

 

NON-SECTORS: GOVERNMENT INSTITUTIONS

Government Institutions in IMPLAN do not have Sector designations. Instead, they can be modeled from the Impacts screen using an Institutional Spending Pattern Event. For details on how to edit and use these, visit Editing Institutional Spending Pattern Events. The following governmental spending patterns are available.

  • Federal Government
    • NonDefense
    • Defense
    • Investment
  • State/Local Government
    • NonEducation
    • Education
    • Investment
  • Capital
  • Inventory Additions/Deletions

Sectoring Schemes

/0 Comments/in , , /by

INTRODUCTION:

Sectoring schemes provide a means of classifying and aggregating Industry and Commodity data. Each database source can have its own unique format or scheme for presenting Industry data (e.g. IMPLAN scheme or the REA scheme). An Industrial classification scheme allows categorization according to the type of products or services produced by the Industry or Industries.

Employment and Value Added data used in IMPLAN originates from surveys of industry establishments. This establishment may be a small business with a single location, or it may be a branch location of a large firm. Each establishment in the defined region is counted separately on the covered (social security or unemployment) employment rolls. When the establishment submits a report or responds to a census or a survey, its data are collected and assigned an establishment code depending on the primary product produced by that establishment.

The industry classification scheme used for all federal government industry based data sets is the 6-digit North American Industrial Classification Scheme (NAICS), as described in the most current NAICS manual, published by the Office of Management and Budget.

This scheme was adopted in 1997 and replaced the previously used Standard Industrial Classification (SIC) codes. Unlike the SIC, NAICS was developed jointly by the United States, Mexico, and Canada to allow for comparability between all North American Industrial data.

The current NAICS scheme is 2017. NAICS reports five levels of Industry detail, ranging from the 2-digit detail (the most aggregate) to the 6-digit (the most detailed). To learn more about the history of NAICS click here. Certain IMPLAN Sectors – including the construction Sectors (50-62), Sector 449 – Owner-occupied dwellings, Sector 525 – Private households, and Sectors 526-546, do not follow a normal NAICS pattern. Read more information about these Specialty Sectors. Read more for additional information on the IMPLAN Sectoring scheme and for a listing of the current 546 scheme.

 

DATA SOURCES:

REGIONAL ECONOMIC ACCOUNTS (REA) SECTORING

A major data source used to derive IMPLAN databases is the Bureau of Economic Analysis’ Regional Economic Accounts (REA – formerly known as REIS). At the state level, REA reports in 3-digit NAICS detail for employment and income. At the county level, income is reported at 3-digit NAICS but employment is provided at the 2-digit NAICS detail.

BUREAU OF LABOR STATISTICS

Data from the Bureau of Labor Statistics (BLS) is used for deflators and some output estimates. The BLS uses a different sectoring scheme, again based on the NAICS code system.

BEA BENCHMARK

IMPLAN’s current 546-sector scheme is based on the Bureau of Economic Analysis’ latest Benchmark Input-Output Study. Since every five years the BEA updates their input-output accounts, it means that on those years, IMPLAN data sets also undergo important updates as well. In late 2018, the BEA released its 2012 industry statistics and benchmark make-use tables (also known as I-O tables) which include methodological improvements to more accurately reflect the ever-changing national economy.  For more information, visit BEA Benchmark & The New 546 Sectoring Scheme.

 

IMPLAN Database years Number of IMPLAN Sectors BEA Benchmarks
1996-2000 528 1987 and 1992
2001-2004, 2006 509 1997
2007-2012 440 2002
2013-2017 536 2007 with parts of 1997 and 2002
2018 546 2012

 
STANDARD INDUSTRIAL CLASSIFICATION (SIC) CODES

Prior to NAICS, this was the most common scheme as described in the 1987 Standard Industrial Classification Manual. This scheme had four levels of detail ranging from 1-digit detail as the most aggregate to 4-digit as the most detailed. IMPLAN datasets prior to 2001 are SIC-based.

Gross Domestic Product (GDP)

/0 Comments/in , , /by

The market value of the goods and services produced by labor and property located within the borders of the United States. Since 1991, GDP is the featured measure of U.S. production. (BEA)

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector.

Regional GDP

/0 Comments/in , , /by

Regional GDP is the market value of the goods and services produced by labor and property located within the borders of a particular region. It was formerly referred to as Gross Regional Product.

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector made within that geography.

State GDP

/0 Comments/in , , /by

State GDP is the market value of the goods and services produced by labor and property located within the borders of a particular state. It was formerly referred to as Gross State Product.

In IMPLAN, Value Added is a measure of the contribution to GDP made by an individual producer, Industry, or Sector made within that state.

Did You Know?

/0 Comments/in , , /by

INTRODUCTION:

IMPLAN Economists have received a lot of questions over the years. We have compiled a considerable repertoire of best practices and helpful tips from the trenches. This article outlines the most popular extras we want to share with you.

 

Sunflower_-_Candi.png FILTERS:

When in doubt, FILTER. When exploring Sector/Commodity specific data in the Region Details Behind the “i”, you will need to use the filter to choose the Industry or Commodity you want to see.  Otherwise, you get the default Sector 1 – Oilseed farming (or Commodity 3001 – Oilseeds). And we know we aren’t always looking for information on sunflowers.

Also utilize filters on your Results screen. You can filter to segment your results by Region, Impact, Group, and Event Name. You can also filter the Dollar Year in your Results to choose the year in which you’d like to report your results. When navigating between the tabs on your Results screen, always double-check that the filters you applied stayed with you.  

 

Ruler.png SIZE MATTERS:

The size of the impact you are running does matter. If you are trying to run an MRIO on one zip code versus the other 41,701 zip codes in the U.S., it likely won’t finish as that money will keep bouncing around the country for quite some time. IMPLAN recommends no more than 7 regions in any MRIO.

If you need to run several studies and one is larger, IMPLAN recommends starting with the smaller one.  All of your impacts will be put in a queue, so we don’t want that small study getting trapped behind that large one.  

 

Magic_Wand.png FINAL TRICKS:

You can have multiple tabs of IMPLAN open at the same time. You can set up multiple projects, compare Results across projects, or just look cool. 

IMPLAN works best in Chrome, Edge, Firefox, and Safari. Internet Explorer is not supported – as Microsoft quit using it in 2016.  You can try it, but the map won’t even show up on the Regions screen, so we don’t recommend it.  

If you are having issues with something loading improperly or taking longer than usual, hit save and refresh your browser.  This corrects the majority of issues.

You can search within Spending Patterns by using Control + F.

Older datasets (2012-2014) can be accessed by starting at the Project Screen and selecting New Project rather than starting your project at the Regions Screen.