Source of huge change in intermediate purchases

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    IMPLAN Support
    Hi Paul, Great questions. Regarding the increase in Intermediate Expenditures: You will see in the attached spreadsheet that while sector 20's Output rose by 18% in KY between 2010 and 2012, each of its components of Value-Added fell during that same period. Since Output = Intermediate Expenditures + Value Added, if Value Added goes down, Intermediate Expenditures must go up. The increase in Output in KY mirrors the increase in Output in the U.S. over that period (see attached spreadsheet) and is mainly due to the increase in physical production and price of crude oil. While the physical production of natural gas also went up over that period, the price of natural gas fell - so it is crude oil that is driving the increase in overall Output for the Sector. Proprietor Income and Other Property Income (i.e., corporate profits) can be quite variable from year to year, especially in extractive/natural resource Sectors such as this one. The change in IBT reflects an improvement we made in our methods for estimating IBT to better reflect state-specific conditions. Regarding the shift in the ordering of commodities in the production function (i.e., the ordering of the Gross Absorption Coefficients): While both years started off with the same production function for sector 20 from the latest BEA Benchmark I-O, the amount of each input purchased will change somewhat year-to-year in order to balance these benchmark (i.e., lagged) demand proportions with current-year Output values. In other words, if there is more Output of a particular commodity this year, then all of that Output must get 'absorbed' entirely - by industries for use as inputs and by final demanders. So the absorption coefficient for that commodity will likely increase for all industries that purchase it, as well as for any final demanders that also purchase it. Please let us know if you still have questions. [attachment=472]KY_OG.xlsx[/attachment]
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    pacoom01
    Thanks much for going to the trouble of unpacking this. I was very aware of the decline in natural gas prices, but will need to ponder the rest of the technical explanation. At this point, while everything is based on sound methodology, it is hard to know whether this giant swing in intermediate purchases by the industry is an accounting residual or some real economic phenomena. My client actually uses the details in communicating the status of the industry, so I will need to flesh this out further. I appreciate your prompt and professional help.
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