ANALYZING INDUSTRY TRENDS IN A LOCAL ECONOMY: ILLUSTRATED WITH A CASE STUDY OF FURNITURE IN THE TRIAD REGION OF NORTH CAROLINA

Gerald Fox, Ph.D..
Associate Professor of Economics, High Point University

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Executive Summary
This analysis provides a framework for examining industry real GDP and employment patterns in a regional economy consisting of several counties in a state.  The analysis employs a top-down method to approximate industry real GDP at the county level based on data from the Bureau of Economic Analysis and County Business Patterns. The analysis tests industry RGDP patterns for statistical significance and generates economic projections.  If expanding industries and regional economic growth exceed declining industries, this signifies resilience and diversification.  If contracting industries dominate expanding industries in a region, this implies economic weakness and volatility.  Consequently, new strategies may be necessary to revitalize regional development.  As a case study, the trend analysis examines the net effect of industry patterns for furniture manufacturing, furniture wholesale, and furniture retail upon the dynamics of the four-county Triad regional economy of North Carolina during the period 1998-2008.
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Obtaining accurate measurements of industry patterns is critical for effective business and regional economic policy decision-making.  Trend analysis is a relatively simple approach for estimating the net influence of industry performance upon the dynamics of a regional economy.  This study shows how trend analysis may be used to examine patterns of employment and Real Gross Domestic Product (RGDP) among industries in an economic region consisting of several neighboring counties in a state.  The analysis employs a top-down approach to approximate industry RGDP at the county level based on data from County Business Patterns (CBP) and the Bureau of Economic Analysis (BEA).  An approximation method is necessary because the BEA provides RGDP measurements for major metropolitan areas, individual states, and the US economy, but not for counties or zip code areas. 

As a case study, the trend analysis examines the net effect of industry patterns for furniture manufacturing, furniture wholesale and furniture retail upon the four-county Triad region economy of North Carolina over the period 1998-2008.  Beginning with 1998, county-level industry performance is defined using NAICS classification codes.  Prior to that year, industry data are based on SIC classification codes.  NAICS codes are generally incompatible with SIC codes, making comparisons before and after 1998 difficult to bridge.

The results of the analysis show an economic decline of the furniture manufacturing subsector in the NC Triad region, which is partially offset by moderate growth in the furniture wholesale and furniture retail industries.  This is in the context of a general expansion of the regional economy.  The overall results indicate diversification and resilience of the local economy in the face of globalization pressures. 

Case study: Furniture-related industries in the NC triad region
In this analysis, the Triad region of North Carolina refers to the geographic area of Davidson, Forsyth, Guilford, and Randolph counties.  This region has historically been active in manufacturing, including textiles, apparel and furniture.  The High Point area within the Triad region is particularly strong in furniture manufacturing, along with the related service industries of furniture wholesale and furniture retail.   These three furniture-related industries create an annual economic impact of $5.75 billion in industry output in the Triad region (Fox, Hargrove and Bryden 2007).  Additionally, the city of High Point hosts the semiannual International Home Furnishings Market, which generates an annual economic impact of over one billion dollars throughout the region (Brod 2004).  This twice-a-year event is the largest convention for furniture wholesalers and furniture retailers in the world.  The High Point area is consequently referred to as the home furnishings capital of the world.

Throughout North Carolina, $193.76 billion in industry output and 588,795 jobs occur in the manufacturing sector.  All four counties of the Triad region rank among the top ten for manufacturing jobs in the state.  Guilford County is ranked first, Forsyth County is fourth, Randolph County is seventh, and Davidson County is tenth (source: County Business Patterns).  About 44 percent of industry output in the NC Triadregion occurs in manufacturing at nearly $42 billion and 97,584 jobs.  The four-county Triadarea contributes 21.67 percent of the manufacturing output in the state (.2167 = $42 ¸ $193.76) and 16.57 percent of the manufacturing jobs (.1657 = 97,584 ¸ 588,795).  Furniture is the largest manufacturing subsector in the Triadwith over 16,000 jobs, which is 17 percent of all manufacturing employment in the region(source: IMPLAN database).  Guilford, Davidson, and Randolph counties rank third, fourth and fifth in the state for furniture manufacturing jobs (source: County Business Patterns). 

Figure 1 shows a map of North Carolina.  The High Point area lies between the two larger cities of Greensboro and Winston-Salem in the central part of the state.  The combined population of the three Triad cities equals approximately half a million people, with the High Point area at 137,000 (source: US Census).  The High Point area includes the cities of High Point, Archdale, Trinity, and Thomasville.

Figure 1. Map of North Carolina

Source: GreenwichMeanTime.com

Two major issues confront furniture-related industries in the NC Triad region.  They are international trade competition and domestic rivalry from the furniture trade show in Las Vegas.  Furniture imports to the US have risen dramatically in recent years, especially from China.  As a result, furniture manufacturing jobs and output have declined in the NC Triad.  Figure 2 shows the loss of furniture manufacturing jobs in the Greensboro-High Point Metropolitan Area during Jan 1998 – Dec 2008.  Furniture manufacturing employment fell from 14.3 thousand to 10.6 thousand during this period, a decline of almost 4 thousand jobs. 

Figure 2. Furniture manufacturing employment in the Greensboro-High Point Metropolitan Area, 1998-2008

Source: US Bureau of Labor Statistics (monthly data)

On the domestic front, furniture marketing competition from the Home Furnishings Trade Show is held twice a year in the city of Las Vegas. (Maricich, 2009)  This convention for furniture wholesalers and retailers could eventually rival the scale of the International Home Furnishings Market (IHFM) in the High Point area. (Spillman, 2007)  The success of the IHFM could be jeopardized by this competition, especially if an economic slowdown occurs among furniture industries in the NC Triad.  On the other hand, strong economic performance among furniture-related industries in the Triad would reinforce the success of the IHFM.  The IHFM is particularly important to the Triad economybecause of its one billion dollar annual impact.

Several questions arise concerning furniture-related industries in the Triad region.  Has the decline of furniture manufacturing jobs adversely affected other furniture-related industries in the local economy, such as furniture wholesale and furniture retail?  Has employment in the furniture wholesale and furniture retail industries offset the decline of furniture manufacturing jobs?  Has the decline in the furniture manufacturing subsector caused the Triad region economy to slow?  What is the relation between employment and RGDP among furniture-related industries in the Triad?  These issues are examined using industry trend analysis.

RDGP and Employment Trends among Furniture-Related Industries
Trend analysis is dynamic in nature.  Industry patterns are examined over a period of years to identify trends of growth or contraction.  In this case study, trend analysis examines employment and RGDP patterns among three important furniture-related industries in the four-county NC Triad region.  The industries consist of furniture manufacturing, furniture wholesale, and furniture retail.  Industry RGDP measures the total value of final goods produced in an industry adjusted for inflation. The BEA uses the base year of 2000 for the price index to calculate the level of industry RGDP.

The BEA measures industry RGDP for major metropolitan areas, individual states, and the US economy, but not for counties or groups of counties such as the NC Triad region.  Industry payroll data, however, is available at the county level from the CBP at the US Census Bureau.  State-level industry payroll is also available in the CBP database.  County-level industry RGDP may be approximated using data from the two sources.  The estimation method involves a top-down approach.  This consists of multiplying the industry RGDP-to-payroll ratio at the state level with the corresponding annual payroll at the county level.  This estimation method assumes the industry RGDP-to-payroll ratio is approximately the same at both the state and county levels.

Local Region Industry        

In the above expression, Local Region Industry RGDPj denotes the approximate RGDP level for the jth furniture-related industry in the NC Triad area.  This refers to industry RGDP for furniture manufacturing, industry RGDP for furniture wholesale, and industry RGDP for furniture retail.  The subscript i corresponds to each of the four counties in the Triad region.  This refers to Davidson, Guilford, Forsyth, and Randolph counties.  The other terms are defined as follows:

CountyWij        = ith county’s annual payroll for the jth furniture-related industry (from the CBP database)
StateRGDPj      = RGDP for the jth furniture-related industry in North Carolina (from the BEA database)
StateWj            = state annual payroll for the jth furniture-related industry (from the CBP database)
      = RGDP-to-payroll ratio for the jth furniture-related industry in the Triad region

For example, consider furniture wholesale RGDP in the NC Triad region for the year 2005.  In this instance, the industry RGDP-to-payroll ratio is based on total wholesale trade because furniture wholesale trade is not available in the BEA database. Total wholesale RGDP in North Carolina equals $18.01 billion.  From the CBP database, NC wholesale payroll equals $7.7948 billion and furniture wholesale payroll across the four counties in the NC Triad equals $84.457 million. Based on the industry RGDP equation, the estimate for furniture wholesale trade in the NC Triad region equals furniture wholesale payroll in the Triad multiplied by the wholesale RGDP-to-payroll ratio for North Carolina.  The approximate level of furniture wholesale RGDP in the Triad area for 2005 equals $195.1 million = $84.457 x ($18.01/$7.7948).  This estimate is included in Table 1. 

The lag time for CBP data collection is approximately 1½ - 2 years.  The process is time consuming because the compilation of industry data consists of a census across the entire population.  This creates a problem for obtaining the most recent county-level industry measurements.  To partially resolve this issue, economic projections may be estimated for recent county-level industry performance using regression analysis, time series analysis, exponential smoothing, or moving averages.  The latest annual payroll and employment data from the CBP is for the year 2007.  Economic projections for 2008 are made using single exponential smoothing.  Projections based on this method equal a weighted average of past industry RGDP and employment levels.

Economic projections are often tenuous.  The further ahead are economic forecasts, the greater is the probability of error.  This issue is compounded if a major event, such as an economic recession, causes industry patterns to deviate from past trends.  The recent recession makes projections for 2008 markedly difficult ⁽¹⁾. This impact is considerable because the recession is extensive throughout North Carolina.

Table 1 shows RGDP and employment patterns among the three furniture-related industries in the NC Triad region for 1998-2007, along with exponential smoothing projections for 2008.  As more data becomes available, the actual industry performance for 2008 may be less than the projections because of the severity of the recession.

Table 1. RGDP (in $ millions) and employment among major Furniture-related Industries in the NC Triad, 1998-2008

Sources: Industry RGDP and employment are extrapolated from the BEA and CBP databases.  Total Triad region employment is from the BEA database. Economic projections for 2008 are based on single exponential smoothing using STATA software.

Furniture manufacturing RGDP approached one billion dollars in 1998; but fell to the lower-$900 million range in 1999-2000.  Furniture manufacturing slowed further to the mid-$700 million level in 2001, corresponding to the slowdown of the US economy.  Furniture manufacturing rebounded slightly in 2002-2004, rising to the upper $700 million range.  Industry performance then gradually declined to the mid-$600 million level during the time frame 2005-2008.  The large drop in furniture manufacturing RGDP over the eleven year interval (-$320.6 million) was partially offset by rising RGDP for furniture wholesale (+$78.9 million) and furniture retail (+$65.6 million).  The net effect, however, was a loss of $118.2 million in RGDP among the three furniture-related industries.  Figure 3 shows the RGDP trends for furniture manufacturing, furniture wholesale, and furniture retail.

Figure 3. RGDP trends for furniture manufacturing, wholesale and retail (in $ millions)
Note: trends based on data in Table 1; chart and trend lines created using Microsoft Excel

The terms M, W and R in the three time-trend regressions denote predicted RGDP for furniture manufacturing, furniture wholesale and furniture retail respectively.  The variable T in the three equations refers to time as measured in years, where T = 1 for 1998, T = 2 for 1999, . . . , T = 11 for 2008.  Besides the exponential smoothing projections for the year 2008 in Table 1, economic predictions for industry RGDP may be estimated using the time trend regressions.

For example, the 2008 projection for furniture wholesale RGDP equals $240.04 million = W = ($11.04)(11) + $118.6, where T = 11 for 2008.  This estimate is somewhat higher than the exponential smoothing projection of $211.5 million as shown in Table 1.  The actual industry performance for 2008 is likely to be closer to the lower exponential smoothing projection because of the impact of the recession.

All three industry trends in Figure 3 are statistically significant at 95 percent confidence or stronger, based on coefficient t-statistics from the regression analysis.  The downward RGDP trend for furniture manufacturing equals -$30.71 million per year.  The upward RGDP trend for furniture wholesale is +$11.04 million per year.  The upward trend for furniture retail is +$5.22 million per year.  The R2 statistic is the coefficient of determination.  This measures regression goodness-of-fit.  R2 for the furniture manufacturing and furniture wholesale trend lines are moderately high at .831 at .750 respectively, indicating that the model explains the data relatively well.  R2 for the furniture retail trend line is weaker at .436, indicating substantial fluctuation in the industry pattern.

Table 1 also shows employment patterns among the three furniture-related industries and the overall Triad region.  The industry employment data is from the CBP database.  Furniture manufacturing jobs fell from 24,407 to 13,449 during 1998-2008, an incredible drop of 45 percent.  This decline (-10,958 jobs) is partially offset by some job growth in furniture wholesale (+719 jobs) and furniture retail (+41 jobs), but not nearly enough to make up the difference. The net effect is a decline of 10,253 jobs across the three major furniture-related industries during 1998-2008. While not shown in Figure 3, a line chart with time trends may also be created to illustrate employment patterns among the three furniture industries.

The decline in jobs and RGDP in the furniture manufacturing subsector exceeds the gain in jobs and RGDP in the furniture wholesale and retail industries.  The overall pattern among the three major furniture industries shows a net decrease over the eleven year span.  Because of this issue, regional economic policymakers and industry leaders are attempting some new strategies and policies to bolster furniture-related industries, with furniture manufacturing being a major consideration. 

The Triad Partnership, the E.D. group for the region, recently commissioned a study to identify strengths, weaknesses and policy recommendations for furniture-related industries in the region.  Among the findings, the report recommends creation of a research center for home furnishings, development of a regional business plan, and implementation of new courses and training programs at a local community college that target the next generation of manufacturing and textile workers. (Barron, 2008)

Despite declining RGDP and job losses in the furniture manufacturing subsector, Table 1 shows that total RGDP and employment increased throughout the Triad region during 1998-2008.  Based on BEA data, total employment expanded, with some ups and downs, from 673,299 jobs to 728,492 jobs; a gain of 8 percent (+55,193 jobs).  Total RGDP in the Triad region also increased, expanding from $34.8 billion to $41.25 billion, a gain of 18 percent (+$6.43 billion). 

These net results, however, do not take into account the full impact of the recent recession.  As county-level industry data for 2008 becomes available, the updated economic measurements may be weaker than the 2008 projections. Economic recessions, however, are transitory.  Once the current recession ends, industry performance should return to previous patterns.  The eleven-year industry trends shown in Table 1 and Figure 3 should continue to be a reasonable indicator of future long-run industry performance in the NC Triad region.

The increase in jobs and RGDP in the NC Triad area more than compensated for the decline of jobs and RGDP in furniture manufacturing, showing resilience and diversification of the regional economy.  As stated by former North Carolina Secretary of Commerce Jim Fain, “We have transitioned from a labor-intensive economy into a more stable knowledge- and technology-based environment.  Globalism has reshaped the economic order and High Point as well as the state have adapted by drawing on its entrepreneurial streak.” (Overman, 2008)

The decline of furniture manufacturing and the growth of furniture wholesale and furniture retail in the NC Triad are part of a global pattern.  During the past several decades, the distribution of jobs and output in the US has gradually shifted from manufacturing to other industries such as the high tech and knowledge areas, as well as services, including wholesale and retail.  This has occurred for two main reasons.  First, manufacturing jobs have decreased because of technological advance and automation that enables fewer workers to manufacture more goods.  This is similar to technological progress in agriculture that allows less labor to produce more food.  Second, importation has increased for low-price manufactured goods, including furniture, from lower-wage developing countries into the US.  This has occurred because of high US consumer and business demand for inexpensive imports.  As furniture imports have increased, furniture manufacturing output and jobs have declined in the US. 

Many US jobs have shifted from manufacturing to other industry sectors, such as services, health care, information, and technology.  This dislocation is particularly painful among manufacturing workers who lose jobs and must seek other employment.  However, if expanding industries and overall economic activity exceed declining industries, then the overall economy is able to expand and create new employment to replace lost jobs.  This was the case for the NC Triad region during 1998-2008. 

Over the last decade, the distribution of RGDP among the three major furniture industries has gradually shifted.  Employment and RGDP fell in furniture manufacturing. Meanwhile, employment and RGDP moderately rose in furniture wholesale and furniture retail.  Additionally, the overall Triad region economy grew in terms of rising employment and RGDP.  This offset the volatility in furniture manufacturing.  The regional economy absorbed losses in furniture manufacturing and was still able to expand.

Some of the displaced workers in furniture manufacturing are re-employed in the furniture wholesale and furniture retail industries.  Other displaced workers re-enter the workplace across various sectors, including other manufacturing industries, construction, and services.  Some displaced workers also pursue further training or education to enhance employment opportunities as a consequence of job loss. 

Whether most displaced furniture manufacturing workers become better-off or worse-off in the long run as measured by income from subsequent employment is a matter for further study.  Some fraction of displaced workers will unfortunately be worse off in the long run because of the decline in furniture manufacturing, particularly semi-skilled laborers who lack higher training or education.  However, if the regional economy is able to maintain growth and create new employment to replace lost manufacturing jobs, many displaced workers should eventually find themselves better off in the long term, despite initial employment and income set backs.

Summary
This case study shows how industry trend analysis may be used to examine business patterns in a regional economy consisting of several counties in a state.  The analysis utilizes a top-down approach to approximate industry RGDP at the county level based on BEA and CBP data.  The analysis provides a framework for estimating RGDP and employment trends among major industries in an economic region, identifying patterns of growth and contraction.  The industry trends are tested for statistical significance and used to create economic projections.

If expanding industries and regional economic growth offset declining industries, this shows relative stability and resilience in a local economy.  This was found to be the case for the NC Triad region.  Increasing employment and RGDP in the Triad area offset declining jobs and output in the furniture manufacturing subsector. The Triad region absorbed losses in furniture manufacturing and was still able to grow because of economic diversification. Industry trend analysis is a relatively simple and effective tool that may be utilized by businesses and policymakers to examine industry patterns in a regional economy.  The framework may be applied to study local regions affected by globalism, technological advance, or other conditions that cause dynamic economic change where some industries contract over time while other industries expand.  Many economic areas face these transitions. 

Indentifying patterns of growth or contraction among major industries is important for devising policies and strategies for regional E.D., either to reinvigorate declining industries or reinforce expanding industries.  Trend analysis may be used to estimate the influence of major industry patterns upon the dynamics of a regional economy.  If declining industries dominate expanding industries in an economic region, this indicates economic weakness and volatility.  Consequently, new regional policies and strategies may be needed to stimulate E.D.

References
Barron, Richard M. 2008. Use furniture to boost Triad, report urges. Retrieved 5/12/09: http://www.news-record.com/content/2008/12/02/article/use_furniture_to_boost_triad_report_urges.

Brod, A. 2004. Economic Impact of the International Home Furnishings Market, OBER Report.

Bureau of Economic Analysis. US Department of Commerce. Retrieved 3/09/09: www.bea.gov.

Cater, John J. 2005. The Rise of the Furniture Manufacturing Industry in Western North Carolina and Virginia. Management Decision 43: 906-924.

U.S. Census Bureau. County Business Patterns. Retrieved 3/09/09: http://www.census.gov/epcd/cbp/view/cbpview.html.

Doeringer, P.B., and D.G. Terkla. 1995. Business strategy and cross-industry clusters.  Economic Development Quarterly 9: 225-37.

Feser, E. and H. Renski. 2000.  High-Tech Clusters in North Carolina, Report prepared for the North Carolina Board of Science and Technology, Office of Economic Development, University of North Carolina, Chapel Hill.

Fox, Gerald and Richard Hargrove and David Bryden. 2007. The Economic Impact of The Home Furnishings Industry in the Triad Region of North Carolina. High Point City Commissioned Report.  Retrieved 3/09/09: http://www.highpoint.edu/documents/High%20Point%20University%20Home%20Furnishings%20Industry%20Study%20May%202007.pdf.
Hansel, Mark. 2009. Q&A: Bob Maricich, World Market Center chief executive. Las Vegas Sun. Retrieved 4/27/09: http://www.lasvegassun.com/news/2009/jan/30/bob-maricich/.

Pugh, Tony.  2008.  Globalization, Trade and Recession take a Toll on Martinsville, Virginia.  McClatchy Newspapers.  Retrieved 3/09/09: http://www.mcclatchydc.com/226/story/33300.html.

Nwagbara, Ucheoma and Urs Buehlmann and Al Schuler. 2002. The Impact of Globalization on North Carolina’s Furniture Industries. EDIS Research Paper, NC Department of Commerce.

Overman, Ogi. 2008. State Commerce Secretary Lauds High Point’s Prosperity. Jamestown News.  Retrieved 5/12/09: http://jamestownnews.womacknewspapers.com/articles/2008/11/26/news/top_stories/top_stories98.txt.

Porter, Michael. 1990. The Competitive Advantage of Nations. New York, New York: The Free Press.

Quesada, Henry J., and Rado Gazo. 2006. Mass Layoffs and Plant Closures in the U.S. Wood Products and Furniture Manufacturing Industries. Forest Products Journal: 101-106.

Spillman, Benjamin. 2007.  Survey: Las Vegas will be furniture king. Casino City Times.Retrieved 4/27/09: http://www.casinocitytimes.com/news/article.cfm?contentID=168800.

The Author
Gerald Fox is Associate Professor of Economics in the Phillips School of Business at High Point University, where he teaches in the undergraduate and MBA programs. He also serves on the Global Studies Committee and the MBA Graduate Admissions Committee. Jerry’s research focuses on the political macro-economy, international economics, and regional economics. In 2007, he co-authored a university-sponsored study entitled “The Economic Impact of the Home Furnishings Industry in the Triad Region of North Carolina.” Jerry has also published papers on macroeconomics, and the influence of the economy upon presidential popularity and presidential votes. Jerry received his Ph.D. in Economics from the University of Utah, and B.S. in Economics from Brigham Young University. His academic fields are international economics and econometrics. Jerry frequently travels to Japan in the summers, and has worked as a visiting professor at the University of Warsaw in Poland.

Phone: 336 841 4559
E-mail: jfox@highpoint.edu

 

1 Refer to “U.S. Regional Recession Status” at Moody’s economy.com for a breakdown of recessionary risk across US regions (http://www.economy.com/dismal/recession.asp).