Weathering the Recession

Many economists suggest that the depressed state of the U.S. economy is not going to get much better for several years--maybe out to the 2014-2016 time frame. Most economists believe the economy will only get better once the U.S. starts to create more jobs. Jobs that affect our local economy are jobs that are created locally. Local jobs are created by local businesses. A strong local business community has a lot to do with the health of a community. So I ask the following question:

When is $1 more than a dollar? The answer is when you spend it in your local community.

Often your dollar, spent locally, turns over in the community about six times. Each time after the initial expenditure, some of the money in the turn over remains in the community as well. The benefit to the community is the amount of money that is kept in the community. In the six-turnover scenario, the equivalent of about $1.65 for every dollar spent remains in the community. The total impact of a dollar produced or spent in a community is measured with a multiplier. In this case the multiplier is a positive 1.65. Negative multipliers are also possible. Say you go outside your community and spend that same dollar for the same goods or services you could have spent in your community. That has a negative multiplier effect for your home community (-1.65).

Naturally, it isn’t as simple as that. Different economic sectors and different scenarios have different multipliers, and there are different employment multipliers for different sectors as well.

Let’s take a look at an example: Retailer C is coming to Dacula. They plan to build a nice building, and provide employment for about 30 workers. These will be new jobs for Dacula. Can we estimate what kind of economic impact this will have on Dacula?

Here are some assumptions. The building will cost about $500,000 and the yearly payroll will be about $550,000. Retailer C expects to have yearly sales of $1,000,0000.

2.28 is a well-established North Carolina State University multiplier for local construction. 35.9 is a well-established multiplier for new employment as a result of construction spending. So for the one time construction of Retailer C’s new store, we might expect one time new spending in the community to be about 2.28 x 500000 or $1,140,000, and new community employment to be around 35.9 x .5 = 18 new construction jobs in the community from this initial investment. If we use our guesstimate multiplier of 1.65, we can determine that Retailer C’s sales will result in keeping $1,650,000 circulating through the local community. North Carolina State University uses a multiplier of 2.04 for retailers. Using that multiplier (2.04 x $1,000,000) we calculate a figure of $2,040,000.

What’s the estimate?

Results	Money in Community	Community Employment
Initial construction	$1,140,000	18
Ongoing operations	$2,040,000	30

What can be wrong with our economic forecast? Well, the mulitpliers may be out of kilter. Estimated sales may be too little or too much. The business may fail. We haven’t included the effect of new employees moving to the community, buying new homes or renting, the effect of their wages in the community.

Lots can be wrong with economic forecasts, including the general economy of the country. But it’s better to be on the positive side of the multiplier formulas than on the negative side. The moral of the story is "keep your money in Dacula by supporting our local businesses."

In the U.S., small business generated nearly 80 percent of new jobs in the last decade. Help us grow a community. Keep your money in Dacula by supporting our local businesses. They are the job creators.