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Overview

In order to craft effective economic development strategies, it is essential to understand the current state of the local economy, including its relative strengths and weaknesses. To learn more about your local economy, you are encouraged to conduct a detailed study of its current and historical performance.

These tools are designed to help you address a number of important questions.

• What are the current employment conditions in your community?
• What parts of the local economy have been growing? Which industries have been declining?
• How does the local economy compare to other nearby economies? The state?
• What are the factors leading to local employment growth?
• How do we identify new opportunities?

We offer these tools to help you get started in examining important economic trends in your community. The methods are flexible and can be used on a variety of economic indicators, including employment and unemployment, income, poverty rates and housing. The tools can use secondary data, readily available from sources such as the Census Bureau, the Bureau of Economic Analysis, and the Bureau of Labor Statistics. The analysis should help a variety of local efforts, including industry development, grant writing and visioning.

A few things to keep in mind when carrying out the analysis

In practice, there are a number of indicators that illuminate our understanding of the local economy, ranging from simple descriptive statistics to in-depth surveys and analysis. Regardless of the methods and measures chosen, there are important guidelines that can help you make the most of your efforts. We urge you to keep the following points in mind when using the tools developed below.

1. There is no "single number" that represents the local economy. When thoroughly assessing the local economy, one needs to use several measures, as reliance on a single measure provides only limited insight. For example, a high job growth rate may show the community is generating new employment opportunities; but there should be interest in the wages provided by new jobs as well, in order to get a better understanding of the local labor market's "true performance."

2. It is important to make comparisons among communities. No community exists in isolation. In order to better understand local economic performance, you should compare your community to "similar" communities, the state and the nation.

3. It is important to examine changes over time. While a "snapshot" analysis provides a good indication of where the community is today, it is important to know long-term trends in the community. With respect to employment, industries that have traditionally been important may now be declining. Trend analysis can be particularly informative as it often provides good predictions about the near future.

4. A "reality check" is essential. While using the methods here to analyze "hard data" is a starting point, it is also important to tap the insights of local citizens and policy makers. If the analysis and the data are at odds, a more in depth examination may be necessary.

5. The analyst, not the data, should tell the story. Always remember, economic data is boring, and no reader wants to pour over reams of tables and charts. But the information can be extremely helpful if it is used to complement a coherent, consistent and truthful story about the economy. The information is most useful when summarized with themes, interpretations and conclusions.

Getting Started

Of course, the first step is to define the "local" economy. While in reality the mobility of people and money means any economy is not really place specific, it is necessary to define some region as the local economy. For practical reasons (i.e., data availability) "The Economy" is often defined according to political jurisdictions, such as municipalities, counties or states. While practitioners usually want to define the economy as locally as possible, it is important to keep in mind that better data becomes more available as we move up the political hierarchy. Generally, comprehensive data at the sub-county level is available only every 10 years from the Census. Conversely, state, national, and even some county data is often updated monthly.

Once you have defined your economy, you can use these tools to size up your economy, keeping in mind the principles outlined above.

Read Me First! An Introduction to the Industry and Employment Classification System
The Industrial Classification system is a basic framework for categorizing establishments, and serves as the baseis for regional economic analysis. Today, much of the readily available economic data related to employment is based on such classifications.

Tool 1: Develop a "Snapshot" of Important Local Economic Indicators
A snapshot provides a basic overview of important economic indicators. Usually, these snapshots are presented as a series of tables and charts.

Tool 2: Chart the Historical Perfomance of Key Economic Indicators
Tracking the performance of key economic indicators over time can help you identify growing and declining sectors. Trend analysis can also be used to identify new opportunities.

Tool 3: Use Location Quotients to Identify Local Strengths and Opportunities
The location quotient helps you identify those local industries that are producing more than is needed for local use and selling outside the region (exporting) and those that are not meeting local needs and are a source of consumption leakage (importing).

Tool 4: Shift-share Analysis Helps Identify Local Growth Engines
Separating the role of local and national effects on current regional employment trends has long bedeviled many community development practitioners. Shift-share analysis is one useful tool for overcoming this challenge.

Warren Kriesel, an economist at the University of Georgia, has developed a web-based dataset for interactive shift-share analysis . It uses the database in the U.S. Bureau of Economic Analysis' Regional Economic Information System, for the years 1980 through 1999. You can do the analysis for a single county, a group of counties, or whole states. Very cool!

Tool 5. A Pennsylvania Internet Resource for Industry Employment and Occupation Projections

CWIA has developed extensive capabilities in addressing questions about future employment growth. Working in conjunction with a national consortium sponsored by the Employment and Training Administration at the U.S. Department of Labor CWIA provides industry employment and occupation projections for both the short- and long-term. The overarching goal of the initiative is to present key labor market facts so that all job seekers looking for quick entry into the labor market can make informed job choices.

Tool 6: Qualitative Analysis Can Provide Unique Insights into Local Economic Performance
Because they provide insights into local trends that may not be measurable, practitioners may find qualitative assessments of the local economy are a useful complement to the quantitative tools described elsewhere in this series. Alternatively, qualitative analysis can be seen as a way to tap into local expertise, thus providing information on the local economy that does not appear in official statistics.

Some Basic Local Economic Indicators

In this section we discuss some potential indicators you may want to consider. Web sources of data are provided. This list is far from comprehensive!

Unemployment Rate

The Bureau of Labor Statistics provides monthly estimates of county unemployment rates for states, metropolitan areas and counties. The unemployment rate is easy to calculate: it is the number of people who are jobless and available for work divided by the labor force. The basic concepts involved in identifying the employed and unemployed are quite simple:

People with jobs are employed.
People who are jobless, looking for jobs, and available for work are unemployed.
People who are neither employed nor unemployed are not in the labor force.

Employment

The employment data is a complete measure of the number of full- and part-time jobs in the county. Historical state and county data from 1969-1999 is available the Bureau of Economic Analysis. The employment data include wage and salary workers, proprietors, private household employees and miscellaneous workers. Because part-time workers are included, a person holding two part-time jobs would be included twice. The Appendix provides details of sectors covered under each broad industry.

Earnings

Earnings of employees is the sum of wages and salaries, other labor income (e.g., benefits) and proprietors' income. As with employment, data are from the Bureau of Economic Analysis. Also, like employment data, earnings data are by place of work, so that earnings of an employee who works in one county but resides in another are counted in the county where the job is. Earnings per worker are simply the total earnings in an industry divided by total number of employees.

Population

Historical population data is available from the US Dept of Commerce, Bureau of the Census. When analyzing local economies, population growth trends are often used as a crude measure of relative economic performance. Typically, areas with rapidly growing populations also have strong job growth.

Per Capita Personal Income

Personal income is the income people receive from all sources?-that is, from working, from transfer payments, and from interest and investments. Per Capita Income is the total personal income of the residents of a given area divided by the resident population of the area. Per capita personal income is often used as an indicator of the quality of consumer markets and of the economic well?being of the residents of an area. The Census Bureau provides Per Capita Income County data every ten years for every municipality. Annual state and county-level estimates are available from the Bureau of Economic Analysis.

Building Permits

This data summarizes the number of new housing units authorized by building permits. The data relate to units intended for occupancy on a housekeeping basis. They exclude mobile home units. Building permit data is useful to understand the growth in residential development in a community (Penn State Cooperative Extension has produced an on-line workbook for communities to help understand potential impacts of residential development on government revenues and expenditures.

Poverty Rate

This is an estimate of the percentage of the county population that lives below the poverty threshold, as established by the Federal government. In providing these estimates, the US Census Bureau uses a set of money income thresholds that vary by family size and composition to detect who is poor. If a family's total income is less than that family's threshold, then that family, and every individual in it, is considered poor. As an example, the poverty threshold in 1998 for a family of four (two adults and two children) was $16,530.

The poverty thresholds do not vary geographically, but they are updated annually for inflation using the Consumer Price Index. The official poverty definition counts money income before taxes and does not include capital gains and non-cash benefits (such as public housing, Medicaid, and food stamps).

How is this Information Used?

Information gleaned from these tools can be helpful in several aspects of community development.

For economic development interests, this information can enhance understanding of employment trends, not only as specific to the community, but also in context of other regions, the state or the nation. By identifying growing industries, as well as those that are declining, local development groups can concentrate their efforts on industries where the chances of success are greatest.

When applying for community development grants, it is important to document current and historical conditions. For non-government organization, using the tools yields information that can strengthen grant-writing efforts.

Regardless of how you use the data, it is essential that you present it effectively! While information generated by the data analysis tools is an important aspect of understanding the local economy, the fact is that tables and charts are almost always boring. In order to be effective, you must use the data to tell a story-don't expect it to be the story.

For More Information

In addition to the links provided below, one of the web best sites for information on regional economic analysis is www.econdata.net. At this site, you can find links to more than 800 online regional data collections, including the "Ten Best Sites." There also is an excellent guide on Socioeconomic Data for Understanding Your Regional Economy. This guide provides some simple analytical tools as well as an overview of many data providers and data sets.

Another good overview of simple methods is available source in Community Economic Analysis: A How to Manual. Published by the North Central Regional Center for Rural Development, this manual is designed to assist individuals who need to bring information to a group of citizens or decision makers concerned with the economic future of a community. The manual addresses non-local markets linkage, strategies for economic development, multipliers, assessing the size and shape of a community's trade area, keeping local dollars in the community, measuring the efficiency of local firms, and other strategies.

Other Regional Rural Development Centers and data depositories include:

Northeast Regional Center for Rural Development

Southern Rural Development Center

Western Rural Development Center

The Penn State Data Center and the New York Data Center provide extensive economic data. Their missions are to provide easy and efficient access to U.S. Census Bureau data and information through a wide network of lead, coordinating and affiliate agencies in each state.

Martin Shields is Assistant Professor of Agricultural and Regional Economics, Dept of Agricultural Economics and Rural Sociology
Penn State University