INDUSTRY SECTORS and INPUT OUTPUT ANALYSIS

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INDUSTRY SECTORS and INPUT OUTPUT ANALYSIS

• Monday, January 24, 2005

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ECONOMIC SECTOR CLASSIFICATION

• Most countries have a classification system for
  their economic sectors
• US (SIC Standard Industrial Classification)
• North America (NAICS North American Industrial
  Classification System)
• UN (SNA System of National Accounts)

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ECONOMIC SECTOR CLASSIFICATION

• This classification facilitates
• Systematic accounting of the output of the
  economy and use of the output (National Income
  and Product Accounts NIPA)
• Monitoring and reporting of performance measures
  such as Gross Domestic Product
• Comparison and benchmarking
• Planning and forecasting Input-Output Analysis

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NAICS SYSTEM

• Economic activity is classified into sectors
  based on commonality of products, production
  technology, inputs and end use.
• http//www.census.gov/epcd/www/naics.html
• 20 main sectors (2 digit sectors)
• These are subdivided into 100, 3 digit sectors
• Further division into 500, 4 digit sectors
• Over 7000 product groups (6-7 digit)

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Major (2 digit) industries

• 11 Agriculture, Forestry, Fishing, and Hunting
• 21 Mining
• 22 Utilities
• 23 Construction
• 31-33 Manufacturing
• 42 Wholesale Trade
• 44-45 Retail Trade

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Major(2 digit) industries

• 48-49 Transportation and Warehousing
• 51 Information
• 52 Finance and Insurance
• 53 Real Estate and Rental and Leasing
• 54 Professional, Scientific and Technical
  Services
• 55 Management of Companies and Enterprises
• 56 Administrative and Support and Waste
  Management and Remediation Services

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Major(2 digit) industries

• 61 Educational Services
• 62 Health Care and Social Assistance
• 71 Arts, Entertainment and Recreation
• 72 Accommodation and Food Services
• 81 Other Services (except Public Administration)
• 92 Public Administration

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21 Mining

• Comprised of establishments that extract
  naturally occurring mineral solids, such as coal
  and ores liquid minerals, such as crude
  petroleum and gases, such as natural gas. The
  term mining is used in the broad sense to include
  quarrying, well operations, beneficiating (e.g.,
  crushing, screening, washing, and flotation), and
  other preparation customarily performed at the
  mine site, or as a part of mining activity.

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21 Mining

• 212 Mining (except oil and gas)
• 2122 Metal ore mining
• 21222 Gold ore and silver ore mining
• 212221 Gold ore mining
• 212222 Silver ore mining

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Economic Census

• http//www.census.gov/econ/census02/guide/
• Censuses conducted once every five years
• Annual surveys (sample surveys)
• Quarterly surveys
• Special surveys
• Manufacturing Energy Consumption
• Pollution Abatement and Control Expenditure
  Survey

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1997 and 2002 Economic Census

• 1997 Census summary statistics available at
• http//www.census.gov/epcd/ec97/us/US000.HTM
• 2002 Census summary statistics available at
• http//www.census.gov/econ/census02/advance/TABLE1
  .HTM

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INPUT OUTPUT ANALYSIS
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What is IO Analysis?

• A snapshot of the economy at a moment in time
  (e.g., 1999)
• A description of the physical relationships among
  industry sectors (e.g., who supplies and who
  demands intermediate and final goods and
  services)
• IO Accounts summarize production and utilization
  of the output of different sectors of the economy

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IO Analysis

• Input Output Transaction Tables
• Accounts for how the output of different sectors
  is used in the economy
• Direct Requirements Model
• Shows the immediate economic effects of a change
  in demand for an output (i.e., direct effects)
• Total Requirements Model
• Shows the ripple (direct and indirect) effects
  of a change in demand for an output

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Why is an IO Model Useful?

• IO Accounts enable measures such as sector
  output, sector income, Gross Domestic Product
• IO models help to forecast the effect of changes
  in demand for outputs
• Example Increase in foreign demand for US autos
  increases demand for the inputs used to build
  autos e.g. labor, land, energy, raw materials,
  and waste disposal

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US Input Output Tables

• http//www.bea.gov/bea/industry/iotables/prod/tabl
  e_list.cfm?anon132

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Direct and Indirect Requirements for Producing an
Output

• Direct requirement examples The output of autos
  requires inputs of electricity, steel, plastic,
  glass, water, and skilled labor
• Indirect requirement example the steel used to
  build the auto is produced using iron ore, so
  iron ore is an indirect input requirement in
  producing auto outputs. The electricity used to
  build the auto is produced using coal, so coal is
  an indirect input requirement for building autos.

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Product Flow Diagram
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Industry Sector Flow Diagram
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Industry Sector Interrelationships
Direct and Indirect Relationships
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Relationships Between All Industry Sectors
Steel
Natural Gas
Electric Power
Metal pipes
Cement
Water
Plumbing
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Input-Output Matrix
The diagram in the previous slide is too
complicated. Fortunately, a clever economist,
Wassily Leontief, developed a better way to
depict the product flow and interdependencies
among industry sectors in an economy by using a
matrix. (He received a Nobel prize for this.)