Download Waco MSA Traded Industry Clusters

Waco Regional Industry Clusters
The U.S. Cluster Mapping Project is a national economic initiative that provides over
50 million open data records on industry clusters and regional business environments in
the United States to promote economic growth and national competitiveness. On June 11,
2014 the U.S. Secretary of Commerce announced the launch of a new version of the U.S.
Cluster Mapping website (www.clustermapping/us) that "reinforces the federal
government's commitment to promote America's clusters and provide businesses and
organizations with the data and strategies they need to capitalize on their region's assets."
What are Clusters?
Clusters are concentrations of related industries that make a region uniquely
competitive for jobs and private investment. Clusters emerge naturally in the market
process, providing productivity benefits to companies as they grow in size. They become
attractive to companies looking for a new location and grow through the performance of
companies already located there. Companies in clusters gain access to specialized regional
suppliers, service providers, and institutions, and can also benefit from pools of skilled
employees and shared infrastructure dedicated to their needs. Every regional economy has
its own distinct profile of clusters. In order to standardize clusters and allow for useful
comparisons of clusters across regions, the U.S. Cluster Mapping Project provides a set of
benchmark cluster definitions (or cluster categories) that are the same in all U.S. regions,
whether they are states, economic areas, metropolitan statistical areas, or counties.
Industries are first classified as "traded" or "local." Traded industries are industries
that are concentrated in a subset of geographic areas and sell to other regions and nations.
Local industries are present in most (if not all) geographic areas, and primarily sell locally.
Within these two groups, sets of traded industries are organized into traded clusters based
on an overall measure of relatedness between individual industries across a range of
linkages, including input-output measures, use of labor occupations, and co-location
patterns of employment and establishments. Local industries are grouped primarily based
on similarities in activities reflected in aggregated U.S. industry categories. A regional
cluster exists when the level of activity is overrepresented relative to the national average.
This overrepresentation signals the presence of a critical mass at which cluster dynamics
kick in. Strong clusters are defined as those where the location quotient, i.e. the cluster’s
relative employment specialization, puts them into the leading 25% of regions across the
U.S. in their respective cluster category.
Clusters are important to their firms and associated organizations (such as
universities and local governments) for a number of reasons. Within clusters, these entities
can operate more efficiently and can share common technologies, infrastructure, pools of
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knowledge, and demand. The presence of these clusters can be important drivers of
regional competitiveness and innovation.
Comparative Regional Clusters
In order to more effectively compete, regions need to understand their cluster
strengths as compared to other areas. To accurately make this comparison, a consistent,
national set of cluster definitions mark the industry boundaries of each cluster. A good set
of cluster definitions groups closely related and supporting industries that capture as many
linkages as possible (e.g., technology, skills, supply, and demand). Each cluster is a
geographically proximate group of interconnected companies, suppliers, service providers
and associated institutions in a particular field, linked by externalities of various types.
The value the U.S. Cluster Mapping Project is derived from its defined set of
standardized national clusters that provides the objective identification of the competitive
position of clusters in a region, as well as comparisons and relative performance
measurement between any regions in the United States. This ability to compare clusters in
one region to another is crucial for understanding and improving the competitiveness of a
regional economy. Observations of the patterns of industry clustering across the United
States may reveal unique advantages, disadvantages, and opportunities in a region. From
these national strengths, regions may dig deeper using local knowledge to identify not only
existing but also other potential "region-specific” clusters.
Waco Metro Area Income and Employment Performance
Prior to identifying specific industry clusters it is useful to compare the relative
performance over a period of years of the Waco MSA economy with the average of all 917
U.S. Metro Areas. The most frequently used measures of regional performance are the
level and rate of growth in real GDP per capita, shown in figure 1 below. Over the period
from 1998-2013 the average annual growth in Waco Metro Area GDP per capita in 2005
prices was 2.09%, reaching an average level of $43,473 per capita in 2013. Waco’s ranking
among all 917 U.S. MSAs increased from 47th to 23rd over the period with its average
growth rate ranking 11 in the nation. The average annual rate of growth has more than
doubled the 1.03% average pace of growth of all U.S. Metro Areas and has virtually
removed its differential with GDP per capita nationwide that averaged $43,485 in 2013 for
all 917 metro areas. Figure 1 also shows that the pace of growth in the Waco Metro Area
real GDP per capita has been relatively stable despite the 2001 and 2008-09 recessions.
Figure 2 shows that a significant source of gains in income per capita have been
derived from higher labor productivity per worker as growth in Waco total employment
from 1998-2014 that averaged 0.84% ranks 14th among the 917 U.S. Metro Areas. The
higher demand for labor derived from this growth in productivity is a significant reason
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why employees in traded industries, on average, receive higher average wages than
workers in local, non-traded industries.
Figure 1: Waco MSA Growth Rate in Real GDP, 1998-2013
Figure 2 shows that by 2014 Waco employment had almost recovered from the
2008-09 downturn with more recent data continuing to show employment growth. Much
of the recovery in employment has been driven by several traded industry clusters shown
in Table 1 with the fastest growth in firms that provide outsourced business services that
have been increasingly used relative to in-house non-production workers since the
recession.
Figure 2: Waco MSA Growth Rate in Employment, 1998-2014
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Figure 3 shows that employment growth is not the best indicator of area economic
growth because primary industries, such as food processing and manufacturing, have
become less labor intensive. From 1998 to 2013 the average annual growth rate in Waco
Metro Area productivity, measured by real GDP per labor force participant, amounted to
1.35%. In 2013 the average labor force participant added $97,036 to Waco real GDP.
Figure 3: Waco MSA Labor Force Productivity
The real value of Waco MSA exports as a percent of its GDP, shown in figure 4,
amounted to 22.3% in 2013 and ranked 6th among all 917 U.S. metro areas. The average
growth rate in exports of 5.62% ranked 34th among U.S. metro areas.
Figure 4: Waco MSA Exports as Percent of GDP
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Employment growth in traded industries understates the growth rate in output and
income generated by increasingly capital intensive industries, such as biopharmaceuticals
and aerospace vehicles and defense. Following the 2008-09 downturn labor force
productivity increased significantly and has continued to improve since 2013 as the
demand for labor has increased faster than growth in the labor force. Figure 5 shows that
the faster growth in labor demand relative the growth in the labor force continued to
reduce the unemployment to an average rate of 4.47% in 2015. By May 2016 the Waco
unemployment rate had fallen to 3.7%, maintaining its ranking of 35th among metro areas
throughout the U.S. economy.
Figure 5: Waco MSA Unemployment Rate
Waco MSA Traded Industry Clusters
A traded industry cluster is based on a methodology that classifies 6-digit NAICS
industry codes based on a combination of high employment specialization and high
concentration among U.S. regions in order to identify geographically specialized and,
hence, traded economic activity. In Economic Areas (EAs) defined by the U.S. Bureau of
Economic Analysis (BEA) a traded industry has employment concentrated in top 10% EAs
regions based on a highly specialized employment-based Location Quotient (LQ) such that
the difference between the LQ at the 90th percentile and the LQ at the median over all EAs
equal to 1.5 or greater. (The employment-based Location Quotient is measured by the
share of total regional employment in the industry relative to the share in the U.S.
economy. A high location quotient captures the degree to which the industry is
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“overrepresented” in terms of employment in the EA.) Based on specialization and
concentration 778 of the 1,088 6-digit NAICS were classified as trade industries and the
remaining 310 6-digit NAICS industries were classified as local. Classifying industries as
traded or local allows them to be grouped into traded versus local clusters. (It is important
to note that total employment, by itself, does not determine the relative importance of a
traded cluster.)
Figure 6 shows that 36% of Waco industry clusters are classified as traded with the
other 64% classified as local. Although traded clusters accounted for a little more than
one-third of local employment the average wage in traded clusters is 31.3% higher than in
local clusters, resulting in almost equal total wage income paid in the each of the two
sectors. Industries in the traded sector are, on average, more capital intensive than in the
local sector, resulting in higher than average labor productivity and wages.
Figure 6: Traded vs. Local Clusters
36% traded
64% local
Figure 7 shows Waco’s MSA 2014 total traded clustered industry employment and
its ranking among 917 U.S. metro areas. Since traded industries sell products or services
across regions and countries they are driven by external influences that affect regional
output and employment. Local industry clusters, on the other hand, are found in nearly all
regions with employment roughly proportional to population.
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Figure 7: Waco Traded Clusters by 2014 Employment
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Table 1 shows total employment in Waco traded industry clusters in 2010 and 2014
and the percent change in annual average employment between the two periods. During
the four-year recovery period following the 2008-09 recession there was a net 2.6 percent
gain in Waco MSA traded industry employment totaling almost one thousand workers.
Table 1: Waco Employment in Primary Traded Industry Clusters, 2010 – 2014
Waco Metro Traded Cluster Name
Business Services
Biopharmaceuticals
Electric Power Generation and Transmission
Production Technology and Heavy Machinery
Aerospace Vehicles and Defense
Wood Products
Plastics
Trailers, Motor Homes, and Appliances
Upstream Metal Manufacturing
Automotive
Vulcanized and Fired Materials
Metalworking Technology
Hospitality and Tourism
Apparel
Performing Arts
Medical Devices
Agricultural Inputs and Services
Nonmetal Mining
Oil and Gas Production and Transportation
Marketing, Design, and Publishing
Construction Products and Services
Downstream Metal Products
Information Technology and Analytical Instruments
Financial Services
Lighting and Electrical Equipment
Education and Knowledge Creation
Leather and Related Products
Communications Equipment and Services
Furniture
Textile Manufacturing
Livestock Processing
Distribution and Electronic Commerce
Printing Services
Transportation and Logistics
Paper and Packaging
Insurance Services
Food Processing and Manufacturing
Waco, TX Totals (Traded Cluster)
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2010
Employment
4002
375
60
860
2275
110
373
130
20
215
90
545
1100
185
94
76
50
130
100
476
520
569
234
799
140
7895
130
245
1130
410
2566
3764
546
716
1080
2366
2065
2014
Employment
6149
750
375
1095
2475
287
480
235
90
265
130
568
1122
195
93
70
40
120
80
451
492
535
179
740
80
7834
49
140
1015
295
2392
3564
343
457
670
1946
1630
2010-14
% Change
53.6
100.0
525.0
27.3
8.8
160.9
28.7
80.8
350.0
23.3
44.4
4.2
2.0
5.4
-1.1
-7.9
-20.0
-7.7
-20.0
-5.3
-5.4
-6.0
-23.5
-7.4
-42.9
-0.8
-62.3
-42.9
-10.2
-28.0
-6.8
-5.3
-37.2
-36.2
-38.0
-17.8
-21.1
36571
37540
2.6
Over the same 2010-2014 period total Waco MSA employment in both traded and more
labor-intensive local industries increased by 3,500 hundred jobs that amounted to a 3.2
percent gain over the period.
A traded cluster generally consists of more than one specific industry component.
For example, 2014 employment in the Waco Aerospace Vehicles and Defense cluster,
shown in figure 8, had a combined influence that ranked 43rd among 917 U.S. metro areas
with employment in two of its industry components ranked 22nd and 25th among the 917
U.S. metro areas.
Figure 8: Waco Aerospace Vehicles and Defense Cluster, 2014
The Biopharmaceutical Industry cluster, shown in figure 9, currently consists of a
single firm employing 750 workers recently announced a future expansion in Waco that will
significantly increase its current ranking of 56th among the 917 U.S. metro areas.
Figure 9: Waco Biopharmaceutical Cluster, 2014
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Waco’s largest traded industry cluster is Education and Knowledge Creation
generated by the presence of Baylor University other higher education facilities that
service students and other groups with permanent residence outside of Waco, shown
in figure 10.
Figure 10: Education and Knowledge Creation Cluster, 2014
The Furniture Cluster stands out as a traded sector that ranks 58 th among the
917 U.S. Metro Areas primarily because it includes mobile home manufacturing than
ranks 6th among U.S. metro areas in terms of 2014 employment.
Figure 11: Furniture Cluster, 2014
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Business Services is the traded cluster that created the most new jobs locally
over the four-year period from 2010 to 2014. This rapid post-recession growth,
however, began with layoffs of nonproduction as well as production jobs during the
recession that outsourced service jobs in areas such as marketing and accounting.
Many of these nonproduction jobs have continued to be performed by new business
and professional service firms. Originally these jobs were classified as manufacturing
based on the firm’s primary production function rather than their current classification
in business services. Computer Services (ranked 115th) and Employment Placement
Services (ranked 61st) are the only two components of the Waco business services
cluster that have exceeded the predicted job growth due to the general expansion of
new business and professional service firms throughout the country that have proven
to be innovative and productive alternatives to in-house employees.
Figure 12: Business Services Cluster
Analysis of traded clusters provides a useful starting point for the identification of
competitive advantages that can enhance a region’s economic development. It may also
be used to evaluate the relative effectiveness in locating and attracting industries that are
traditionally linked together within a particular industry cluster.
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