How Output is Analyzed in Industry and Commodity Events with & without Margins

What are Margins?

The Bureau of Economic Analysis (BEA) defines a margin as “the value of the wholesale and retail trade services provided in delivering commodities from producers' establishments to purchasers. A total margin is calculated as sales receipts less the cost of the goods sold.” 

When we talk about margins, we’re referring to the additional cost that industries add to a commodity. This additional cost is to cover the cost of a service that an industry provides to make the commodity accessible to purchasers. Basically, they make it convenient for people to purchase it.

There are four components of a commodity’s Value Chain that may be included in the Purchaser Price of the product:

1. Retail Margin: The operational cost of the retail store. This is the portion of the cost that the retailer keeps to operate their store, pay their workers, pay taxes, and hopefully make a profit.
2. Wholesale Margin: This is the portion of the total cost the wholesaler keeps for their operational expenses.
3. Transportation Margins: This is the portion of the total cost the various transporters keep to move products from their production site to a distributor and from the distributor/wholesaler to the retailer.
4. Cost of Product (in the Producer Price): The value of the product when it leaves the factory floor.

Let’s See it in Action

Here’s a look at several scenarios revolving around the purchase and production of automobiles, what sort of impact they describe, and the different results possible from each impact analysis. Let’s say we want to look at the impact of new cars. We could look at this from the manufacturing side or from the retail side. The following shows you the key differences between using the different Industries and Commodities, as well as the associated margins.

Industry Events

We’ll run each scenario with $1M (2021 Dollar Year) via the US Region (2019 Data Year). Results will be reviewed in 2021 Dollars. 

Manufacturer’s Producer Price - Industry Output Impact

If we increase Industry Output by $1,000,000 in the Automobile manufacturing (Industry 340) in the US, the model assumes that there is $1,000,000 of new production by automobile manufacturers somewhere in the country. This is a Producer Price, but as you’ll see below, the Margin options are grayed out. No selection can be made with this Industry Specification because, in an Industry Output Event, margins are only applicable to retail/wholesale Industries. Output entered for a manufacturing Industry, like in this scenario, will always be assumed to be a Producer Price, the total value of production in Automobile manufacturing. 

We’ll see a Direct Output Impact of $1M and a Total Output impact of about $2.9M. 

In the Output tab of the Results, the Industries by Impact table shows the Output Results by Industry and by Impact. The largest impact is in Industry 340 - Automobile manufacturing, as this includes the $1M in Direct Output we entered. The top indirectly affected industries are made up of motor vehicle parts producers and wholesalers, followed by headquarters (469 Management of companies and enterprises). This is because these are the top inputs necessary for automobile manufacturing, and there are suppliers available within our Region, the whole the US.

Retailer’s Purchaser Price - Industry Output Impact

We may consider running this through the retailer instead of the manufacturer. Here’s what happens when the output for Retail - Motor vehicles and parts dealers (Industry 402) is increased by $1,000,000 in terms of spending by consumers (as a Purchaser Price). This is also the total revenue value for the retailer. 

In this scenario, IMPLAN applies the retail margin of nearly 25.5% to the Purchaser Price to estimate the retailer’s marginal revenue, the Producer Price of their service. The entered Purchaser Price multiplied by the retail margin produces the Direct Output value in the retail Industry. This retail margin coefficient is based on the average retail margin for all the Commodities this type of retailer sells such as cars, trucks, and parts. 

The other roughly 74.5% of the Purchaser Price will be a leakage, and will not be captured in the results. Leakages from a Purchaser Price can be avoided if the Commodity purchased is specified via a Commodity Output Event (keep reading). If the Commodity purchased/sold is unknown, impacting the place of purchase (appropriate retail or wholesale Industry) captures the respective retail or wholesale margin. Therefore, impacting the place of purchase like this is appropriate when the Commodities purchased/sold are unknown, or when assuming these goods were produced outside of the region. 

Our Direct Output is $254,935 ($1M x retail margin). The Indirect Effects show the supply chain effects of the retail portion of the Purchaser Price. To operate, the dealership spends money on rent (Industry 447 Other real estate) and storage costs (422 Warehousing and storage), Internet publishing and broadcasting services (438 Internet publishing and broadcasting and web search portals), and electricity (47 Electric power transmission and distribution). We’ll see below these Industries are predominantly indirectly affected. In the US 2019 Region, about 40% of Output in dealerships goes to paying employees, so it’s not surprising that in this scenario we also see Industries predominantly inducely affected in the 10 top Industries by Total Output, including Industries 449 Owner-occupied dwellings, 490 Hospitals, and 444 Insurance carriers, except direct life.  

The option to choose between Purchaser Price and Producer Price are only available in an Industry Output Event when the Event Specification is set to a retail or wholesale Industry; as we saw in the first scenario where we impacted the manufacturer, the Margin setting options were unavailable. 

 

Retailer’s Producer Price - Industry Output Impact

If we chose to use the retail industry, but in terms of Producer Price, we would get very different results. Here’s what happens when the output for Retail - Motor vehicle and parts dealers (Industry 402) is increased by $1,000,000 in the US in terms of the Producer Price of the retailers’ services, or their marginal revenue. The Advanced Fields icon in this Event is teal to indicate that a change has been made in one of the Advanced Fields. In this case, the Margin setting was changed from the default of Purchaser Price to Producer Price. The Producer Price of the retail services would likely only be available when this information is provided directly from the retailer. Having the Purchaser Price spent at the retail or wholesale place of purchase is the much more common scenario. 

This assumes the $1,000,000 is known to be the retailers’ Output, such that no margins are included. This tells IMPLAN to not account for any margins. We’ll see the full $1M as our Direct Output. 

The Industries affected in this analysis will match those affected by the previous analysis because the same Industry Production Function is being used to calculate the results. In this case the effects are all scaled up in size because the entire $1M is being analyzed via the retail Industry Production Function. 

Commodity Events

Retail Producer Price - Commodity Output Impact

For comparison, let’s look at an example using a retail/wholesale Commodity. Margins are applicable in Commodity Events when a retail/wholesale Commodity has been specified, or when a Commodity that can sold via retailers and wholesalers is specified. When applicable, the Margin selection will default to Purchaser Price. 

Here’s what happens when the output for Retail services - Motor vehicle and parts dealers (Commodity 3402) is increased by $1,000,000 in the US in terms of the Producer Price of the retail services. The Advanced Fields Indicator is teal, showing that the Margin selection has been changed from the default. 

Industry 402 Retail - Motor vehicle and parts dealers is the only industry producing the corresponding retail service in the US 2019 data. Therefore our results using a Commodity Output Event to analyze the retail service is exactly the same as the results produced by the retail Industries Events in the previous scenario (with Margins set to Producer Price in both cases). The scenario in which this Event setup is appropriate is rare, but can be used if the Industry providing the retail or wholesale service is unknown, or if the location of the retailer/wholesaler is unknown. Commodity Events includes a Local Purchase Percentage option, whereas Industry Events do not.  

Now we’ll move on to analyzing the product itself as a Commodity Event using examples with both a Purchaser Price and a Producer Price.

 

Product Producer Price - Commodity Output Impact

Here’s what happens when the Commodity Output for Automobiles (Commodity 3340) is increased by $1,000,000 (as a Producer Price).

This assumes that the $1M only includes the cost of the product itself. This is what it would look like to purchase the Commodity straight from the manufacturer. It would also be relevant if we were analyzing the value of the product and the margins separately. 

These results differ from the increase in $1,000,000 Producer Price in the corresponding Industry (IMPLAN Industry 340) due to the fact that the Commodity, Automobiles, is not produced only by Industry 340 but also by another Industry. 

In the summary results, we see the Direct Output is equal to the $1M we entered in the Event. This view of the results doesn't reveal that multiple Industries are directly affected.  In the Output Industries by Impact table below, we see Direct Output in not only Automobile Manufacturing, but also in Industry 352 Other motor vehicle parts manufacturing. The results show that the Market Share for Commodity 3340 Automobiles in the Region has 97.8% of production coming from Industry 340, 2.2% coming from Industry 352, and 0.5% coming from Industry 341. These sum to the $1M in Direct Output.

 

Product Purchaser Price - Commodity Output Impact

Here’s what happens when the sales of Automobiles (IMPLAN Commodity 3340) is increased by $1,000,000 in terms of spending by consumers (as a Purchaser Price). 

This assumes the Event Value includes the product value and the margins; telling IMPLAN to apply the Commodity specific margins. Unlike the retail dealership Industry margin of about 25.5%, the Commodity margins do sum to 100% . We still see our Direct Output matching our input of $1M because the full value chain of Purchaser Price is captured by a Commodity Event. In some cases there will be leakages from the Direct Output in this scenario due to any institutional production of any component of the value chain. 

In the Direct Output column below, we see the effects to each Industry in the value chain, the producers of the cars, Automobile manufacturing and Other motor vehicle part manufacturing, as well the wholesaler, retailer, and the transportation industries involved. The Direct Output in the retail dealership Industry here is about $246K. In the first scenario, when we entered the Purchaser Price as an Industry Event and specified the retailer, the Direct Output was $255K. The Direct Output in the retail Industry is different between these scenarios because the Commodity margins here are specific to the product. The retail margin on automobiles is about 24.6%, but the average retail margin on all products sold via retail dealerships is about 25.5%. When the Commodity is specified, the margins are based on the product, and the full value chain can be identified and analyzed.

Commodity Local Purchase Percentage Consideration

In each of the above examples the Local Purchase Percentage (LPP) for each Event was assumed to be 100%. Setting LPP to less than 100% is not possible for Industry Events. In the case of our last two Events using Commodity Output Events, we have the option to change the LPP. If it is unknown where the Commodity was produced, it is recommended to check the SAM box for the LPP option in the Advanced Field of the Event.

 

Event Scenario Summary

	Event Type	Event Specification	Event Value	Margins Selection	How Output is Analyzed
Manufacturer Producer Price	Industry Output	Manufacturer	Price paid at place of purchase	N/A	Output is the total value of production in the Automobile Manufacturing Industry.
Retailer Purchaser Price	Industry Output	Retailer	Price paid at place of purchase	Purchaser Price	Output is the total value of spending at the retailer. IMPLAN estimates the effect to the retailer in the Direct Effects based on the Industry Margins, the rest is leakage.
Retailer Producer Price	Industry Output	Retailer	Margin kept by retailer	Producer Price	Output is the total value of the retailer’s service.
Retail Producer Price	Commodity Output	Retail Service	Margin for retail service	Producer Price	Output is the total value of the retail service.
Commodity Producer Price	Commodity Output	Product	Price paid for product	Producer Price	Output is the total value of the Commodity specified. Output is split based on the Market Share for the Commodity and analyzed based on Industry Producers.
Commodity Purchaser Price	Commodity Output	Product	Price paid at place of purchase	Purchaser Price	Output is the total value of retail spending on the Commodity specified. Output is split based on the Commodity Margins, then further on the Market Shares for each component of the Value Chain.

Learn more about the recommended Event setup based on a given purchase scenario.