Margins & Deflators

INTRODUCTION:

Both Margins and Deflators are included in the IMPLAN database. Margins allow for consumer expenditures to be traced through retail, wholesale, and transportation Industries back to the industries who manufactured the product, allowing the appropriate allocation to the producing Industries. Built-in Deflators allow for adjustments of the Dollar Year you enter on the Impacts screen and the Dollar Year you see in your Results. Note: margins and deflators in IMPLAN are not regionally specific.

MARGINS:

Most Input-Output models, including IMPLAN, record expenditures in producer prices. This allocates expenditures to the Industries that produce the goods or services. Any Output or sales you want to apply to multipliers that are in purchaser prices (prices paid by final consumers) need to be converted to producer prices or allocated to the producing Industries. Margins enable the move from producer to purchaser prices or vice-versa. Data on margins comes from the BEA Benchmark I-O tables.

Below is an example to show how a purchase is allocated with Margins. Assume that a consumer spends $150 at a retail store. A portion of that price, $20 in this case, is retained by the retailer. Another portion, $30 goes to transportation costs, and $100 goes to the producing Industry that actually made the item.  

Note not all Industries and Commodities have margins. Margins are only applicable in Industry Output Events when a retail or wholesale Industry has been specified. Margins are only applicable in Commodity Output Events when you are analyzing Events with a Commodity that can be sold via a retailer or wholesaler. This file shows the 2020 Margins for Industries and Commodities.

INDUSTRY EVENTS

This feature is only available for retail and wholesale Industry Events. To apply margins for an Industry Event, open the menu. Here you will have the option to choose between Purchaser Price and Producer Price. Most times, we only know the Purchaser Price, so leaving the default as Purchaser Price is the right choice. The Results in this case will only show the retail margin and its impact. Your Direct Effect to the retail Industry will be smaller than the Purchaser Price you entered on the Impacts screen. All of the other pieces of the value chain are lost (production, transportation, and wholesale).

If Producer Price was chosen, the full $1M would be the Direct Output in your Results. This implies that you are modeling what the retailer is keeping (instead of just a portion of the item cost).

COMMODITY EVENTS

To apply margins in a Commodity Event, open up the menu icon and select between Purchaser Price and Producer Price. Again, we usually know the Purchaser Price, so the default selection is fine. The Results in this case will show us the impacts on the entire value chain for this Commodity; production, transportation, wholesale, and retail, with Direct Effects in each (when applicable).

If Producer Price was chosen, you would again expect to see the full $1M applied to the Commodity 3366. The only deduction you might encounter is if some of the product was taken from inventory or produced by the government. 

DEFLATORS:

Deflators are used to adjust for relative price changes over time. Output deflators are Industry specific and are used to adjust Industry Output. GDP deflators are not Industry specific and are used to adjust Final Demand and Value Added. Output and GDP deflators from the BEA are used for all past years, while BLS output deflators are used for future years.

The Bureau of Economic Analysis (BEA) provides historical Output deflators which we use for past to current years. The BEA Output deflators are provided with the BEA Gross Output data.

The BEA also has historical GDP deflators which we use for past to current years. The BEA GDP deflators come from NIPA Table 1.1.9 - Implicit Price Deflators for Gross Domestic Product. The BLS produces time-series of Output estimates for its Employment Growth Model. The Outputs are projected in real and constant dollars. This gives implicit price index projections which are the basis for projections of the IMPLAN deflators.

Both the BEA and BLS deflator data have fewer Industries than the IMPLAN Industry scheme; therefore, all IMPLAN Industries within a single BEA or BLS Industry will have the same deflator. 

DETAILED INFORMATION:

The purchasing power of a dollar changes over time (typically decreasing) due to inflation, a cyclical phenomenon by which prices of goods and services increase[1], which spurs workers to demand higher wages, which in turn increases demand for goods and services, thereby spurring additional price increases, and so on.  Due to inflation, a dollar in 2017 cannot purchase as much as did a dollar in 2001, for example; as such, a 2017 dollar is not the same thing as a 2001 dollar.  IMPLAN's deflators are indexes of inflation, with the deflator for the model data year set at 1.00. 

The deflators are not used to create the social accounts or multipliers but are necessary for impact analysis whenever the Dollar Year of the event differs from the Data Year being used. The same model year multipliers are used regardless of the Dollar Year of the event; it is the value applied to those multipliers that changes when the Dollar Year of the event differs from the Data Year.

All the relationships in the multipliers are based on model year prices, so the Direct Effects applied to those multipliers need to also be in the correct Dollar Year - this is accomplished via the deflators. The value applied to the multipliers is the user-entered value divided by the deflator. The deflators also allow impact results to be viewed in years other than the model year, regardless of whether or not the Dollar Year of the event differs from the Data Year. 

While the Event values and/or result values can be inflated or deflated, depending on whether the index value being applied is less than 1.00 or greater than 1.00 (i.e., depending on the Industry or Commodity and whether one is adjusting to a future or past value), we use a single term – deflators – to refer to all of these index values.

The Output deflators are specific to the Industry or Commodity and are applied to the Output value, while GDP deflators are the same for every Industry and Commodity and are applied to all of the value-added components.

Margins are derived from the Bureau of Economic Analysis Input-Output tables.  Margins are particularly important for Personal Consumption Expenditures (PCE) values as nearly all household purchases of goods are through a retail Industry. The Margins used to form the PCE data elements are compiled from the BEA Detailed Benchmark tables. This data provides the Margins associated with each of the different Personal Consumption categories. These PCE categories are modified to fit IMPLAN Industry definitions.

DOLLAR YEAR & DATA YEAR:

By default, impacts will be reported in current year dollars; however, because IMPLAN data are typically lagged a year (i.e., 2018 data were released in 2019), it is handy to be able to report the results in current year dollars. This can be achieved by changing the Dollar Year on the Results screen. This is just an option, and is not the same thing as changing the Dollar Year on the Impacts screen. The Dollar Year must match the year that the dollars represent - this ensures that the correct value is applied to the multipliers.  

Suppose you are going to model the impact of the 500,000 visitors that came to your tourist attraction in 2020.  Also suppose that you didn’t conduct your own visitor expenditures survey and are thus borrowing a survey that was conducted on a similar tourist attraction in a similar region but way back in 2010.  That survey gives you the per-tourist expenditures on things like lodging, food, transportation, and entertainment.  For example, each tourist spent $200 on lodging during their 3-night trip to that attraction. If you were to set Dollar Year to 2020 and put in $200 you would be understating your impact because 3 nights at a similar hotel would cost more than $200 in 2020 due to inflation!  So you’d want to set the Dollar Year to 2010, since that is the year that those $200 represent.  IMPLAN will inflate accordingly and apply the value to the multipliers. 

More information on on this can be found in the article Dollar Year & Data Year.

RELATED ARTICLES:

Deflators

Dollar Year & Data Year

[1] Not all goods and services are inflationary every year.  For example, the prices of consumer electronics often decrease over time.  As another example, the prices of agricultural commodities rise and fall in response to many factors, including weather.

Updated March 16, 2022