Rock Products

AUG 2017

Rock Products is the aggregates industry's leading source for market analysis and technology solutions, delivering critical content focusing on aggregates-processing equipment; operational efficiencies; management best practices; comprehensive market

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58 • ROCK products • August 2017 GDP, the USGS notes that the industry closely parallels the health of residential construction. Also shown in the figure is the Case-Shiller Home Price Index, a measure of U.S. residen - tial real estate prices. 22 A strong U.S. housing market is a key determinant (and leading indicator) for economic activity in the aggregates industry. In Figure 2, a radar scatter diagram shows more clearly that the value of the output of the aggregates industry is more closely related to the housing market than to GDP. This figure plots the percentage annual change in the three illustrated series. Wide swings in the housing and aggregates industry are temporally proximate, though unsurprisingly coincident with the milder movements in GDP. While general economic activity (GDP) affects the aggregates industry, the sectors output is more strongly related to changes in sectors—here residential housing—that use aggregates as key inputs of pro- duction. Analysis of the consumption of aggregates shows that the primary economic sectors in which aggregates are con- sumed include: residential buildings (33 percent); highways and streets (31 percent); commercial buildings (19 percent); government buildings (5 percent); other public works (8 per- cent); railroads (3 percent); and private non-construction (1 percent). 23 While highway spending has been relatively constant and inadequate over the past few decades, changes in infrastructure spending, especially investments aimed at transportation infrastructure, are likely to have a sizable effect on the aggregates industry. Economic Impacts We now turn to the quantification of the economic contri- butions of the aggregates industry. To do so, we employ Emsi's proprietary multiregional social accounting matrix (MR-SAM). This model estimates the employment and mon- etary contributions of one sector to the broader economy. Emsi's MR-SAM characterizes over 1,100 industries, 16 demographic cohorts, and 750 occupations to represent the flow of all economic transaction in an economic area, which may be defined at the county, state, or national levels. The effects vary considerably across the level analyzed, so we offer evidence at all three levels of aggregation. Emsi's pro- prietary data and analysis system – called "Analyst" – employs a similar statistical approach as that found in the widely-used input-output models IMPLAN and RIMS II. One distinguishing difference is that Emsi uses a higher number of available industries, thereby allowing the Emsi multipliers to better reflect local, sub-regional, and regional economic changes. Even in light of these differences and improvements in precision, the jobs impacts from Emsi's input-output model are comparable to those computed by IMPLAN and RIMS II. Emsi's model is data rich and draws from nearly 90 government (federal and state) data sources and creates an integrated dataset that balances accuracy with up-to-date relevance. What are Impact Multipliers? Using a rich dataset on industry relationships, the Emsi's Input-Output model is able to calculate how changes in one industry – say a change in jobs or sales – will then propagate to other industries in a regional economy. 24 The relationship between the two industries is measured by a multiplier, which is, in effect, the quantification of a "ripple effect." Interpreta- tion of a multiplier is mechanically rather straightforward. For example, a jobs multiplier of 3.0 means that an increase of 100 jobs in the industry of interest would lead to a total increase of 300 jobs (3.0 x 100 = 300) in the economy more broadly (within the region of interest). Likewise, reductions in jobs will reduce employment in the broader regional economy. As defined in this SCORECARD, this change of 300 includes the original 100 jobs, meaning the additional change in jobs from the activity is the remainder of 200 jobs. Of course, industries with strong ties to other industries (i.e., a strong supply chain) generally have higher multipliers than industries with weak supply chain. Unlike some types of economic activity, quarries and mines operate over many decades, so the industry's multiplier effects are recurring and not short-lived (e.g., construction projects). The economic effects reported here are sustained and not a short-term response to investment projects. Multipliers quantify four types of effects: (1) initial; (2) direct; (3) indirect; and (4) induced. The initial and direct multipli- ers are linked to the industry in which the primary change is occurring. The initial multiplier is always 1.00. The direct multiplier represents the most immediate "ripple effect" resulting from the initial change. Like the initial multiplier, these changes are linked to the industry in which the primary change is occurring. For instance, adding five salespeople to Aggregates Industry Almanac Economic Impact of the Industry

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