Economic Diversity and Community Profile

Introduction

This week we are introduce the Axianomics, LLC Community Economic and Fiscal Profile. The Profile summarizes over 100 economic indicators into easy-to-understand indexes that can guide local leaders in their planning, budgeting and economic development activities. This post will highlight the Business Health Index which is one of the cornerstone pieces of the Profile. Economic diversity is one of the local conditions this index captures.

Industry Economic Indicators

Every community has a unique economy. The federal government divides the national economy into over 1000 different industries. These industries are organized into a hierarchy with the North American Industrial Classification System (NAICS). Examples of the highest-level groupings of industries include Business and Professional Services, Retail Trade and Manufacturing. Dozens or hundreds of detailed industries make up these summary categories.

The reported industries are different sizes and grow at different rates. Some are highly cyclical and grow and shrink with the business cycle. Other industries are more stable. Some are growing while others are in decline. National economic performance is the sum result of the particular fortunes of all these industries.

For each of these industries we can track employment, wages and number of business establishments. We can use this data to help understand the fortunes of local communities and get an idea of how their economy is changing. These economic changes have a big impact on municipal revenues and budgets.

The Value of Economic Diversity

Economic research confirms that there are many benefits to having a diverse industry base. Diverse local economies tend to grow faster and suffer from less volatility. We can measure these benefits in both employment and wage growth. There are still benefits for a community to be a leader in particular industries, but too much concentration can put the community at risk. Changes in market trends and new technologies can devastate individual industries. Cities that have all their eggs in a declining industrial basket can find themselves in a long-term downward spiral that is difficult to reverse. More diverse communities can fall back on other industries if certain businesses hit hard times.

Community Economic Profile and Business Health Index

Axianomics, LLC created the Community Economic and Fiscal Profile to help local leaders track the overall health of their economies and discover how their revenue and budget performance is linked to that economy.

The Profile includes several performance indexes that summarize over 100 economic indicators. One of these indexes is the Business Health Index. This index includes a number of component measures. Industry diversity plays a big part in this index. We compare local industry diversity to the nation overall and the state. This lets local leaders immediately see how their economy stands relative to these benchmarks. In addition to the industry diversity measure, the Business Health Index also tracks small and big business performance, growth trends, employment, income and number of businesses.

The Profile goes beyond typical economic indicators. By building these custom indexes, we can make more valuable business and community development recommendations to local leaders. Since municipal revenues and budgets depend on the underlying tax base, the information in the Profile makes a valuable contribution to planning budgeting and economic development strategy.

To learn more about the Economic Profile, download our fact sheet. We would be happy to discuss how you can obtain a custom Profile for your community. Contact.

 

What’s Next

Next week, we will take a look at the economics of public libraries and how cities can position their libraries as powerful economic development platforms.

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