THE ECONOMIC IMPACT OF ADVERTISING

EXPENDITURES IN THE UNITED STATES

2012 - 2017

A REPORT PREPARED FOR:

The Advertising Coalition

ANALYSIS BY:
IHS Global Insight, Inc.
 TABLE OF CONTENTS
1. Introduction ............................................................................................................... 3

2. The Impacts of Advertising on Sales and Employment .......................................... 5

Table 1 – Ad Spending Impact on Sales by State (Millions of Dollars)....................................... 9
Table 2 – Ad Spending Impact on Employment by State (Number of Jobs) ............................ 10
Table 3 - Total Output and Employment by State (Millions of Dollars / Number of Jobs) ........ 11
Table 4 - Ad Spending Impact as a Share of State Output in 2012 (Millions of Dollars) ......... 12
Table 5 - Ad Employment Impact as a Share of 2012 Employment (Jobs) .............. 13

3. Potential Losses from a Reduction in Tax Deductibility ...................................... 14

Table 6 – Loss in Ad Spending in 2010 Due to a Reduction in Tax Deductibility (Millions of
Dollars) ...................................................................................................................................... 15
Table 7 – Forecast of Loss in Ad Spending Due to a Reduction in Tax Deductibility
(Millions of Dollars) ............................................................................................................... 15
Table 8 - Forecast of Loss in Ad Employment Due to 20% Reduction in
Deductibility (Number of Jobs) ........................................................................................... 16

Appendix A: Methodology .......................................................................................... 17

Table 9 - Data Sources ............................................................................................................. 18
Table 10 - Advertising Activities Included in this Report ........................................................... 19
Table 11 - Industry Definitions .................................................................................................. 20

Appendix B: IHS Global Insight Macroeconomic Models......................................... 24

IHS MODEL OF THE U.S. ECONOMY .................................................................................... 24
IHS REGIONAL ECONOMIC MODELS ................................................................................... 25
IHS US INDUSTRY MODEL ..................................................................................................... 26
IHS US BUSINESS MARKET INSIGHTS ................................................................................. 26
THE IMPLAN MODEL ............................................................................................................... 26
 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

1. Introduction
Advertising stimulates a large amount of sales and jobs in the US economy. Each form
of advertising, ranging from direct mail to print to broadcast to internet, helps businesses
build brand awareness and communicate the benefits of their products and services to
target audiences. The resulting heightened awareness among buyers can shift market
share among competing firms, while stimulating economic activity that would not have
occurred otherwise. This, in turns, triggers a cascade of economic activity that
stimulates job creation and retention throughout the US economy.

The Advertising Coalition commissioned IHS Global Insight, Inc. to conduct a

comprehensive assessment of the total economic impact of advertising expenditures
across 16 industries, plus government, in each state and Washington, D.C., as well as in
each of the four hundred and thirty five Congressional Districts in the United States.

The goal of this study is to quantify the level of sales and employment that are
attributable to the stimulative effect of advertising. The increased sales require higher
levels of production, which helps create and maintain jobs across every industry, state
and Congressional District. IHS assessed the economic impact of advertising along four
dimensions 1:

 Direct Economic Impact: which encompasses, first, the dollars spent on and
the jobs dedicated to developing and implementing advertising activities to
stimulate demand for products and services in each industry and, second, the
sales and jobs accruing to industries that utilize advertising to stimulate demand
for their products and services. The type of transaction included in this stage of
the impact is exemplified by the sale of a shirt via a company catalog to a
consumer or the sale of an insurance policy by an insurance agent from a lead
generated through television advertising.

 Supplier Economic Impact: encompasses the indirect sales and jobs supported
by first level suppliers to those industries that use advertising. The type of
transaction included in this stage of the impact is exemplified by the sale of the
shirt by a garment manufacturer to the catalog company or the services provided
by an accounting firm that audits the books of the insurance company.

 Inter-Industry Economic Impact: includes the indirect sales and jobs supported
by all the remaining levels of suppliers to the first generation suppliers identified
in the supplier economic impact. This level of impact encompasses activity by the
cloth, button, thread and sewing equipment manufacturers who are the suppliers
to the shirt maker as well as all other products and services that are required to
run the textile business.

 Induced Consumer Spending: every person that has a direct, supplier or

interindustry job also plays the role of consumer in the US economy. They spend

1
Discussions of the methodologies used in and econometric modeling conducted for this study
are presented in Appendices A and B.

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

a portion of their salaries in the economy on items such as food, consumer goods
and services, healthcare and so on. This spending initiates multiple rounds of
economic activity, stimulating additional sales and job creation.

In summary, we found that, for the forecast period 2012 to 2017:

 Every dollar of ad spending will generate, on average, almost $22 of economic
output (sales).
 Every million dollars of annual ad spending will support 81 American jobs.
 In 2012, advertising accounted for $5.6 trillion of the $33.8 trillion in US output
and supported 21.1 million of the 136.2 million US jobs.
 By 2017, advertising will account for $6.5 trillion of$42.3 trillion in US output and
support 22.1 million of 146.7 million US jobs.

IHS Global Insight ran an additional simulation to assess the effect of a change in tax
policy whereby the portion of ad spending that is tax deductible is decreased from its
current 100% to 80%. The simulation results are put forth at the national level and by
sixteen broad industry aggregates in Chapter 3. This change in tax deductibility in 2012
would trigger:
 A $19.4 billion loss in ad spending
 A loss of $419 billion in additional economic output
 A loss of approximately 42,000 jobs directly related to advertising, and
 The elimination of an additional 1.6 million American jobs.

The models in this report contain information from several distinct datasets and larger
economic models at IHS Global Insight. The forecasts of macroeconomic variables,
such as GDP, consumer spending and corporate profits, contained in this report are
created in the US Macroeconomic Model. The levels of output and employment by
industry are maintained in the US Industry Analysis Model. The state level economic
data come from the US Regional Service. Induced impacts were assessed using the
IMPLAN model. Appendix B of the report provides descriptions of these models.

4 ©2013 IHS
 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

2. The Impacts of Advertising on Sales and Employment

In the 2010 edition of this report, IHS Global Insight acknowledged that advertisers had
cut spending during the recession, which officially ended in 2009. We predicted that ad
spending would rebound to pre-recessionary levels in 2011. Unfortunately, the optimism
of 2010 soon faded as the economy struggled to regain strength. The models we used to
conduct the current analysis have been updated to reflect a more protracted US
economic recovery. As shown in Figure 1, ad spending contracted more quickly than
the overall economy in 2008 – 2009. The optimism in early 2010 helped ad spending
growth to temporarily outpace the overall economy, only to slow again as that optimism
was replaced by the realization that the recovery cycle will be a multi-year period.

Figure 1: Percent Change in Real Ad Spending versus Real GDP

5%

0%

-5%

-10%

-15%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

% change in Real GDP % change in Real Ad Spending

Source: IHS Global Insight

Our updated forecast predicts ad spending will not exceed pre-recessionary levels until
2016 (Figure 2). This is indicative of firms suppressing their ad spending until the
economy strengthens and target customers are in a better position to make advertising-
influenced purchase decisions.

Figure 2 - Total Advertising Expenditures (Nominal US Dollars)

325

300
Pre-recession level
BIllions of Dollars

275

250

225

200
2007 2009 2011 2013 2015 2017

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Over the forecast period, advertising employment will remain relatively stable at around
550,000 jobs (Figure 3). The stable employment during a period of lower ad spending
underscores that many firms recognize the critical role the advertising staff play in their
businesses. Rather than lay-off seasoned ad professionals, many firms will maintain
their staffs. Then, as the economy improves, they will be positioned to quickly execute
advertising campaigns.

Figure 3 - Total Advertising Employment

600

550
Thousands of Jobs

500

450

400
2007 2009 2011 2013 2015 2017

Source: IHS Global Insight

Companies spend on advertising to build brand equity and stimulate sales. This sales
activity triggers a ripple effect as firms buy additional inputs to production from their
suppliers, and those suppliers buy inputs from their suppliers, and so on. Figure 4
provides two views of the economic leverage of advertising on the US economy. Over
the forecast period, each dollar of ad spending will generate, on average, $21.74 of
additional sales, broken down as follows: $8.78 in direct sales, $3.61 in supplier sales,
$3.89 in interindustry sales and $5.46 in Induced sales. It is interesting to note that direct
sales activity accounts for only 40% of the output impact, the remaining 60% occurs in
the indirect (supply chain)and induced (consumer) categories.
Figure 4 also shows how many jobs are ultimately supported by $1 million in advertising
spending: 2 ad jobs; 32 direct jobs, 25 indirect (supplier and interindustry jobs) and 23
induced jobs. Once again, the bulk of the economic benefits will accrue to the indirect
and induced categories. Figures 5 and 6 present the output and employment impacts,
by category, for each year of the forecast period.

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Figure 4 – The Economic Leverage of Advertising

(average, 2012 – 2017)

Induced Induced Ad
5.46 23 2

Inter-
Industry Inter-
Sales leveraged Jobs supported
3.89 Industry
by $1 of by $ 1million
13
Ad Spending of Ad Spending
Sales Sales
8.78 31
Supplier Supplier
3.61 12

Figure 5 - Total Economic Impact of Advertising

5
TrIllions of Dollars

0
2012 2013 2014 2015 2016 2017
Ad Expenditures Sales Impact Supplier Sales
Interindustry Sales Induced Sales

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Figure 6 - Total Employment Impact of Advertising

25

20
Millions of Jobs

15

10

0
2012 2013 2014 2015 2016 2017

Ad Employment Sales Employment

Supplier Employment Interindustry Employment
Induced Employment

Source: IHS Global Insight

Tables 1 – 5 provide details on the state-level economic impacts of advertising.

Summarized state-level output and employment impacts for 2012 and 2017 are
presented in Tables 1 and 2, respectively. These summaries allow us to see the
variation in magnitude among states in terms of advertising spending and the resulting
economic impacts. For example, the highest level of ad spending occurs in California,
with $32.9 billion in advertising expenditures. These expenditures generate a combined
$721.2 billion in economic output that would not have occurred otherwise.

To understand the relative importance of advertising impacts, we present in Table 4 the

sales leverage (total sales/ad spend) and the percentage of state-level output
attributable to advertising. Each ad dollar in 2012 leveraged $21.64 of additional
economic output. On average, advertising stimulates just under one fifth (17.2%) of total
output in the US economy. There is some variation of this share among states, which is
explained primarily by the different industry composition of each state.

Table 5 shows the number of jobs supported by $1 million of ad spending as well as ad

employment impacts as a share of each state's total employment. In 2012, each million
dollars of ad spending supported 85 jobs. In California the average is 73 jobs. While this
may appear counterintuitive, larger states (e.g., New York, California, Texas) often have
more developed supply networks with higher economies of scale. Thus, moderately
fewer jobs are required fulfill a given level of direct sales and the subsequent direct,
indirect and induced sales. Approximately 16% of US employment is attributable to
advertising activities and related sales.

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Table 1 – Ad Spending Impact on Sales by State (Millions of Dollars)

Advertising Expenditures Total Sales Related Impact

State 2012 2017 2012 2017

Alabama 3,224 3,800 65,763 77,123

Alaska 483 551 11,004 12,664
Arizona 4,286 5,225 93,312 114,415
Arkansas 1,796 2,111 37,513 43,297
California 32,872 38,361 721,177 842,089
Colorado 4,332 5,168 97,808 117,051
Connecticut 4,181 4,841 91,077 105,939
Delaware 818 938 18,469 21,435
Florida 11,840 14,145 268,508 324,101
Georgia 7,138 8,452 154,998 184,254
Hawaii 748 852 17,242 19,982
Idaho 856 1,003 18,593 21,707
Illinois 11,804 13,710 255,334 292,642
Indiana 5,699 6,732 110,625 128,554
Iowa 2,657 3,121 55,019 63,823
Kansas 2,427 2,882 49,942 58,836
Kentucky 3,095 3,602 62,367 72,518
Louisiana 4,083 4,721 81,419 90,450
Maine 867 989 18,670 21,349
Maryland 4,373 5,085 100,980 118,789
Massachusetts 7,241 8,282 164,414 190,047
Michigan 9,007 10,401 175,783 203,310
Minnesota 5,019 5,897 108,371 125,937
Mississippi 1,609 1,877 32,929 38,107
Missouri 4,635 5,364 99,288 114,971
Montana 573 669 12,462 14,431
Nebraska 1,510 1,753 32,705 38,215
Nevada 1,595 1,908 37,534 45,499
New Hampshire 1,211 1,430 25,823 30,235
New Jersey 8,147 9,499 180,320 208,899
New Mexico 1,037 1,187 23,346 26,923
New York 21,091 24,744 489,837 590,055
North Carolina 6,576 7,783 140,436 165,107
North Dakota 622 753 13,411 16,069
Ohio 9,635 11,239 197,053 226,948
Oklahoma 2,439 2,854 52,023 59,873
Oregon 2,772 3,278 59,207 69,642
Pennsylvania 9,980 11,686 216,021 251,093
Rhode Island 738 845 16,438 18,886
South Carolina 3,041 3,653 62,748 74,544
South Dakota 560 665 11,996 14,147
Tennessee 4,875 5,841 101,239 120,231
Texas 22,113 26,541 466,866 552,947
Utah 2,119 2,630 45,232 55,780
Vermont 475 546 10,178 11,679
Virginia 6,364 7,300 147,743 172,825
Washington 6,758 8,265 142,808 176,616
Washington DC 1,024 1,187 27,992 34,649
West Virginia 941 1,091 20,122 22,806
Wisconsin 4,909 5,855 100,941 117,781
Wyoming 445 522 9,396 10,725

US Total 256,644 301,833 5,554,482 6,529,994

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
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Table 2 – Ad Spending Impact on Employment by State (Number of Jobs)

Advertising Employment Total Sales Related Employment

State 2012 2017 2012 2017

Alabama 8,373 8,567 286,073 298,606

Alaska 964 957 42,844 45,043
Arizona 9,652 9,970 392,369 422,776
Arkansas 5,130 5,236 177,100 184,956
California 60,866 61,105 2,350,827 2,452,017
Colorado 8,896 9,163 366,494 393,609
Connecticut 7,708 7,529 274,270 275,142
Delaware 1,712 1,717 67,606 69,618
Florida 27,692 28,371 1,197,485 1,280,136
Georgia 16,599 16,880 625,958 663,895
Hawaii 1,823 1,817 91,143 96,404
Idaho 2,457 2,545 96,143 102,457
Illinois 24,442 24,537 932,171 961,449
Indiana 14,201 14,373 459,806 477,401
Iowa 7,278 7,338 243,931 251,019
Kansas 6,362 6,385 212,164 223,078
Kentucky 8,049 8,165 285,808 299,142
Louisiana 7,081 7,003 284,253 289,902
Maine 2,375 2,348 91,713 93,024
Maryland 8,670 8,600 393,807 407,043
Massachusetts 13,365 13,024 549,151 555,250
Michigan 18,947 19,004 654,115 667,911
Minnesota 11,961 12,195 437,627 455,337
Mississippi 4,579 4,702 159,906 168,299
Missouri 11,685 11,694 429,558 445,836
Montana 1,428 1,445 62,720 65,649
Nebraska 4,227 4,289 151,590 159,134
Nevada 3,566 3,676 184,000 195,179
New Hampshire 2,737 2,788 104,781 107,696
New Jersey 15,157 15,016 616,169 633,299
New Mexico 2,550 2,542 112,932 118,082
New York 34,536 34,183 1,427,968 1,466,893
North Carolina 16,585 16,884 619,770 654,153
North Dakota 1,558 1,597 58,938 62,041
Ohio 23,509 23,568 825,025 845,958
Oklahoma 6,087 6,124 232,001 241,685
Oregon 7,008 7,334 258,574 275,670
Pennsylvania 23,662 23,916 929,333 955,484
Rhode Island 1,860 1,830 75,472 76,244
South Carolina 7,920 8,067 291,392 309,119
South Dakota 1,713 1,751 62,209 64,705
Tennessee 11,837 12,209 429,580 455,531
Texas 42,713 43,963 1,654,233 1,769,233
Utah 5,176 5,401 192,836 208,410
Vermont 1,206 1,200 47,923 48,246
Virginia 13,963 13,944 590,524 617,603
Washington 13,518 13,560 457,087 482,853
Washington DC 1,574 1,480 107,705 111,295
West Virginia 2,504 2,506 107,024 109,980
Wisconsin 13,116 13,485 444,917 462,644
Wyoming 816 808 35,857 36,874

US Total 551,391 556,790 21,182,884 22,113,005

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Table 3 - Total Output and Employment by State (Millions of Dollars / Number of Jobs)

Nominal Output Total Employment

State 2012 2017 2012 2017

Alabama 415,578 518,924 1,928,361 2,066,489

Alaska 87,448 105,497 326,146 349,521
Arizona 565,078 739,136 2,499,276 2,787,632
Arkansas 245,448 302,422 1,233,648 1,321,717
California 4,234,804 5,287,982 14,691,036 15,844,498
Colorado 592,597 761,352 2,353,321 2,618,599
Connecticut 495,020 619,021 1,645,275 1,726,960
Delaware 107,223 131,662 424,518 453,058
Florida 1,628,623 2,110,449 7,483,811 8,303,841
Georgia 952,314 1,204,438 3,978,528 4,345,420
Hawaii 120,134 148,099 611,913 664,149
Idaho 122,702 152,760 658,705 720,268
Illinois 1,547,018 1,909,930 5,801,943 6,174,011
Indiana 670,742 828,500 2,955,886 3,145,386
Iowa 324,012 402,088 1,604,987 1,703,862
Kansas 305,389 381,782 1,420,489 1,530,183
Kentucky 385,519 477,613 1,915,214 2,055,540
Louisiana 582,946 680,999 1,995,506 2,094,417
Maine 116,517 141,665 608,289 635,141
Maryland 666,632 834,113 2,609,990 2,813,576
Massachusetts 909,452 1,140,931 3,267,531 3,445,974
Michigan 992,261 1,227,073 4,057,304 4,286,913
Minnesota 657,853 822,736 2,807,168 3,014,428
Mississippi 214,484 262,248 1,141,136 1,231,092
Missouri 592,921 733,520 2,781,518 2,976,493
Montana 89,779 110,122 461,290 497,034
Nebraska 201,684 248,868 1,012,474 1,080,647
Nevada 242,978 308,870 1,136,843 1,231,857
New Hampshire 148,404 186,116 634,391 673,038
New Jersey 1,132,464 1,410,140 3,926,576 4,178,343
New Mexico 164,576 200,684 831,588 894,336
New York 2,587,718 3,313,697 8,896,819 9,396,773
North Carolina 869,063 1,094,313 4,040,785 4,409,317
North Dakota 102,126 134,338 450,241 485,158
Ohio 1,196,427 1,463,016 5,236,290 5,527,782
Oklahoma 370,411 457,332 1,669,583 1,778,422
Oregon 379,661 478,810 1,707,826 1,870,403
Pennsylvania 1,346,960 1,670,348 5,829,635 6,193,584
Rhode Island 98,788 122,109 461,586 485,097
South Carolina 382,580 483,612 1,886,913 2,064,581
South Dakota 77,380 97,183 444,680 477,527
Tennessee 615,807 778,653 2,788,186 3,027,643
Texas 3,154,879 3,968,845 11,063,142 12,203,621
Utah 279,211 363,203 1,255,557 1,400,488
Vermont 60,292 73,621 313,035 326,370
Virginia 907,167 1,126,402 3,782,079 4,078,654
Washington 803,549 1,026,966 2,963,322 3,222,547
Washington DC 232,447 283,372 701,638 735,110
West Virginia 151,459 182,996 786,046 830,931
Wisconsin 600,400 748,280 2,835,241 3,035,676
Wyoming 79,318 95,907 302,115 317,050

US Total 33,808,243 42,352,741 136,219,380 146,731,157

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Table 4 - Ad Spending Impact as a Share of State Output in 2012

(Millions of Dollars)
Sales Leverage
Total Sales Share of
State Ad Spending (Total Sales/Ad Total Output
Impact Output
Spend)
Alabama 3,224 65,763 20.40 415,578 16.6%
Alaska 483 11,004 22.80 87,448 13.1%
Arizona 4,286 93,312 21.77 565,078 17.3%
Arkansas 1,796 37,513 20.89 245,448 16.0%
California 32,872 721,177 21.94 4,234,804 17.8%
Colorado 4,332 97,808 22.58 592,597 17.2%
Connecticut 4,181 91,077 21.78 495,020 19.2%
Delaware 818 18,469 22.58 107,223 18.0%
Florida 11,840 268,508 22.68 1,628,623 17.2%
Georgia 7,138 154,998 21.71 952,314 17.0%
Hawaii 748 17,242 23.04 120,134 15.0%
Idaho 856 18,593 21.73 122,702 15.9%
Illinois 11,804 255,334 21.63 1,547,018 17.3%
Indiana 5,699 110,625 19.41 670,742 17.3%
Iowa 2,657 55,019 20.71 324,012 17.8%
Kansas 2,427 49,942 20.58 305,389 17.1%
Kentucky 3,095 62,367 20.15 385,519 17.0%
Louisiana 4,083 81,419 19.94 582,946 14.7%
Maine 867 18,670 21.52 116,517 16.8%
Maryland 4,373 100,980 23.09 666,632 15.8%
Massachusetts 7,241 164,414 22.71 909,452 18.9%
Michigan 9,007 175,783 19.52 992,261 18.6%
Minnesota 5,019 108,371 21.59 657,853 17.2%
Mississippi 1,609 32,929 20.46 214,484 16.1%
Missouri 4,635 99,288 21.42 592,921 17.5%
Montana 573 12,462 21.76 89,779 14.5%
Nebraska 1,510 32,705 21.66 201,684 17.0%
Nevada 1,595 37,534 23.53 242,978 16.1%
New Hampshire 1,211 25,823 21.32 148,404 18.2%
New Jersey 8,147 180,320 22.13 1,132,464 16.6%
New Mexico 1,037 23,346 22.51 164,576 14.8%
New York 21,091 489,837 23.23 2,587,718 19.7%
North Carolina 6,576 140,436 21.35 869,063 16.9%
North Dakota 622 13,411 21.55 102,126 13.7%
Ohio 9,635 197,053 20.45 1,196,427 17.3%
Oklahoma 2,439 52,023 21.33 370,411 14.7%
Oregon 2,772 59,207 21.36 379,661 16.3%
Pennsylvania 9,980 216,021 21.65 1,346,960 16.8%
Rhode Island 738 16,438 22.27 98,788 17.4%
South Carolina 3,041 62,748 20.63 382,580 17.2%
South Dakota 560 11,996 21.41 77,380 16.2%
Tennessee 4,875 101,239 20.77 615,807 17.2%
Texas 22,113 466,866 21.11 3,154,879 15.5%
Utah 2,119 45,232 21.35 279,211 17.0%
Vermont 475 10,178 21.42 60,292 17.7%
Virginia 6,364 147,743 23.22 907,167 17.0%
Washington 6,758 142,808 21.13 803,549 18.6%
Washington DC 1,024 27,992 27.34 232,447 12.5%
West Virginia 941 20,122 21.37 151,459 13.9%
Wisconsin 4,909 100,941 20.56 600,400 17.6%
Wyoming 445 9,396 21.12 79,318 12.4%

US Total 256,644 5,554,482 21.64 33,808,243 17.2%

Source: IHS Global Insight

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 THE ECONOMIC IMPACT OF ADVERTISING
EXPENDITURES IN THE UNITED STATES

Table 5 - Ad Employment Impact as a Share of 2012 Employment (Jobs)

Ad Total Sales Jobs per Million Share of

State Total Employment
Employment Employment Dollars of Ad Spend Employment

Alabama 8,373 286,073 91 1,928,361 15.3%

Alaska 964 42,844 91 326,146 13.4%
Arizona 9,652 392,369 94 2,499,276 16.1%
Arkansas 5,130 177,100 101 1,233,648 14.8%
California 60,866 2,350,827 73 14,691,036 16.4%
Colorado 8,896 366,494 87 2,353,321 16.0%
Connecticut 7,708 274,270 67 1,645,275 17.1%
Delaware 1,712 67,606 85 424,518 16.3%
Florida 27,692 1,197,485 103 7,483,811 16.4%
Georgia 16,599 625,958 90 3,978,528 16.2%
Hawaii 1,823 91,143 124 611,913 15.2%
Idaho 2,457 96,143 115 658,705 15.0%
Illinois 24,442 932,171 81 5,801,943 16.5%
Indiana 14,201 459,806 83 2,955,886 16.0%
Iowa 7,278 243,931 95 1,604,987 15.7%
Kansas 6,362 212,164 90 1,420,489 15.4%
Kentucky 8,049 285,808 95 1,915,214 15.3%
Louisiana 7,081 284,253 71 1,995,506 14.6%
Maine 2,375 91,713 108 608,289 15.5%
Maryland 8,670 393,807 92 2,609,990 15.4%
Massachusetts 13,365 549,151 78 3,267,531 17.2%
Michigan 18,947 654,115 75 4,057,304 16.6%
Minnesota 11,961 437,627 90 2,807,168 16.0%
Mississippi 4,579 159,906 102 1,141,136 14.4%
Missouri 11,685 429,558 95 2,781,518 15.9%
Montana 1,428 62,720 112 461,290 13.9%
Nebraska 4,227 151,590 103 1,012,474 15.4%
Nevada 3,566 184,000 118 1,136,843 16.5%
New Hampshire 2,737 104,781 89 634,391 16.9%
New Jersey 15,157 616,169 77 3,926,576 16.1%
New Mexico 2,550 112,932 111 831,588 13.9%
New York 34,536 1,427,968 69 8,896,819 16.4%
North Carolina 16,585 619,770 97 4,040,785 15.7%
North Dakota 1,558 58,938 97 450,241 13.4%
Ohio 23,509 825,025 88 5,236,290 16.2%
Oklahoma 6,087 232,001 98 1,669,583 14.3%
Oregon 7,008 258,574 96 1,707,826 15.6%
Pennsylvania 23,662 929,333 95 5,829,635 16.3%
Rhode Island 1,860 75,472 105 461,586 16.8%
South Carolina 7,920 291,392 98 1,886,913 15.9%
South Dakota 1,713 62,209 114 444,680 14.4%
Tennessee 11,837 429,580 91 2,788,186 15.8%
Texas 42,713 1,654,233 77 11,063,142 15.3%
Utah 5,176 192,836 93 1,255,557 15.8%
Vermont 1,206 47,923 103 313,035 15.7%
Virginia 13,963 590,524 95 3,782,079 16.0%
Washington 13,518 457,087 70 2,963,322 15.9%
Washington DC 1,574 107,705 107 701,638 15.6%
West Virginia 2,504 107,024 116 786,046 13.9%
Wisconsin 13,116 444,917 93 2,835,241 16.2%
Wyoming 816 35,857 82 302,115 12.1%

US Total 551,391 21,182,884 85 136,219,380 16.0%

Source: IHS Global Insight

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3. Potential Losses from a Reduction in Tax Deductibility

Going beyond the analysis presented in Chapter 2, the Advertising Coalition asked IHS
Global Insight to assess the potential impacts of a reduction in the tax deductibility of
advertising expenses.

It is now the case that a company's advertising expenditures, being expected and
necessary business expenses, are fully tax-deductible for the purpose of calculating net
income. To address any legislative proposal that might seek to reduce or eliminate the
deductibility of advertising expenses, we present in the following tables the industry- and
national-level declines in ad spending, ad employment, and related economic activity
that would occur if ad spending became only 80%, rather than 100%, deductible.

Put simply, this change would subject 20% of advertising expenditures to the average
corporate tax rate for each industry. Table 6 shows the decline in advertising
expenditures that this policy would effect. In 2012, ad spending will total just under $257
billion dollars, all of which is currently tax deductible. If this policy change were to take
place, approximately $49 billion of that $257 billion would become taxable at the rates
shown by industry in Table 6.

The new tax liability would effectively increase the cost of advertising, thereby causing a
disincentive for firms to spend additional advertising dollars. The econometric model
developed for our analysis shows that every one percent increase in the cost of
advertising leads to a 1.2% drop in ad spending. To arrive at the resulting decline in ad
spending by industry, we simply multiply the cost increase of the policy change by the
price elasticity of ad spending. In the year 2012, the deductibility change would result in
ad spending falling by about $20 billion, from $257 billion to $237 billion, or 7.6%.

When we take into account the multiplier effect of ad spending on economic output and
employment, the effect of reducing deductibility appears ever more worrisome. Since
every dollar of ad spending generates roughly twenty-one dollars of additional output,
and every million dollars of ad spending generates over 80 jobs, the effect of a $20
billion decline in ad spending would cause a sizeable portion of economic output and
jobs to disappear.

Tables 7 and 8 quantify the decline in ad spending, ad employment, and related output
and employment that would result from the 7.7% ad spending decline in 2012, and a
corresponding decline in 2017. In 2012, the $20 billion loss in ad spending would lead to
a loss of $419 billion in additional economic output, a loss of 42,000 jobs directly related
to advertising, and an additional loss of 1.6 million American jobs. Clearly, any modest
federal tax revenue benefits from reducing the deductibility of advertising must be
carefully weighed against the staggering economic losses that would ensue.

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Table 6 – Loss in Ad Spending in 2010 Due to a Reduction in Tax Deductibility

(Millions of Dollars)
Taxable Corporate Ad Spending after Percent Decline
Industry Ad Spending
Ad Spending Tax Rate Imposition of Tax in Ad Spending
Agriculture, Mining 2,133.0 426.6 33.8% 1,961.41 8.0%
Construction 1,556.3 311.3 33.1% 1,433.72 7.9%
Utilities 1,180.8 236.2 30.9% 1,093.83 7.4%
Wholesale Trade 11,592.5 2,318.5 32.6% 10,693.03 7.8%
Retail Trade 52,747.9 10,549.6 34.0% 48,479.55 8.1%
Transportation 8,161.5 1,632.3 29.5% 7,587.85 7.0%
Food & Beverage Mfg. 9,246.6 1,849.3 32.6% 8,528.49 7.8%
Machinery, Equip, Computer Mfg 17,210.5 3,442.1 32.6% 15,873.80 7.8%
Transportation Equip Mfg 16,475.4 3,295.1 32.6% 15,195.78 7.8%
Other Manufacturing 25,323.1 5,064.6 32.6% 23,356.31 7.8%
Information 21,766.6 4,353.3 30.8% 20,172.72 7.3%
Finance, Insurance, Real Estate 49,248.0 9,849.6 29.9% 45,739.54 7.1%
Education Services 4,255.6 851.1 33.1% 3,920.33 7.9%
Healthcare Services 5,260.1 1,052.0 30.9% 4,872.85 7.4%
Leisure & Hospitality 6,595.7 1,319.1 31.4% 6,102.30 7.5%
Business & Other Services* 21,960.6 2,077.4 32.3% 20,274.15 7.7%
Government 1,929.9 - - 1,929.93 -
256,644.1 48,628.1 32.0% 237,215.56 7.6%
*Taxable Ad Spending reflects adjustment for tax-exempt status of non-profit organizations

Source: IHS Global Insight

Table 7 – Forecast of Loss in Ad Spending Due to a Reduction in Tax

Deductibility (Millions of Dollars)

Loss in Ad Spending Total Loss in Sales

Industry 2012 2017 2012 2017
Agriculture, Mining 171.6 197.2 4,505.2 4,782.5
Construction 122.6 215.0 1,637.7 2,253.2
Utilities 86.9 96.5 2,944.8 2,995.9
Wholesale Trade 899.4 1,142.5 11,520.3 12,785.0
Retail Trade 4,268.4 4,881.2 84,770.0 99,655.4
Transportation 573.7 702.6 12,275.5 15,630.8
Food & Beverage Mfg. 718.2 821.1 14,326.4 16,353.0
Machinery, Equip, Computer Mfg 1,336.7 1,644.0 24,805.5 28,336.5
Transportation Equip Mfg 1,279.6 1,463.9 19,178.7 24,057.5
Other Manufacturing 1,966.8 2,726.9 30,429.6 35,444.9
Information 1,593.8 1,682.3 34,909.6 38,547.7
Finance, Insurance, Real Estate 3,508.5 4,037.3 84,177.9 101,505.5
Education Services 335.2 323.4 6,355.5 8,075.9
Healthcare Services 387.3 545.1 14,794.8 17,298.4
Leisure & Hospitality 493.4 514.3 14,386.9 16,059.9
Business & Other Services 1,686.5 1,900.0 57,653.3 68,781.0
Government - - - -
19,428.6 22,893.2 418,671.6 492,563.0

Source: IHS Global Insight

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Table 8 - Forecast of Loss in Ad Employment Due to 20% Reduction in

Deductibility (Number of Jobs)

Loss in Ad Employment Total Loss in Employment

Industry 2012 2017 2012 2017
Agriculture, Mining 394 383 17,694 17,821
Construction 270 405 8,497 10,358
Utilities 190 180 4,748 4,668
Wholesale Trade 1,930 2,106 13,096 13,525
Retail Trade 9,324 9,183 294,016 306,777
Transportation 1,265 1,326 57,168 68,054
Food & Beverage Mfg. 1,614 1,588 28,558 31,070
Machinery, Equip, Computer Mfg 2,845 3,009 68,569 70,562
Transportation Equip Mfg 2,967 2,903 33,953 35,777
Other Manufacturing 4,280 5,118 59,349 64,655
Information 3,294 2,955 71,847 76,062
Finance, Insurance, Real Estate 7,274 7,169 159,044 154,539
Education Services 689 570 74,747 68,925
Healthcare Services 835 1,011 126,463 130,324
Leisure & Hospitality 1,075 968 192,524 187,904
Business & Other Services 3,523 3,390 381,159 422,072
Government - - - -

41,769 42,263 1,591,430 1,663,093

Source: IHS Global Insight

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Appendix A: Methodology
The goal of this study is to estimate and forecast the direct, indirect and induced
economic impacts of advertising expenditures on the US economy. Companies in every
industry use advertising to establish and reinforce brand awareness, promote their
products and services, and, ultimately, stimulate increased revenues. Higher sales levels
trigger additional economic activity throughout a company's supply chain, its suppliers'
supply chain, and so on. Plus employees of these firms spend portions of their wages in
the general economy. These various levels of economic activity lead to enhanced levels
of job creation and retention. To quantify the economic impact of advertising
expenditures on the US economy, this study:
 Estimates the total level of advertising spending in the United States and creates
a five year forecast.
 Simultaneously allocates advertising spending to every state, Congressional
District and to 17 NAICS2-based industry aggregates, based on our knowledge of
macroeconomic, industry and regional data.
 Estimates sales impacts and employment impacts based on econometric models
that quantify the relationship between ad spending and resulting sales.
 Computes an iterative algorithm that accounts for the ripple effect of economic
activity that happens as the result of advertising spending.

In addition to IHS Global Insight's proprietary databases, the data that is used as inputs
to the models come from a variety of publicly available and proprietary sources, as
shown in Table 15.

This study does not consider variation among different advertising media (newspaper vs.
radio vs. Internet), or between direct advertising and general advertising. Although IHS
Global Insight does maintain media-level advertising history and forecasts, the use of
these would cloud the main idea of this study, which is the broad economic effect of all
advertising media. Table 16 describes the media that make up the history and forecast
of advertising spending used in the report.

2
North American Industry Classification System

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Table 9 - Data Sources

The IHS Global Insight Group U.S. Macro Service

The IHS Global Insight Group Industry Analysis Service
The IHS Global Insight Group Regional Economics Service
U.S. Bureau of the Census, Census of Agriculture
U.S. Bureau of the Census, Census of Mining
U.S. Bureau of the Census, Census of Construction
U.S. Bureau of the Census, Census of Manufacturing
U.S. Bureau of the Census, Census of Transportation Industries
U.S. Bureau of the Census, Census of Wholesale Trade
U.S. Bureau of the Census, Census of Retail Trade
U.S. Bureau of the Census, Census of Service Industries
U.S. Bureau of the Census, Annual Service Survey
U.S. Bureau of the Census, County Business Patterns
U.S. Bureau of Labor Statistics, Industry Output and Employment Datasets
U.S. Bureau of Labor Statistics, Industry-Occupation Matrices
U.S. Bureau of the Economic Analysis, National Income and Product Accounts
U.S. Bureau of the Economic Analysis, Input-Output Tables of the U.S. Economy
U.S. Bureau of the Economic Analysis, Gross Product Originating by Industry
McCann-Erickson Advertising Expenditures by Medium
Leading National Advertisers/Competitive Media Reports
U.S. Postal Service, Mail Volume and Revenue
U.S. Postal Service, Household Diary Study
Various Professional Associations and Trade Groups
Annual Reports

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Table 10 - Advertising Activities Included in this Report

Direct Mail - Direct mail includes all advertising communications through the mail
or other delivery service including: cards, card decks, letters, brochures,
pamphlets, catalogs, flyers, video tapes, audio tapes, diskettes, and promotional
items. This includes all out-sourced and in-house direct mail designed to
immediately sell a product or service, identify a lead, or generate store traffic.

Television - Television includes all advertising communications conducted

through local, national, or cable TV or radio channels designed to immediately sell
a product or service, identify a lead, generate store traffic, or provide information
regarding a company or other organization and its products or services.

Radio - Radio includes all advertising communications conducted through local,

national, or cable TV or radio channels designed to immediately sell a product or
service, identify a lead, generate store traffic, or provide information regarding a
company or other organization and its products or services.

Newspaper - Newspaper includes all space advertising, free standing inserts

(FSIs), and other advertising inserts in community, local, regional, or national
newspapers distributed daily, weekly, monthly, and on Sunday designed to
immediately sell a product or service, identify a lead, generate store traffic, or
provide information regarding a company or other organization and its products or
services.

Magazine - Magazine includes all space advertising, advertising inserts, and

"market place" advertisements in periodical publications designed to immediately
sell a product or service, identify a lead, generate store traffic, or provide
information regarding a company or other organization and its products or
services.

Other - Other advertising activity includes all other advertising media including
email, internet, displays, "take-one", package inserts, electronic information
service (on-line or broadcast), facsimile, kiosks, match books, paperback books,
outdoor advertising, Yellow Pages directories designed to immediately sell a
product or service, identify a lead, generate store traffic, or provide information
regarding a company or other organization and its products or services.

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Table 11 - Industry Definitions

Industry Sector NAICS Codes
Agriculture, Mining 11111X-213115
Construction 23XXXX
Utilities 2211XX - 2213XX, 592XXX
Wholesale Trade 42XXXX
Retail Trade 44XXXX - 45XXXX
Transportation 481XXX - 488XXX; 491XXX - 493XXX
Food & Beverage Mfg. 311XXX - 312XXX
Machinery, Equip, Computer Mfg 333XXX - 335XXX
Transportation Equip Mfg 336XXX
Other Manufacturing 3122XX - 332XXX
Information 511XXX-519XXX
Finance, Insurance, Real Estate 521XXX - 533XXX
Education Services 611XXX - 6243XX
Healthcare Services 6211XX - 6243XX
Leisure & Hospitality 711XXX - 722XXX
Business & Other Services* 541XXX - 561XXX; 811XXX - 813XXX
Government 92, GG

The industry data used to allocate advertising spending are calculated from IHS Global
Insight's Industry Analysis Service (IAS). The industries are based on the North
American Industry Classification System, or NAICS. While the IAS contains data at the
six digit NAICS level, we are combining those detailed industries to form broader NAICS
sectors that still cover the entire US economy. The17-industry classification scheme
shown in Table 11 allows us to account for the robust variation in ad spending among
industries, without getting mired in the details of thousands of industries.

While it may appear obvious that advertising stimulates the sales of goods and services
– why would companies spend nearly $260B on advertising each year if it did not? – we
must still lay out a plausible mechanism for advertising to stimulate a ripple effect of
sales and employment. Consider the following characteristics of advertising:

 It is a more cost-effective and timely mechanism for distributing information about

prices and beneficial changes in technology and product design than are
individual searches for that information.
 The wide dissemination of product price information encourages lower prices,
and less variation in prices, as suppliers strive to attract customers.
 It may speed the implementation of new technology.
 It may encourage greater economies of scale in the production process by
allowing individual firms to attract a wider array of customers.

Advertising provides useful information to consumers in households and businesses --

an important role in a market economy. Advertising's role is to inform and educate

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consumers about the choices available to them in the marketplace. Depending on the
situation, advertising's purpose may include:

 Influencing market share within an industry or product category.

 Changing the distribution of spending among substitute products.
 Creating awareness of and demand for new products, technologies, and
applications.
 Promoting brand image.
 Stimulating purchase activity.

We believe that these characteristics of advertising provide a sufficient a priori

expectation to justify the strong results of our comprehensive advertising model. As
mentioned in the report's introduction, we are quantifying the positive economic impact
of advertising on three broad levels: direct, supplier, and inter-industry. A concise
definition of each level of impact follows:

 Direct Economic Impact: which encompasses, first, the dollars spent on and the jobs
dedicated to developing and implementing advertising activities to stimulate demand for
products and services in each industry and, second, the sales and jobs accruing to
industries that utilize advertising to stimulate demand for their products and services. The
type of transaction included in this stage of the impact is exemplified by the sale of a shirt
via a company catalog to a consumer or the sale of an insurance policy by an insurance
agent from a lead generated through television advertising.

 Supplier Economic Impact: quantifies the indirect sales and jobs supported by first
level suppliers to those industries that use advertising. The type of transaction included in
this stage of the impact is exemplified by the sale of the shirt by a garment manufacturer
to the catalog company or the services provided by an accounting firm that audits the
books of the insurance company.

 Inter-industry Economic Impact: includes the indirect sales and jobs supported by
all the remaining levels of suppliers to the first generation suppliers identified in the
supplier economic impact. This level of impact encompasses activity by the cloth, button,
thread and sewing equipment manufacturers who are the suppliers to the shirt maker as
well as all other products and services that are required to run the textile business.

 Induced Consumer Spending: every person that has as a direct, supplier or

interindustry job also plays the role of consumer in the US economy. They spend
a portion of their salaries in the economy on items such as food, consumer goods
and services, healthcare and so on. This spending initiates multiple rounds of
economic activity, stimulating additional sales and job creation.

As Figure 7 illustrates, the advertising expenditures incurred throughout the economy by

businesses in all industries and all geographic areas sets off a chain reaction that (1)
generates a net gain in direct sales and jobs due to the promotion of the industries'

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products and services, (2) generates indirect sales and jobs among the first level
suppliers to those industries that incur the advertising expenditures, and (3) generates
indirect sales and jobs among all other levels of economic activity as inter-industry sales
ripple throughout the economy.

Figure 7 - Advertising Sets Off a Chain Reaction of Economic Activity

Advertising Expenditures

Direct Sales Activity Direct Employment Impact

Supplier Sales Activity Supplier Employment Impact

Interindustry Sales Activity Supplier Employment Impact

As sales increase in each state and Congressional District and industry as the result of
advertising, employers must hire new workers to maintain a certain capital-labor ratio.
This ratio will vary depending on each industry's labor- or capital-intensity. For example,
the retail sectors will need an additional worker to support each extra $50,000 in sales.
On the other hand, an auto manufacturing plant might need, on average, one new
worker to support each new $500,000 in sales. These relationships are contained in the
IAS databases, and directly applied to the advertising sales impacts in order to estimate
employment impacts.

In this section we discuss the results of a statistical model designed to answer the
following question: Holding all other factors equal, what percent change in advertising
spending would result from a given percent change in the cost of advertising? This
model has important policy implications concerning a potential increase in the cost of
advertising that would result from reducing or eliminating the federal tax deductibility of
ad spending.

The model uses ordinary least squares regression analysis to explain the quarterly
percent change in real advertising spending as a linear function of two broad
macroeconomic factors, one measure of the overall profitability of business, and the
price of advertising relative to the price of other goods and services. The specification of
the equation allows us to control for those factors that determine advertising spending,
yet still isolate the effect of the driver that is of interest for this study – the relative price
of advertising.

 First, real consumer spending per capita indicates the overall strength of the
consumer market. This factor provides a broad measure of the potential sales
opportunities that can be expected in the marketplace.

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 Second, the ability of households to actually buy additional goods and services – as
represented by real disposable income per household – provides a useful measure
of additional potential sales.
 Third, real corporate profits provide a view of the ability of businesses to spend
money on advertising.
 Fourth, firms that advertise take into account the cost of advertising relative to other
goods and services that could be purchased.

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Appendix B: IHS Global Insight Macroeconomic Models

IHS MODEL OF THE U.S. ECONOMY
Econometric models built in the 1950s and 1960s were largely Keynesian income-
expenditure systems that assumed a closed domestic economy. High computation costs
during estimation and manipulation, along with the underdeveloped state of
macroeconomic theory, limited the size of the models and the richness of the linkages of
spending to financial conditions, inflation, and international developments. Since that
time, however, computer costs have fallen spectacularly; theory has also benefited from
four decades of postwar data observation and from the intellectual attention of many
eminent economists.
The IHS Model is an econometric dynamic equilibrium growth model. It strives to
incorporate the best insights of many theoretical approaches to the business cycle:
Keynesian, neoclassical, monetarist, supply-side, and rational expectations. In addition,
the IHS Model embodies the major properties of the long-term growth models presented
by James Tobin, Robert Solow, Edmund Phelps, and others. This structure guarantees
that short-run cyclical developments will converge to robust long-run equilibria.
In growth models, the expansion rate of technical progress, the labor force, and the
capital stock determine the productive potential of an economy. Both technical progress
and the capital stock are governed by investment, which in turn must be in balance with
post-tax capital costs, available savings, and the capacity requirements of current
spending. As a result, monetary and fiscal policies will influence both the short- and the
long-term characteristics of such an economy through their impacts on national saving
and investment.

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IHS REGIONAL ECONOMIC MODELS

US Regional Model: IHS US Regional Model provides analyses of each state and
metropolitan area in the US. Each area is modeled individually and then linked into a
national system of macroeconomic and industry forecasts. The models forecast internal
growth dynamics and differential business cycle responses for each state and
metropolitan area. Our objective is to forecast how regional activity varies, given an
economic environment as laid out by IHS US economic forecast and economic and
demographic characteristic of a region.
US Regional state forecasting models use US macroeconomic forecast as main driver.
State models are econometrically estimated and comprise of a large number of
stochastic equations specified to capture economic behavior of the state relative to the
national economy. Similarly, metro forecasting models use state forecast as driver and
contain stochastic equation that summarizes the behavior of the metro economy relative
to the state economy. The list of concepts modeled include demographic details at state
level, employment sector detail, GSP sector detail, annual wages by sector, personal
income details and other concepts such as retail sales, housing starts, etc. Metro models
have similar coverage with fewer details for sectors.
The IHS approach to state models represents a significant departure from most previous
multi-regional modeling and forecasting efforts. Most other regional models are
constructed as proportions of the U.S. In the IHS system each area is modeled
individually and then linked into a national system. Thus, our models do not forecast
regional growth as simple proportions of U.S. totals, but focus on internal growth
dynamics and state specific business cycle response. This approach is referred to as
"top-down bottom-up." It contrasts sharply with pure share (top-down) models, and
models which are not linked to a national macroeconomic model (bottom-up), and
contains the best of both approaches. Our basic objective is to project how regional
activity varies, given an economic environment as laid out by our Macroeconomic and
Industry forecasts. Important regional issues are addressed using information about
detailed industrial mix, inter-industry and interregional relationships, productivity and
relative costs, and migration trends. IHS maintains separate models for 50 states and for
Washington DC, as well as for 318 metropolitan areas. The state models have two
fundamental characteristics: (1) Each state is modeled individually, with different model
structures specified according to the characteristics of the state; and (2) national policy is
explicitly captured.
These models are econometrically estimated and contain about 250 or more equations
each. Employment by sector and wage rates and income by type of activity, and GSP by
sector are modeled in detail. Other coverage includes housing starts, retail sales,
consumer price indexes, population by 10 year age groups, the labor force and
household employment. The models have the ability to forecast income, wages and
GSP in nominal as well as real dollars. The State models have a monthly periodicity, so
they are able to capture the full business cycle behavior of the economy, including the
timing and amplitude of turning points. Another model characteristic is that they are

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policy sensitive — they respond to changes in tax rates, military spending, utility costs,
etc. The policy simulation capability can be classified into: (1) how a state/metro
economy responds to changes in the national economy resulting from national or
international events; and (2) how a state/metro responds to a change in state/city
government policy.

IHS US INDUSTRY MODEL

IHS US Industry Model is a quarterly econometric model of industry activity in the US
economy. It is also designed for forecasting, policy analysis, and simulation studies. This
model is used each month by IHS Global Insight’s economists to provide more detailed
industry forecasts of the US economy. It includes over 170 industry sectors (such
as steel, aircraft, chemicals, insurance, communications services, etc.) and
provides industry metrics such as industry output, prices, profitability, input costs,
labor costs, employment, and utilization.

IHS US BUSINESS MARKET INSIGHTS

IHS Business Market Insights consists of detailed data and forecasts of employment, the
number of business establishments, and the value of output by industry (production),
business size, and geographic area. The employment, establishments, and output are
developed for 1,000 industries based on detailed NAICS codes as defined by the federal
government. Employment by industry is also further delineated into 60 occupational
classifications. The data are available for all detailed industries in all states, metropolitan
areas, and counties and 75 aggregate industries in all Congressional Districts and ZIP
codes in the US. The model is linked to IHS other models to assure consistency for all
levels of industry, occupation, and geographic area detail.

THE IMPLAN MODEL

Previous studies done on this topic have utilized REMI models for the economic impact
analysis. IHS typically uses IMPLAN models and has extensive experience customizing
these models to meet our specific analysis needs.
IMPLAN, short for "Impact Analysis for Planning," is a widely-used commercially
available model for input/output analysis. MIG is responsible for the production of the
IMPLAN data, model and software. Using classic input/output analysis in combination
with regional specific social accounting matrices and multiplier models, IMPLAN
provides a highly accurate and adaptable model for its users.
Comprehensive and detailed data coverage for the US economy, and the ability to
incorporate user-supplied data at each stage of the model building process, provide a
high degree of flexibility both in terms of geographic coverage and model formulation.
There are two components to the IMPLAN system: the databases and the software. The
databases provide information needed to create IMPLAN models, from the US model to
state models and down to zip code specific models that can be aggregated to
congressional districts. The software performs the calculations and provides an
interface for the user to make final demand changes.

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The IMPLAN system includes:

 A national-level technology matrix, and;
 Estimates of sectoral activity for final demand, final payments, industry output
and employment.
Input-output accounting describes commodity flows from producers to intermediates and
final consumers. The total industry purchases of commodities, services, employment
compensation, value added, and imports are equal to the value of the commodities
produced.
Purchases for final use (final demand) drive the model. Industries produce goods and
services for final demand and purchase goods and services from other producers.
These other producers, in turn, purchase goods and services. This buying of goods and
services (indirect purchases) continues until leakages from the region (imports and value
added) stop the cycle.
These indirect and induced effects (the effects of household spending) can be
mathematically derived. The derivation is called the Leontief inverse. The resulting sets
of multipliers describe the change of output for each and every regional industry caused
by a one dollar change in final demand for any given industry.

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