Commerce Lexington Research Update

The Bureau of Economic Analysis simultaneously released their local GDP data for 2007 and 2008 this week. Usually this data is delayed by at least a couple of years, so having 2008 data before the end of 2009 was quite exciting (as far as research geeks like myself go). Knowing that the stock market crash happened right before the start of the third quarter last year, I definitely expected not-so-great news on the output front. Turns out, I was only partially right.

For the record, in 2008, Lexington’s MSA (metropolitan statistical area, more on this later) churned out $22.7 billion dollars in nominal output. This was divided between $13.7 billion in service-producing industries, $5.8 billion in goods-producing industries, and $3.3 billion in government activities.

In order to compare these numbers to past years, you need real GDP, or for inflation to be taken out of the picture. Adjusted for inflation and chained in 2001 dollars, you get the numbers in the chart below. As you can see, overall, Lexington’s output grew slightly from 2007 to 2008. Slightly equates to .8% to be exact. The closest comparison is between 2002 and 2003, when output only grew by .6%.

The biggest question mark in all this analysis is what 2009′s numbers will end up showing. My inclination is to think that if one quarter of serious recession was enough to drag down growth to .8%, then a full year of recession will show no growth or contraction. Notice the decrease in goods-producing output. This category is 5/6 manufacturing, with construction, mining, and agriculture making up the remainder. While service-producing and government activities both grew or were flat in 2008, the overall output was dragged down by goods production. It will be interesting to see if there is as serious of a reduction in services as I predict there will be in goods. If both services and goods decrease significantly, it could make for some uncomfortable numbers in 2009.

Just a note: Lexington’s MSA includes the counties of Bourbon, Clark, Fayette, Jessamine, Scott, and Woodford. Illustrating the point that governmental and political distinctions don’t always accurately describe economic activity, both Madison (Richmond and Berea) and Franklin (Frankfort) are not technically part of our MSA. Instead they are designated as distinct micropolitan areas, which (in my world at least) means that they don’t exist in BEA figures, which are only released at the national, state, and MSA level. I think it is a pretty easy assumption that both Madison and Franklin counties are part of our local economy, so it is also a safe assumption that Lexington’s economy is larger than the stated $22.7 billion.

First, some credit. The article that provoked this post can be found here: http://www.politico.com/news/stories/0209/19343.html

The article explores the fact that it is conceptually difficult for any human brain to discern the difference between large sums such as a million, a billion, and a trillion. I’m always up for a challenge, so here goes:

One million pennies (in addition to being $10,000) would make a coin roll just under a mile long or about the distance from our offices to go watch the Cats play at Rupp Arena.

One billion pennies would make a coin roll 870 miles long, enough to get from Lexington to just short of Dallas, TX (in addition to making you close to $10 million richer)

One trillion pennies is $10 billion dollars, never mind the distance. Ok, if you are curious, that is a coin roll from Lexington around the Earth back to Lexington 25 times.

You’ll never look at a penny the same again.