Missouri Economic Indicator Brief: Economic Diversity 2018 Diversification Index A diversified economy is one with many industries that can better manage fluctuations in the business cycle. By contrast, a less diversified economy specializes in only a few industries. A state economy with a disproportionate number of workers in one specific industry would suffer should that industry fall on hard times; whereas, a diversified economy is more balanced. A balanced economy is capable of absorbing an economic shock through the other industries present. If a shock were to occur, other industries help to compensate for the loss by helping to maintain economic stability for that state. In 2018, Pennsylvania was the most diversified state in the country followed by Texas, North Dakota, 1 Colorado, and Nebraska. Missouri ranked sixth in the index ,up one from the previous year. The map below shows each state’s 2018 score. Economic Diversity Index 2018 13% Unit.ed St-at,e s 2.96', Score . 9.1%-13.3% . 5.9%-90% - 4.2%-5.8% - 3.4%-4.1% c::::J25%-3.3% The lower a score. the more diversified a state's economy: the higher a score. the more specialized its economy. MISSOURI ECONOMIC RESEARCH AND INFORMATION CENTER MO DEPARTMENT OF HIGHER EDUCATION. & WORKFORCE DEVELOPMENT JANUARY 2020 Gross Domestic Product 2 The broadest measure of economic activity is the Gross Domestic Product. In calculating each state’s diversification index, the gross product by industry was measured against total state gross product. Government MMaisnsuofuarcit’su rtiontgal gross domestic product (GDRPe)a iln Ecsrteaatseed from $278.2 bHiellaioltnh iCna 2r0e17 to $284.9 Fbiinllaionnc ein a 2nd0 1In8s iunr arenacle terms. The state’s tPorpo ffeivsesi oinndaul,s Stcriieens,t nifoict, ianncdlu Tdeicnhgn ical Services, are (12.2 percent of total GDP), (11.2 percent), (9.2 percent), (8.2 percent) and both at 7.1 percent. Finance and Insurance, ; Healthcare & Social Assistance Management of Companies aSenrdv Eicnet esrepcrtoisress that experienced growth between 2017 and 2018 include Mwhanicuhfagcrteuwri n0g.8, points from 7.4 to 8.2 Real Estate and Whbooltehs aglreew byR 0e.t2a ipl otrinatdse. Sectors that experienced a minor decline include which declined 0.4 from 12.6 to 12.2; declined 0.2 points from 11.4 to 11.2 percent; and both dropped 0.1 points. Missouri Industry GDP Share Change from Industry 2018 2017 2018-2017 Natural Resources 0.8% 1.1% -0.3% Mining 0.3% 0.2% 0.1% Utilities 1.7% 1.7% 0.0% Construction 3.7% 3.7% 0.0% Manufacturing 12.2% 12.6% -0.4% Wholesale trade 6.7% 6.8% -0.1% Retail trade 5.8% 5.9% -0.1% Transportation & Warehousing 3.5% 3.4% 0.1% Information 4.0% 4.0% 0.0% Finance & Insurance 8.2% 7.4% 0.8% Real estate and rental and leasing 11.2% 11.4% -0.2% Professional, Scientific, and Technical 7.1% 7.1% 0.0% Management of Companies & Enterprises 3.1% 3.0% 0.2% Administrative & Waste Management 3.0% 3.0% 0.0% Educational Services 1.3% 1.3% 0.0% Healthcare & Social Assistance 9.2% 9.0% 0.2% Arts, Entertainment, & Recreation 1.1% 1.1% 0.0% Accommodation & Food Services 2.9% 2.9% 0.0% Other Services (except Government) 2.4% 2.4% 0.0% Government 11.7% 12.0% -0.3% MISSOURI ECONOMIC RESEARCH AND INFORMATION CENTER MO DEPARTMENT OF HIGHER EDUCATION. & WORKFORCE DEVELOPMENT JANUARY 2020 State Industry Concentration Industry concentration is another measurement based on industry GDP share analysis. The chart below compares the same industries across Missouri and the United States to hHeelpa litdhecnatriefy, state- lMevaenlu ifnadcutusrtirnyg conceMntarnaatigoenms.e nTth oref eC oinmdpuasntrieiess & i nE nptaerrtpicruisleasr have significantly higher GDP share concentrations in the State of Missouri than that of the UWnihtoelde sSatlaet eTsr aindcel,u Fdiinnagn ce and Insurance, Retail Trade, Tr, aannsdp ortation & Warehousing, Other Services U. tOiltithieesr, concEendturcaattioionnsa iln S Merivsiscoeus.ri, which have higher rates than that of the nation, include , and 2018 GDP Share Industy Concentration ■ Missouri ■ United States ' ' Manufacturing Government Real Estate, Rental, and Leasing Healthcare & Social Assistance Finance & Insurance Prof., Scientific, and Technical Wholesale Trade Retail Trade Information Construction Transportation & Warehousing Mgt. of Companies & Enterprises Admin. & Waste Management Accommodation & Food Services Other Services (except Gov.) Utilities Educational Services ~ Arts, Entertainment, & Recreation ~ - Natural Resources ~ Mining 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% MISSOURI ECONOMIC RESEARCH AND INFORMATION CENTER MO DEPARTMENT OF HIGHER EDUCATION. & WORKFORCE DEVELOPMENT JANUARY 2020 Notes: 1 Diversification Index There are a handful of indices available to measure an economy’s diversification: Herfindahl, Hachman, and competitive share among others. Data used to construct an index may include e mployment, earnings, per capita income, capital investment or gross domestic product. In this i brief, a modified Herfind a=hl In{deΣx (H) based o(n( gross d)ome(stic pro)d)uct} data was constructed. Hi n si n × GDPi _ 1 2 * 100 n-1 GDP n s n GDP i i GDP s Where is tnhe number of industries ins the state economy, and is the gross domestic product for each industry ( ) in the state, and is a state’s total gross domestic product. The number of industries ( ) analyzed in each state ( ) is constant. Thus, the analysis focuses on the distribution of GDP. Those states with an index value closer to 0 are more diversified. 2 Gross Domestic Product A state’s Gross Domestic Product is estimated by the U.S. Bureau of Economic Analysis. This e stimate is the sum of value-added from each industry in the state for a given time period. Value- added is effectively an industry’s net revenue: income minus costs of production. MISSOURI ECONOMIC RESEARCH AND INFORMATION CENTER This workforce product was funded by a grant awarded by the U.S. Department of Labor’s Employment and Training Administration. The product was created by the recipient and does not necessarily reflect the official position of the U.S. Department of Labor. The U.S. Department of Labor makes no guarantees, warranties, or assurances of any kind, express or implied, with respect to such information, including any information on linked sites and including, but not limited to, accuracy of the information or its completeness, timeliness, usefulness, adequacy, continued availability, or ownership. This product is copyrighted by the institution that created it. Internal use by an organization and/or personal use by an individual for non-commercial purposes is permissible. All other uses require the prior authorization of the copyright owner. MISSOURI ECONOMIC RESEARCH AND INFORMATION CENTER MO DEPARTMENT OF HIGHER EDUCATION. & WORKFORCE DEVELOPMENT JANUARY 2020