Community Economic Analysis: A How To Manual

Why a Community Economic Analysis Manual? Recent swings in the national economy have heightened the interest of individuals and businesses about economic conditions in their communities and what might be done about them. A community's economy lends itself to analysis similar to that of households and businesses. While the specific forms of this analysis may not be widely known, it still raises the same questions. What are the current economic conditions in the community? What components of the community have been growing or what components have been declining? What are the community's options for improving its economic future and which of those options should be pursued first? Numerous tools and techniques can be used to give some insight to the functioning of a community's economy. This insight is part of the early preparation necessary before the community can initiate an effective strategy for change. The following considerations must be an important part of any community economic analysis: First, no single number generated by the analysis provides the answer to all of a community's concerns. For instance, when a firm experiences an increase in profits, it is still unknown whether the increase is caused by greater sales or more cost efficient production. Each of those sources suggests a different strategy by the owner. Second, it is important to make comparisons among communities because the numbers used are not absolute. Again, just as any owner of a firm would compare his/her success against the industry average or similar firms, it is important for communities to make similar comparisons. These comparisons need to be among similar communities to increase their legitimacy. Third, it is important to compare changes over time to sense the direction of community change. This comparison helps to confirm or deny perceptions of current and recent conditions.Fourth, it is crucial to use a variety of information sources. The steps outlined in this publication indicate that "hard data" collected from various agencies is a starting point. It is also important for the analyst to incorporate the insights that local citizens have about their community and its economy. If there are differences, then both sets of information need to be challenged to determine which more accurately reflects current conditions. The following pages outline, through a series of questions, some elemental steps that might be undertaken by a community examining its economy and its economic future. An appendix describes how to calculate the specific tools along with needed data and interpretation. Readers are referred to the bibliography for additional readings and resource material. Perhaps one way to think of community economic analysis is to imagine the community's economy as a barrel with money and goods flowing into the top as well as spilling out (see Figure 1). The barrel analogy represents a number of key concepts. First, the community is intimately linked with the rest of the world through the inflow and outflow of income and goods. Second, the community uses resources to produce the output it sells. These resources can be available locally or purchased elsewhere. Third, the size of the barrel is determined essentially by the inflow of outside income, the lack of leakage of income, and the volume of resources used to produce the community's output.download