Introducing domestic requirements tables for 1997-2015.

Medeiros, Gabriel ; Howells, Thomas F.

ON FEBRUARY 17, 2017, the Bureau of Economic Analysis (BEA) released domestic requirements tables for the first time. The new estimates cover the period 1997-2015 and will be updated annually along with the full suite of BEA products based on the supply-use framework. (1) These tables show the amount of domestic intermediate inputs required, both directly and indirectly, in order for industries to supply goods and services to final demand. (2) Domestic requirements tables provide unique insights into domestic supply chains and the structural linkages among domestic industries.

In addition to providing insights into the domestic economy, the new domestic requirements tables can be contrasted with the total requirements tables already published by BEA in order to highlight the extent to which industries are reliant on global supply chains. One way to summarize a supply chain with requirements tables is through backward linkages. Backward linkages include the value of all intermediate inputs in a supply chain and are estimated by summing up a column of a requirements table. (3) Differences in backward linkages between the total requirements tables and the domestic requirements tables estimate the portion of goods and services in an industry's supply chain that are produced abroad.

Based on this measure, in 1997, the industry most reliant on global supply chains for its intermediate inputs was petroleum and coal products manufacturing followed by motor vehicles, bodies, trailers, and parts manufacturing. By 2015, motor vehicles, bodies, trailer, and parts manufacturing had become the most reliant industry followed by primary metals manufacturing, while petroleum and coal products manufacturing had dropped to the fifth most reliant industry.

Between 1997 and 2015, six different manufacturing industries were among the top three most reliant on global supply chains for their intermediate inputs. Generally, goods industries--especially manufacturing industries--relied more than services industries on global supply chains for their intermediate inputs, while service industries were less reliant on international supply chains. Within services, transportation industries were generally the most reliant on global supply chains. In 1997, the two services industries that most relied on global supply chains for their inputs were water transportation and pipeline transportation. By 2015, water transportation had dropped to second most reliant, and air transportation moved to the top position. Table 1 illustrates the top three industries that are the most reliant on global supply chains for their intermediate inputs in 1997-2015, and table 2 illustrates the top three services industries.

Differences in backward linkages between total requirements tables and domestic requirements tables highlight the steady increase in the interconnected nature of the global economy. Chart 1 graphs these differences for the 1997-2015 period for major sectors in the economy. Nearly all sectors follow a similar pattern. The period from 1997-2000 is marked by an increase in reliance on foreign supply chains for inputs followed by a downturn in 2001 with the 2002-2008 period showing even larger increases in reliance on global supply chains and surpassing the 2000 peak. Most sectors show a sharp decline in 2009 followed by a quick recovery in 2010 that claws back much of 2009's retrenchment. The 2011-2015 period shows a flat or slightly decreasing trend. Considering the 1997-2015 period as a whole, most industries saw a slight increase in reliance on foreign supply chains for their intermediate inputs.

Looking at specific sectors, manufacturing as a whole is the most reliant on global supply chains and was the sector most affected by the 2009 downturn. Agriculture, forestry, fishing and hunting was generally the sector that was second most reliant on foreign supply chains for intermediate inputs, though at times it was surpassed by transportation and warehousing or construction. With the exception of transportation and warehousing, service sectors were the least reliant on global supply chains for their intermediate inputs.

Domestic requirements tables

Three main tables are being added as a part of this expansion of BEA's products. These include the commodity-by-commodity domestic requirements table, the industry-by-industry domestic requirements table, and the industry-by-commodity domestic requirements table. Like the corresponding total requirements tables, the new domestic requirements tables are available at the sector level (roughly a two-digit NAICS classification) and the summary level (roughly a three-digit 2007 NAICS classification) for all years. Tables at the detailed level (roughly a four-digit 2007 NAICS classification) are also available for 2007.

These new estimates will be incorporated into the standard suite of products released periodically by BEA's industry accounts. As part of its annual update, the industry accounts will release an updated and extended time series. In addition, more detailed estimates at roughly a four-digit NAICS classification will be released for 2012 as part of the upcoming benchmark release scheduled for the fall of 2018.

[CHART 1 OMITTED]

The requirements tables are best understood if considered by column. Each column represents the value of all domestic production required in order to supply end-users with one dollar of output. (4) The required production includes both the dollar supplied to end-users as well as the entire supply chain in order to produce that dollar of output. It is common to break down the supply chain portion into two subcomponents: the intermediate inputs directly used in producing that dollar of output, and the intermediate inputs indirectly used, corresponding to the remainder of the supply-chain.

Each column of a commodity-by-commodity domestic requirements table shows the production, broken down by commodity necessary to supply end users with a dollar of a given commodity. (5) Table 3 shows the commodity-by-commodity domestic requirements for the agriculture, forestry, fishing, and hunting commodity in 2015 (see also table 4). The total for the column is 2.019, meaning that in order to supply an end-user with one dollar of agriculture, forestry, fishing, and hunting commodity, on average, the economy produced 2.019 dollars of gross output. This 2.019 is decomposed into the dollar supplied to end users as well as an additional 1.019 dollars of intermediate inputs required to produce that dollar of output. The 1.019 dollars of inputs include 0.306 dollar of agriculture, forestry, fishing, and hunting inputs, 0.266 dollar of manufacturing inputs, and an additional 0.447 dollar of other inputs. Note that these inputs include both the inputs directly purchased to produce the commodity as well as the remaining inputs in the supply chain.

The reason the dollar value of intermediate inputs in the supply chain exceeds the dollar value provided to the end-users is related to the measurement of gross output. Gross output of any product embeds the value of the inputs used in producing that product. Hence, when gross output is added vertically along a supply chain, as was done in summing up the column of a requirements table, the value of intermediate inputs to production can be double-counted.

The industry-by-industry and industry-by-commodity domestic requirements, like the commodity-by-commodity domestic requirements, relate the domestic production required to supply end-users with one dollar of output. A column in the industry-by-industry domestic requirements table shows the domestic production decomposed by industry that is necessary to supply an end-user with a dollar of industry output. Similarly, a column in the industry-by-commodity domestic requirements table shows the domestic production decomposed by industry that is necessary to supply an end-user with a dollar of commodity output.

Methodology and uses

The estimates presented in this article are an accounting decomposition of supply chains. This decomposition has the same theoretical underpinnings as BEA's currently published total requirements tables. Both sets of estimates are mathematical descriptions of production which relate inputs to output. The main assumptions underlying the calculation of these tables are

* Constant returns to scale.

* No substitution of inputs to production is possible.

* No production process produces more than one type of output.

* Hybrid technology assumption that combines both the industry technology and commodity technology assumption. (6)

The new domestic total requirements estimates are best viewed as representing an average technological relation between inputs and output for a given reference year. Viewing the estimates in this ex-post way, the above assumptions are not overly restrictive because they help simplify the accounting decomposition of supply chains to average relations. Requirements are also commonly used for predictive purposes, not for accounting purposes; the canonical modeling example being to use requirements for impact analysis. (7) When using requirements for predictive purposes, however, caution is necessary, especially if applied to a hypothetical economy with very different levels of output from the actual economy. In this scenario, the assumptions of constant returns to scale and no substitution of inputs can be restrictive because they do not allow for any optimizing behavior on the part of firms in regards to production processes. (8)

Mathematical derivation of domestic requirements tables

The domestic requirements estimates are prepared in four broad steps. The first step is to calculate domestic intermediate inputs based on the use table and imports matrix. The second step is to compute the domestic direct requirements matrix based on the intermediate input section of the domestic use table. The third step is to compute the market share matrix based on the make table. The fourth step is to combine the domestic direct requirements matrix and the market share matrix to create the three types of domestic requirements tables. (9)

Given

q: Vector of commodity output.

g: Vector of after redefinitions industry output.

U: Intermediate inputs portion of the after redefinitions Use table (commodity-by-industry).

V: Make table after redefinitions (industry-by-commodity).

W: Intermediate inputs portion of the Import matrix (commodity-by-industry).

I: Identity matrix

[conjunction]: A symbol that, when placed over a vector, indicates a square matrix in which the elements of the vector appear on the main diagonal and zeros elsewhere.

U: Domestic intermediate inputs, are computed as

U = U-W

E: Domestic direct requirements matrix in which entries in each column show the amount of a commodity used by an industry per dollar of output of that industry is computed as

E = Ug-1

D: Market share matrix in which show the share of industry production of particular commodities is computed as

D = Vq-1

The commodity-by-commodity domestic requirements table is computed as

[(I-ED).sup.-1]

The industry-by-industry domestic requirements is computed as

[(I-ED).sup.-1]

The industry-by-commodity domestic requirements table is computed as

[E(I-ED).sup.-1]

Looking ahead

BEA's industry accounts are also developing trade in value added (TiVA) statistics that expand the domestic requirements featured in this article by allowing a decomposition of supply chains into domestic value-added and foreign value-added components. This ongoing TiVA work at BEA is being done in conjunction with related efforts by the Organisation for Economic Co-operation and Development (OECD), the World Trade Organization (WTO), Asia Pacific Economic Cooperation (APEC), and the North America Regional TiVA Initiative.

By Gabriel Medeiros and Thomas F. Howells III

(1.) These products include supply and use tables, both before and after redefinitions; make tables; direct and total requirements matrices; and import matrices.

(2.) Domestic requirements tables are similar to the total requirements tables published by BEA. While domestic requirements tables reflect only domestically produced intermediate inputs, total requirements tables include both imported and domestically produced intermediate inputs.

(3.) Backward linkages include both the value of all intermediate inputs in a supply chain as well as the value of the final goods or services produced.

(4.) Total requirements tables have a similar interpretation. Each column represents the total value of global production required in order for domestic industries to supply end-users with one dollar of output.

(5.) The term commodity is used to mean any good or service produced.

(6.) For a full discussion of various technology assumptions, see, Jiemin Guo, Ann M. Lawson, and Mark A. Planting, "From Make-Use to Symmetric I-O Tables: An Assessment of Alternative Technology Assumptions."

(7.) For an example of how to use requirements in modeling, see, Mary L. Streitwieser, "A Primer on BEA's Industry Accounts."

(8.) When using these estimates for predictive purposes, it is common to further assume that there are no capacity constraints.

(9.) For a discussion on computing requirements tables, see Karen J. Horowitz and Mark A. Planting, "Concepts and Methods of the U.S. Input-Output Accounts."

Other Tables

In conjunction with the three domestic requirements tables, two additional tables will also be released: the domestic direct requirements table and the market share table. Both of these tables will be produced at the same level of detail and follow the same publication schedule as the domestic requirements tables.

The domestic direct requirements table shows the domestically sourced inputs directly purchased by various industries divided by total output for the industry. The domestic direct requirements table is used as an input to the calculation of the domestic requirements tables.

The market share table shows each industry's share of production of each commodity. The market share table is an input to the calculation of both the domestic requirements and total requirements tables. For more information on these two tables, see the section "Mathematical Derivation of Domestic Requirements."

Requirements Variants

Requirements are a tool for mathematically describing supply chains. Just as there are multiple ways of describing a supply-chain, there are multiple types of requirements tables. This box describes a few of these different variants. In this case, the variants are differentiated based on three parameters: the scope of measurement of the supply chain, the valuation of the supply chain, and the inclusion of demand-side effects. Some of the more common variants are included below, but the list is by no means exhaustive.

Scope. Requirements can estimate the entire supply chain, inclusive of the foreign parts of the supply-chain, or focus exclusively on the domestic component of the supply chain. Requirements that estimate the entire supply chain are called total requirements while requirements that focus only on the domestic component are called domestic requirements.

Valuation. The supply chain, whether domestic or total, can be valued in terms of gross output, value added (or the income generated from production), or employment.

Gross output is measured as the value of goods and services produced in a given year valued at producers' prices (the price received by the industry, including sales and excise taxes). Gross output reflects both the value of the inputs used in production as well as the income accrued from production. Because the value of gross output reflects the value of its inputs, summing requirements along a vertically integrated supply chain leads to double-counting. Gross output requirements decompose the supply-chain into the dollars spent on various inputs.

Income requirements measure production in value added terms. Value added is the additional value generated by the capital and labor utilized in the production process and can be measured as the difference between gross output produced and intermediate inputs used in the production process. Income requirements are usually computed only for domestic requirements tables and decompose the supply-chain into the income accruing to each producer.

Employment requirements are measured in terms of labor employed in production. Labor is commonly measured either as persons engaged in production or as full-time equivalent labor. Employment requirements, like income requirements, are usually computed only for domestic requirements tables. In addition, they are usually computed only for industry-based tables (industry-by-industry and industry-by-commodity tables). Employment requirements decompose the supply chain into the labor employed by each producer.

Demand-side effects. Requirements tables also differ between tables that capture only supply effects and tables that capture supply and demand effects. Requirements that capture only supply effects are called type I multipliers, while type II multipliers include both supply and demand effects. The values in type II requirements embed the type I requirements and include the induced demand resulting from wages earned along the length of the supply chain.

The requirements featured in this article are national-level type I domestic gross output requirements. BEA's existing requirements tables are national-level type I total gross output requirements. In addition, regional type I and type II domestic requirements for gross output, income, and employment are available through BEA's Regional Input-Output Modeling (RIMS II) System. Table 1. Ranking of Industries Most Reliant on Global Supply Chains for Their Inputs First 1997 Petroleum and coal products 1998 Petroleum and coal products 1999 Petroleum and coal products 2000 Petroleum and coal products 2001 Petroleum and coal products 2002 Petroleum and coal products 2003 Petroleum and coal products 2004 Petroleum and coal products 2005 Petroleum and coal products 2006 Petroleum and coal products 2007 Petroleum and coal products 2008 Petroleum and coal products 2009 Motor vehicles, bodies and trailers, and parts 2010 Petroleum and coal products 2011 Motor vehicles, bodies and trailers, and parts 2012 Motor vehicles, bodies and trailers, and parts 2013 Motor vehicles, bodies and trailers, and parts 2014 Motor vehicles, bodies and trailers, and parts 2015 Motor vehicles, bodies and trailers, and parts Second 1997 Motor vehicles, bodies and trailers, and parts 1998 Motor vehicles, bodies and trailers, and parts 1999 Motor vehicles, bodies and trailers, and parts 2000 Motor vehicles, bodies and trailers, and parts 2001 Motor vehicles, bodies and trailers, and parts 2002 Motor vehicles, bodies and trailers, and parts 2003 Motor vehicles, bodies and trailers, and parts 2004 Motor vehicles, bodies and trailers, and parts 2005 Motor vehicles, bodies and trailers, and parts 2006 Motor vehicles, bodies and trailers, and parts 2007 Motor vehicles, bodies and trailers, and parts 2008 Motor vehicles, bodies and trailers, and parts 2009 Petroleum and coal products 2010 Motor vehicles, bodies and trailers, and parts 2011 Petroleum and coal products 2012 Petroleum and coal products 2013 Primary metals 2014 Primary metals 2015 Primary metals Third 1997 Other transportation equipment 1998 Other transportation equipment 1999 Computer and electronic products 2000 Computer and electronic products 2001 Computer and electronic products 2002 Other transportation equipment 2003 Apparel and leather and allied products 2004 Primary metals 2005 Primary metals 2006 Primary metals 2007 Primary metals 2008 Primary metals 2009 Primary metals 2010 Primary metals 2011 Primary metals 2012 Primary metals 2013 Petroleum and coal products 2014 Petroleum and coal products 2015 Other transportation equipment Table 2. Ranking of Services Industries Most Reliant on Global Supply Chains for Their Inputs First Second 1997 Water transportation Pipeline transportation 1998 Water transportation Air transportation 1999 Water transportation Air transportation 2000 Air transportation Water transportation 2001 Air transportation Water transportation 2002 Water transportation Air transportation 2003 Water transportation Air transportation 2004 Water transportation Air transportation 2005 Air transportation Water transportation 2006 Air transportation Water transportation 2007 Air transportation Water transportation 2008 Air transportation Water transportation 2009 Air transportation Insurance carriers and related activities 2010 Air transportation Water transportation 2011 Air transportation Water transportation 2012 Air transportation Water transportation 2013 Air transportation Water transportation 2014 Air transportation Water transportation 2015 Air transportation Water transportation Third 1997 Air transportation 1998 Pipeline transportation 1999 Pipeline transportation 2000 Pipeline transportation 2001 Utilities 2002 Truck transportation 2003 Pipeline transportation 2004 Pipeline transportation 2005 Pipeline transportation 2006 Pipeline transportation 2007 Pipeline transportation 2008 Truck transportation 2009 Water transportation 2010 Insurance carriers and related activities 2011 Truck transportation 2012 Waste management and remediation 2013 Waste management and remediation 2014 Waste management and remediation 2015 Waste management and remediation Table 3. Commodity-by-Commodity Domestic Requirements for Agriculture, Forestry, Fishing, and Hunting, 2015 Commodity inputs Input- required to output produce a code dollar of commodity 11 11 Agriculture, forestry, fishing, 1.3064095 and hunting 21 Mining 0.0185741 22 Utilities 0.0196578 23 Construction 0.0130009 31G Manufacturing 0.2668854 42 Wholesale trade 0.0983996 44RT Retail trade 0.0027572 48TW Transportation and warehousing 0.0659758 51 Information 0.0102523 FIRE Finance, insurance, real estate, 0.1133102 rental, and leasing PROF Professional and business services 0.0833931 6 Educational services, health care, 0.0020719 and social assistance 7 Arts, entertainment, recreation, accommodation, and food services 0.0075720 81 Other services, except government 0.0079202 G Government 0.0025498 Used Scrap, used and secondhand goods 0.0006788 Other Noncomparable imports and 0.0000000 rest--of--the--world adjustment Total commodity output requirements 2.0194085 Table 4. Commodity-by-Commodity Domestic Requirements, After Redefinitions, 2015 [In producers' prices] Commodities/Commodities 11 21 Input-output Agriculture, Mining code forestry, fishing, and hunting 11 Agriculture, forestry, 1.3064095 0.0052094 fishing, and hunting 21 Mining 0.0185741 1.0726045 22 Utilities 0.0196578 0.0085315 23 Construction 0.0130009 0.0136767 31G Manufacturing 0.2668854 0.0888939 42 0.0983996 0.0231650 44RT 0.0027572 0.0018911 48TW Transportation and 0.0659758 0.0331787 warehousing 51 Information 0.0102523 0.0065510 FIRE Finance, insurance, real 0.1133102 0.0521567 estate, rental, and leasing PROF Professional and business 0.0833931 0.0866406 services 6 Educational services, health 0.0020719 0.0001557 care, and social assistance 7 Arts, entertainment, recreation, accommodation, and food services 0.0075720 0.0050390 81 Other services, except government 0.0079202 0.0031594 G Government 0.0025498 0.0011283 Used Scrap, used and secondhand goods 0.0006788 0.0002753 Other Noncomparable imports and rest--of--the--world adjustment 0.0000000 0.0000000 Total 2.0194085 1.4022568 commodity output requirements 22 23 31G 42 Input-output Utilities Construction Manufacturing Wholesale code trade 11 0.0039108 0.0152602 0.0730274 0.0023435 21 0.0721387 0.0189053 0.0484965 0.0021604 22 1.0100277 0.0069636 0.0157795 0.0055060 23 0.0171639 1.0033318 0.0063702 0.0039950 31G 0.0687320 0.2586756 1.3836590 0.0405155 42 0.0195236 0.0582406 0.0814218 1.0302827 44RT 0.0024145 0.0649587 0.0043887 0.0012630 48TW 0.0558423 0.0369840 0.0535742 0.0490684 51 0.0145957 0.0132753 0.0151987 0.0201911 FIRE 0.0535820 0.0683922 0.0590828 0.0980178 PROF 0.0919897 0.1048500 0.1527591 0.1654368 6 0.0035335 0.0007421 0.0004600 0.0010820 7 0.0112874 0.0076501 0.0109264 0.0110164 81 0.0054464 0.0085825 0.0078879 0.0136249 G 0.0028563 0.0019373 0.0031925 0.0071876 Used 0.0008393 0.0014451 0.0026247 0.0004632 Other 0.0000000 0.0000000 0.0000000 0.0000000 Total 1.4338836 1.6701944 1.9188493 1.4521542 commodity output requirements 44RT 48TW 51 FIRE Input-output Retail Transportation Information Finance, code trade and insurance, real ware-housing estate, rental, and leasing 11 0.0036486 0.0096571 0.0049585 0.0019729 21 0.0029916 0.0091751 0.0041083 0.0038962 22 0.0109130 0.0113817 0.0070212 0.0193032 23 0.0066177 0.0110698 0.0056974 0.0301592 31G 0.0500958 0.1766679 0.0892868 0.0330721 42 0.0248012 0.0480570 0.0317466 0.0098506 44RT 1.0051420 0.0070727 0.0015962 0.0038366 48TW 0.0638426 1.1511675 0.0256443 0.0131227 51 0.0265527 0.0171368 1.1964424 0.0223224 FIRE 0.1546171 0.1325231 0.1006488 1.2087355 PROF 0.1702286 0.1337577 0.1727755 0.1353518 6 0.0079076 0.0010021 0.0012182 0.0003861 7 0.0111776 0.0103489 0.0369997 0.0159270 81 0.0123262 0.0098468 0.0148885 0.0097826 G 0.0064352 0.0181804 0.0033790 0.0042088 Used 0.0005215 0.0038799 0.0005002 0.0002949 Other 0.0000000 0.0000000 0.0000000 0.0000000 Total 1.5578191 1.7509244 1.6969116 1.5122227 commodity output requirements PROF 6 7 81 Input-output Professional Educational Arts, Other code and services, entertainment, services, business health care, recreation, except services and social accommodation, government assistance and food services 11 0.0044093 0.0058216 0.0106849 0.0052595 21 0.0036199 0.0055877 0.0078265 0.0049899 22 0.0066161 0.0141318 0.0144968 0.0094162 23 0.0045434 0.0086629 0.0074047 0.0091628 31G 0.0620831 0.1023933 0.1563157 0.0889494 42 0.0160784 0.0265134 0.0332424 0.0225621 44RT 0.0017948 0.0021187 0.0077672 0.0101903 48TW 0.0235339 0.0225851 0.0278767 0.0177008 51 0.0430260 0.0257506 0.0231251 0.0212349 FIRE 0.1215259 0.1752318 0.1382445 0.1711783 PROF 1.2145791 0.1661284 0.1908728 0.1068636 6 0.0006385 1.0125216 0.0022349 0.0036157 7 0.0269704 0.0209893 1.0317237 0.0107926 81 0.0136682 0.0184646 0.0148175 1.0124932 G 0.0039089 0.0044270 0.0073033 0.0035132 Used 0.0004435 0.0007078 0.0005937 0.0182806 Other 0.0000000 0.0000000 0.0000000 0.0000000 Total 1.5474395 1.6120358 1.6745304 1.5162031 commodity output requirements G Used Other Input-output Government Scrap, used Noncomparable code and imports and secondhand rest-of the goods world adjustment 11 0.0073117 0.0333313 0.0073144 21 0.0105242 0.0247836 0.0104743 22 0.0115183 0.0126808 0.0115195 23 0.0250936 0.0149080 0.0251000 31G 0.1260393 0.2218879 0.1260857 42 0.0242228 0.0461828 0.0242266 44RT 0.0025148 0.0032520 0.0025149 48TW 0.0303442 0.0387698 0.0303235 51 0.0347632 0.0267821 0.0347795 FIRE 0.0625484 0.0693723 0.0625556 PROF 0.1260738 0.1485399 0.1261014 6 0.0136968 0.0066948 0.0137051 7 0.0163475 0.0155999 0.0163516 81 0.0112584 0.0102467 0.0112631 G 1.0041366 0.0037802 0.0041377 Used 0.0005103 1.0013500 0.0005100 Other 0.0000000 0.0000000 1.0000000 Total 1.5069039 1.6781622 1.5069628 commodity output requirements NOTE. Detail may not add to total because of rounding.