IMPLAN Pro: Analysis-by-Parts Building and Using an Industry Spending Pattern

Industry Spending Patterns allow you to import an Industry's production function or build an Industry from data about its expenditures. The coefficients listed in an Industry Spending Pattern represent the amount spent on each commodity per dollar's worth of that Industry's output.

An important thing to note is that Industry Spending Patterns typically do not include labor income expenditures, and therefore the coefficients sum to less than 1.00. To ensure that the full impact of spending in an Industry is captured, you will need to create a Labor Income impact to compliment your Industry Spending pattern. The Activity Level can then be used to specify the particular output level being analyzed.

Alternatively, if the analyst does not know the total output level but knows the value of input expenditures (that is, the non-payroll portion of the budget), the Industry Spending Pattern can be normalized to sum to 1.00 and the Activity Level set to the non-payroll portion of the budget.

Another important note about these spending patterns is that the direct effect is not accounted for in the results.

The following examples show a custom created Industry Spending Pattern with its associated Labor Income Activity. In example 5c Using an Imported Industry Spending Pattern, we examine an imported industry. In order to capture the full impact of the spending in examples 5a, 5b, and 5c, we will need to know or calculate the Direct values for employment and output of the bio-diesel plant outside of the software. One way to estimate direct effects, if Washington County cannot provide us with their own estimate, is to use a similar Industry that exists in IMPLAN as a proxy of the direct impact.

Industry Spending Pattern Example 5a

5a. The county wants to know the effect of operating their new bio-diesel plant. Since IMPLAN  doesn't have a Sector for bio-diesel, we will need to create an Industry Spending Pattern to model this impact. The county can provide us with their anticipated annual revenues ($719,157,755) and the amount they expect to spend on each of the commodities they will be purchasing. In addition to payroll (Sector 3437), they purchase the following items:

(Note: this is a simplified example for demonstration purposes)

Dividing the value spent on each of these items by the total output, we can determine the coefficient values we will need to enter into our Activity.

1. Return to the Setup Activities screen.
2. Create a new Activity: "Bio-diesel Plant".
   • Click New Activity at the top of the Setup Activities page. In the New Activity screen, select Industry Spending Pattern from the Activity Type list, name the Activity, set level to 719,157,755.00 and save.
3. Create the following Commodity Events with the appropriate coefficient values.
   
4. Note that the Spending Pattern is only equal to 0.90.
   • This is because we do not have payroll included. We will need to model employee compensation/proprietor income separately.
5. Create a "Bio-diesel OP" Scenario.
   • Leave Level at 1.00 and save. Move the "Bio-diesel Plant" Activity to Selected Activities.
6. Analyze for Single Region
7. View Results
   
   
   • Note that, unlike a standard Industry impact, there are no direct effects of the Industry Spending Pattern. This is because the spending pattern reflects the first round in indirect purchases. Therefore, by definition the spending pattern cannot generate direct effects, as it is a result of indirect spending.

Capturing the effects of Labor Income for the Bio-diesel industry:

8. Return to the Setup Activities screen.
9. Create a New Labor Income Activity.
   • Name the Activity "Bio-diesel LI" and set the level at 0.05 because only half of the remaining value is for compensation. The other 5% will go to taxes and profits. Level is set to 0.05 because this is the remaining portion of the total output of our bio-diesel plant (Output = Indirect (Inter-industry) Purchases 0.90 + Value Added (Compensation 0.05 + Taxes and Profits 0.05) or 100% of sales). Note that for this example we are creating the Labor Income impact after we have run an Industry Spending Pattern so that the results of both pieces can be demonstrated and identified; however, we could create the Labor Income Activity at step 3 and analyze the Labor Income impact with the Industry Spending Pattern to avoid having to add results by hand, as demonstrated at the end of this example.
10. Choose Sector 5001 Employee Compensation, and set the Labor Income Value to $719,157,755.00.
11. Create a "BD LT" Scenario to Model the Impact of the Employee Compensation.
    • Select New Scenario. Name the Scenario and leave Level at 1.00. Save. Select the "Bio-diesel LI" Activity from the Available Activities.
12. Analyze Single Region
13. View Results. As with all Labor Income impacts, only Induced Effects result.
    

The Direct Factor Change shows the value of the compensation used to generate the induced effects.

Results of Combined Bio-diesel Scenario

As you can see, adding the results of both the above provide the answers of running both activities in a single Scenario.

Industry Spending Pattern Example 5b

5b. Washington County looks at our numbers and decides that they would like to narrow down the impacts. For most commodities, they don't know how much they can actually source locally, but all petroleum products and insurance will be purchased within the Study Area; however, other commodities will have to be sourced, at least in part, outside of Washington County. Also, they know their average employee compensation per worker is $185,000 but only 15% of the workers will reside within the Study Area.

1. Return to the Setup Activities screen.
2. Click on the "Bio-diesel Plant" Activity to highlight.
3. Go to Event Options>Change All>Set to SAM Model Value.
   • Because we don't know what can be purchased locally for most Events, we are going to let IMPLAN estimate this for us.
4. Notice that much of what is purchased is represented locally, although some products have little to no local source.
   • If you do not have the Local Purchase Percentage field showing, you can display it by going to Event Options>Show>Local Purchase Percentage.
5. Set Sectors 3115 Refined Petroleum Products and 3357 Insurance back to 100% LPP.
   • To do this, go to Event Options>Edit Event Properties>Local Purchase Percentage>Set to 100%.
6. Create a New Scenario to estimate the impacts of bio-diesel operations with LPP applied.
   • Click New Scenario. Name the Scenario "Bio LPP". Leave level at 1.00 and save. Select the "Bio-diesel Plant" Activity.
7. Analyze for Single Region
8. View results.
   
   
   • Note that unlike a standard Industry impact, there are no direct effects of the Industry Spending Pattern. This is because the spending pattern reflects the first round in indirect purchases. Therefore by definition the spending pattern cannot generate direct effects, as it is a result of indirect spending.

With the new information we can re-analyze the Labor Income impacts to represent the fact that only 15% of our workers will be local.

9. Return to the Setup Activities page.
10. Create a new Labor Income Change Activity.
    • Name the Activity "Bio-diesel 15". Set Activity Level to 0.05 and Save. As above, the 0.05 represents the 5% of the Bio-diesel plants spending that goes to labor income.
11. Create a new Event for Sector 5001 Employee Compensation. Set Labor Income value to $719,157,755.00
12. Set LPP for this Activity.
    • Go to Event Options>Edit Event Properties>Local Purchase Percentage>User LPC>0.15.
13. Create a New Scenario to analyze this impact.
    • Click New Scenario. Name the Scenario "Bio-diesel 15". Leave Level at 1.00 and save. Select the "Bio-diesel 15" Activity.
14. Analyze for Single Region
15. View Results.

As stated above, we could also create these two Activities at the same time and run them together in a single Scenario to avoid having to add up the results outside of IMPLAN.