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

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

2013 IHS

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.

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

% change in Real GDP

2013

2014

2015

2016

2017

% 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 advertisinginfluenced purchase decisions.
Figure 2 - Total Advertising Expenditures (Nominal US Dollars)
325

BIllions of Dollars

300

Pre-recession level

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

Thousands of Jobs

600

550

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
23

Induced
5.46

InterIndustry
3.89

InterIndustry
13

Sales leveraged
by $1 of
Ad Spending
Sales
8.78

Ad
2

Jobs supported
by $ 1million
of Ad Spending
Sales
31

Supplier
12

Supplier
3.61

Figure 5 - Total Economic Impact of Advertising

7

TrIllions of Dollars

5
4
3
2
1
0
2012

2013

2014

2015

Ad Expenditures

Sales Impact

Interindustry Sales

Induced Sales

2016

2017

Supplier 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

Millions of Jobs

20

15

10

0
2012

2013

2014

Ad Employment
Supplier Employment
Induced Employment

2015

2016

2017

Sales Employment
Interindustry 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.
8

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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
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington DC
West Virginia
Wisconsin
Wyoming
US Total

2012

2017

Total Sales Related Impact

2012

2017

3,224
483
4,286
1,796
32,872
4,332
4,181
818
11,840
7,138
748
856
11,804
5,699
2,657
2,427
3,095
4,083
867
4,373
7,241
9,007
5,019
1,609
4,635
573
1,510
1,595
1,211
8,147
1,037
21,091
6,576
622
9,635
2,439
2,772
9,980
738
3,041
560
4,875
22,113
2,119
475
6,364
6,758
1,024
941
4,909
445

3,800
551
5,225
2,111
38,361
5,168
4,841
938
14,145
8,452
852
1,003
13,710
6,732
3,121
2,882
3,602
4,721
989
5,085
8,282
10,401
5,897
1,877
5,364
669
1,753
1,908
1,430
9,499
1,187
24,744
7,783
753
11,239
2,854
3,278
11,686
845
3,653
665
5,841
26,541
2,630
546
7,300
8,265
1,187
1,091
5,855
522

65,763
11,004
93,312
37,513
721,177
97,808
91,077
18,469
268,508
154,998
17,242
18,593
255,334
110,625
55,019
49,942
62,367
81,419
18,670
100,980
164,414
175,783
108,371
32,929
99,288
12,462
32,705
37,534
25,823
180,320
23,346
489,837
140,436
13,411
197,053
52,023
59,207
216,021
16,438
62,748
11,996
101,239
466,866
45,232
10,178
147,743
142,808
27,992
20,122
100,941
9,396

77,123
12,664
114,415
43,297
842,089
117,051
105,939
21,435
324,101
184,254
19,982
21,707
292,642
128,554
63,823
58,836
72,518
90,450
21,349
118,789
190,047
203,310
125,937
38,107
114,971
14,431
38,215
45,499
30,235
208,899
26,923
590,055
165,107
16,069
226,948
59,873
69,642
251,093
18,886
74,544
14,147
120,231
552,947
55,780
11,679
172,825
176,616
34,649
22,806
117,781
10,725

256,644

301,833

5,554,482

6,529,994

Source: IHS Global Insight

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THE ECONOMIC IMPACT OF ADVERTISING

EXPENDITURES IN THE UNITED STATES

Table 2 Ad Spending Impact on Employment by State (Number of Jobs)

Advertising Employment
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington DC
West Virginia
Wisconsin
Wyoming
US Total

2012

2017

Total Sales Related Employment

2012

2017

8,373
964
9,652
5,130
60,866
8,896
7,708
1,712
27,692
16,599
1,823
2,457
24,442
14,201
7,278
6,362
8,049
7,081
2,375
8,670
13,365
18,947
11,961
4,579
11,685
1,428
4,227
3,566
2,737
15,157
2,550
34,536
16,585
1,558
23,509
6,087
7,008
23,662
1,860
7,920
1,713
11,837
42,713
5,176
1,206
13,963
13,518
1,574
2,504
13,116
816

8,567
957
9,970
5,236
61,105
9,163
7,529
1,717
28,371
16,880
1,817
2,545
24,537
14,373
7,338
6,385
8,165
7,003
2,348
8,600
13,024
19,004
12,195
4,702
11,694
1,445
4,289
3,676
2,788
15,016
2,542
34,183
16,884
1,597
23,568
6,124
7,334
23,916
1,830
8,067
1,751
12,209
43,963
5,401
1,200
13,944
13,560
1,480
2,506
13,485
808

286,073
42,844
392,369
177,100
2,350,827
366,494
274,270
67,606
1,197,485
625,958
91,143
96,143
932,171
459,806
243,931
212,164
285,808
284,253
91,713
393,807
549,151
654,115
437,627
159,906
429,558
62,720
151,590
184,000
104,781
616,169
112,932
1,427,968
619,770
58,938
825,025
232,001
258,574
929,333
75,472
291,392
62,209
429,580
1,654,233
192,836
47,923
590,524
457,087
107,705
107,024
444,917
35,857

298,606
45,043
422,776
184,956
2,452,017
393,609
275,142
69,618
1,280,136
663,895
96,404
102,457
961,449
477,401
251,019
223,078
299,142
289,902
93,024
407,043
555,250
667,911
455,337
168,299
445,836
65,649
159,134
195,179
107,696
633,299
118,082
1,466,893
654,153
62,041
845,958
241,685
275,670
955,484
76,244
309,119
64,705
455,531
1,769,233
208,410
48,246
617,603
482,853
111,295
109,980
462,644
36,874

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
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington DC
West Virginia
Wisconsin
Wyoming
US Total

2012

2017

Total Employment
2012

2017

415,578
87,448
565,078
245,448
4,234,804
592,597
495,020
107,223
1,628,623
952,314
120,134
122,702
1,547,018
670,742
324,012
305,389
385,519
582,946
116,517
666,632
909,452
992,261
657,853
214,484
592,921
89,779
201,684
242,978
148,404
1,132,464
164,576
2,587,718
869,063
102,126
1,196,427
370,411
379,661
1,346,960
98,788
382,580
77,380
615,807
3,154,879
279,211
60,292
907,167
803,549
232,447
151,459
600,400
79,318

518,924
105,497
739,136
302,422
5,287,982
761,352
619,021
131,662
2,110,449
1,204,438
148,099
152,760
1,909,930
828,500
402,088
381,782
477,613
680,999
141,665
834,113
1,140,931
1,227,073
822,736
262,248
733,520
110,122
248,868
308,870
186,116
1,410,140
200,684
3,313,697
1,094,313
134,338
1,463,016
457,332
478,810
1,670,348
122,109
483,612
97,183
778,653
3,968,845
363,203
73,621
1,126,402
1,026,966
283,372
182,996
748,280
95,907

1,928,361
326,146
2,499,276
1,233,648
14,691,036
2,353,321
1,645,275
424,518
7,483,811
3,978,528
611,913
658,705
5,801,943
2,955,886
1,604,987
1,420,489
1,915,214
1,995,506
608,289
2,609,990
3,267,531
4,057,304
2,807,168
1,141,136
2,781,518
461,290
1,012,474
1,136,843
634,391
3,926,576
831,588
8,896,819
4,040,785
450,241
5,236,290
1,669,583
1,707,826
5,829,635
461,586
1,886,913
444,680
2,788,186
11,063,142
1,255,557
313,035
3,782,079
2,963,322
701,638
786,046
2,835,241
302,115

2,066,489
349,521
2,787,632
1,321,717
15,844,498
2,618,599
1,726,960
453,058
8,303,841
4,345,420
664,149
720,268
6,174,011
3,145,386
1,703,862
1,530,183
2,055,540
2,094,417
635,141
2,813,576
3,445,974
4,286,913
3,014,428
1,231,092
2,976,493
497,034
1,080,647
1,231,857
673,038
4,178,343
894,336
9,396,773
4,409,317
485,158
5,527,782
1,778,422
1,870,403
6,193,584
485,097
2,064,581
477,527
3,027,643
12,203,621
1,400,488
326,370
4,078,654
3,222,547
735,110
830,931
3,035,676
317,050

33,808,243

42,352,741

136,219,380

146,731,157

Source: IHS Global Insight

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

(Millions of Dollars)
State

Ad Spending

Alabama
Alaska
Arizona

Sales Leverage
(Total Sales/Ad
Spend)

Total Sales
Impact

Total Output

Share of
Output

3,224

65,763

20.40

415,578

483

11,004

22.80

87,448

16.6%
13.1%

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
Florida
Georgia

818

18,469

22.58

107,223

18.0%

11,840

268,508

22.68

1,628,623

17.2%

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%

867

18,670

21.52

116,517

16.8%

4,373

100,980

23.09

666,632

15.8%

Maine
Maryland
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%

1,510

32,705

21.66

201,684

17.0%

Nebraska
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
North Carolina
North Dakota
Ohio

21,091

489,837

23.23

2,587,718

19.7%

6,576

140,436

21.35

869,063

16.9%

622

13,411

21.55

102,126

13.7%

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%

3,041

62,748

20.63

382,580

17.2%

South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont

560

11,996

21.41

77,380

16.2%

4,875

101,239

20.77

615,807

17.2%

22,113

466,866

21.11

3,154,879

15.5%

2,119

45,232

21.35

279,211

17.0%

475

10,178

21.42

60,292

17.7%

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%

Virginia

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

State

Ad
Employment

Alabama
Alaska
Arizona

Total Sales
Employment

Jobs per Million

Dollars of Ad Spend

Total Employment

Share of
Employment

8,373

286,073

91

1,928,361

964

42,844

91

326,146

15.3%
13.4%

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%

1,712

67,606

85

424,518

16.3%

Florida

Delaware

27,692

1,197,485

103

7,483,811

16.4%

Georgia

16,599

625,958

90

3,978,528

16.2%

1,823

91,143

124

611,913

15.2%

Hawaii
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%

7,278

243,931

95

1,604,987

15.7%

Iowa
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
Massachusetts

8,670

393,807

92

2,609,990

15.4%

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%

4,579

159,906

102

1,141,136

14.4%

11,685

429,558

95

2,781,518

15.9%

Mississippi
Missouri
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
Ohio

1,558

58,938

97

450,241

13.4%

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)
Industry

Taxable
Ad Spending

Ad Spending

Corporate
Tax Rate

Ad Spending after
Imposition of Tax

Percent Decline
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%

21,960.6

2,077.4

32.3%

20,274.15

7.7%

Business & Other Services*

Government

1,929.9

256,644.1

48,628.1

32.0%

1,929.93

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)
Industry

Loss in Ad Spending
2012
2017

Total Loss in Sales

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

86.9

96.5

2,944.8

2,995.9

899.4

1,142.5

11,520.3

12,785.0

Utilities
Wholesale Trade
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

Business & Other Services
Government

493.4

514.3

14,386.9

16,059.9

1,686.5

1,900.0

57,653.3

68,781.0

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)

Industry

Loss in Ad Employment
2012
2017

Agriculture, Mining
Construction
Utilities
Wholesale Trade
Retail Trade
Transportation
Food & Beverage Mfg.
Machinery, Equip, Computer Mfg
Transportation Equip Mfg
Other Manufacturing
Information
Finance, Insurance, Real Estate
Education Services
Healthcare Services
Leisure & Hospitality
Business & Other Services
Government

Total Loss in Employment

2012
2017

394

383

17,694

17,821

270
190
1,930
9,324
1,265
1,614
2,845
2,967
4,280
3,294
7,274
689
835
1,075
3,523

405
180
2,106
9,183
1,326
1,588
3,009
2,903
5,118
2,955
7,169
570
1,011
968
3,390

8,497
4,748
13,096
294,016
57,168
28,558
68,569
33,953
59,349
71,847
159,044
74,747
126,463
192,524
381,159

10,358
4,668
13,525
306,777
68,054
31,070
70,562
35,777
64,655
76,062
154,539
68,925
130,324
187,904
422,072

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.

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
Agriculture, Mining
Construction
Utilities
Wholesale Trade
Retail Trade
Transportation
Food & Beverage Mfg.
Machinery, Equip, Computer Mfg
Transportation Equip Mfg
Other Manufacturing
Information
Finance, Insurance, Real Estate
Education Services
Healthcare Services
Leisure & Hospitality
Business & Other Services*
Government

NAICS Codes
11111X-213115
23XXXX
2211XX - 2213XX, 592XXX
42XXXX
44XXXX - 45XXXX
481XXX - 488XXX; 491XXX - 493XXX
311XXX - 312XXX
333XXX - 335XXX
336XXX
3122XX - 332XXX
511XXX-519XXX
521XXX - 533XXX
611XXX - 6243XX
6211XX - 6243XX
711XXX - 722XXX
541XXX - 561XXX; 811XXX - 813XXX
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 incomeexpenditure 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,

etc. The policy simulation capability can be classified into: (1) how a
economy responds to changes in the national economy resulting from
international events; and (2) how a state/metro responds to a change
government policy.

utility costs,
state/metro
national or
in state/city

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 Insights 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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