General Electric's Impact on the State of Texas s Economy May 2017

Transcription

1 General Electric's Impact on the State of Texas s Economy May 2017 An Economic Analysis Prepared by:

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3 INTRODUCTION... 2 TEXAS... 6 TOTAL ECONOMIC OUTPUT... 6 EMPLOYMENT... 7 CHARITABLE IMPACT... 8 INVESTMENT... 9 RESEARCH METHODOLOGY DEFINITIONS APPENDIX REFERENCES

4 General Electric's Impact on the State of Texas s Economy GE provides substantial direct, indirect, and induced socioeconomic benefits to the state of Texas. INTRODUCTION General Electric Company (GE or 'the company') is a diversified industrial corporation that offers a wide range of products and services including aircraft engines, power generation equipment, medical imaging, as well as industrial financing. The company primarily operates in North America, Europe, Asia, South America, Australia and Africa and employed approximately 100,000 people in the United States in GE has operated in the Lone Star State for decades and is home to GE Transportation, GE Oil & Gas, GE Aviation and GE Power, as well as other GE businesses. GE Manufacturing Solutions facility in Fort Worth is part of GE Transportation s supply chain making advanced rail and mining-related equipment and serves as the primary manufacturing facility for its Evolution Series locomotive the most technologically advanced, diesel-electric, heavy-haul locomotive in the world. This 1 million-square-foot facility is one of GE s largest manufacturing rooftops worldwide, and in 2016, the site celebrated its 1,000 th locomotive only three-and-a-half years after opening. GE Transportation has also partnered with Tarrant County Community College and North Central Texas College to help train over 600 production employees in machining, welding, painting, electrical wiring and shop math. In Texas, GE Oil & Gas manufactures advanced physical and digital technologies for the industry. The business has decades of manufacturing experience in Texas and technologies that work throughout the entire oil and gas value chain - from wellhead to refinery. GE Oil & Gas makes and assembles small-scale LNG (liquefied natural gas) plants in Schertz, manufactures gearing technology and assembles pumping units in Lufkin, and develops well automation technology in Houston. Houston is also home to the GE Oil & Gas Training Center, where the business develops control systems, reciprocating compressors, downhole technology, controllers and automation equipment, and valve services. Through partnering with local schools, fundraising and volunteering for major charities, GE Oil & Gas is committed to creating opportunities for people by developing skills and building stronger communities. GE Aviation s digital business is headquartered in Austin, bringing together design engineers, data scientists and software developers to monitor more than 35,000 commercial jet engines in operation and help customers across the aviation ecosystem to increase productivity and minimize down time by uniting analytics and physics with software solutions. Two other Aviation locations in Texas include the McAllen site, which services airfoils for commercial engines, and CFAN Company in San Marcos, a joint venture between GE and Snecma that manufactures and supplies composite parts, fan blades, and airfoils. 2 2

5 In 2017, GE asked the business economic intelligence and research company, Frost & Sullivan, to conduct an economic impact analysis (EIA) of the presence of GE s operations in the state of Texas. This EIA tool, built by researchers at Frost & Sullivan, can be used to assess various scenarios and identify the potential impacts of GE s operational presence on Texas s economy in terms of total economic output impact, job creation, and charitable contributions. Independent of which impact variable is explored, GE s impact on the state of Texas s economy can be measured and categorized into three levels of impact: o Direct impact the total number of GE jobs created, its associated total economic output, paid wages, and charitable contributions generated from GE s production operations o Indirect impact the number of indirect jobs created, its associated wages, and total economic output related to GE s direct expenditures on goods and services through its supply chain and from each US state s local economy. This is the economic activity generated by GE s supply chain to serve GE s operational needs. o Induced impact the economic impact created as a result of local spending by GE employees and families, its associated wages and GDP produced from those induced wages. This is the economic activity generated by the household expenditures of GE employees in the local economy. To calculate these economic impacts, a pragmatic input/output (I/O) production model was developed. The I/O model is based on the assumption that GE s presence in a given economy contributes to the total value of the economy, just like all other economic actors in the economy and that each economic actor has a direct impact, an indirect impact, and an induced impact on the total economy through the economic decisions they make. Each of these types of impacts can be measured and compared to the performance of the total economy. Consequently, economic impact statements can be made regarding the relative and absolute benefit GE has on the economy as a whole. 3

6 General Electric's Impact on the State of Texas s Economy GE provides significant economic and philanthropic benefit to the state of Texas. In 2016, GE contributed a total of $15.21 billion in direct, indirect, and induced total production output in the state. GE s economic presence in the state of Texas supports 39,049 direct, indirect, and induced fulltime equivalent jobs. This is nearly the same number of people that can fill Minute Maid Park in Houston, Texas to capacity. GE employs 9,833 fulltime manufacturing and professional jobs in state of Texas and GE supports an additional 13,893 fulltime equivalent jobs in its supply chain. An additional 15,323 fulltime equivalent jobs are supported by local companies that serve the personal consumption needs of GE employee households. Consequently, GE s economic presence in the state of Texas has contributed to the generation of $3.867 billion in total direct, indirect, and induced compensation in 2016 and its employees and its foundation contributed $2.97 million in total charitable contributions. Overall, GE has demonstrated its commitment to the state of Texas s economy through its continued investment and rock-solid presence today, and tomorrow. Note that this economic analysis only includes the impact of GE s current operations in the state of Texas and does not include the additional economic benefits that GE brings to the state through capital investments, such as GE Transportation s $235 investment in its Manufacturing Solutions facility in Fort Worth or the opening of GE Aviation s digital collaboration center in Austin. These investments lead to additional construction and infrastructure jobs and economic activity which are not covered in this report. 4 4

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8 General Electric's Impact on the State of Texas s Economy STATE OVERVIEW Texas is the 2 nd most populous state in the USA, with a population of 27.9M. Texas is highly diversified economically and culturally despite the strong perception as being an energy industry dependent state. The state s GDP is $1.65 trillion which would make it the 12 th largest country in the world if Texas was independent of the US. Population: 27.9 million GDP: $1.65 trillion Employment: 9.9 million Unemployment Rate: 4.2% TEXAS TOTAL ECONOMIC OUTPUT GE provides significant economic and philanthropic benefit to the state of Texas. In 2016, GE contributed a total of $15.21 billion in direct, indirect, and induced total production output in the state of Texas. That is the same as $41.63 million of total economic production output per day, $1.7 million per hour, and $482 per second. The source of this total economic output is derived from three sources; GE s direct productivity contributed 31.0% of the total economic impact, the productive output of GE s supply chain, or the indirect impact of GE s presence in the state, contributed 61.2% of the total economic impact, and the economic output contribution of the local businesses that serves GE employee household personal consumption induced 7.8% of the total economic output supported by GE s presence in the state of Texas. GE s economic output within the state of Texas is shown below in both absolute and relative terms. Total Economic Output Attributed to GE s Presence in the State of Texas (Total Direct, Indirect, and Induced), USD, 2016 Relative Economic Output attributed to GE s Presence in the State of Texas by Impact Type (Direct, Indirect, and Induced), 2016 Indirect 61.2% PER YEAR $15.21B Induced 7.8% $15.21B Direct 31.0% PER DAY $41.6M PER HOUR $1.7M PER SECOND $482 Economic Output Attributed to GE s Presence in the State of Texas per $1 Spent on GE Employee Compensation, USD, 2016 $1 Spent on GE Compensation leads to $13.17 Total Economic Output Source: Frost & Sullivan GE's Impact on the U.S. State of Texas Total Economic Output, USD Million, 2016 Metrics Total Economic Impact Direct $4,707.3 Indirect $9,311.1 Total Direct and Indirect Impact $14,018.4 Induced Impact $1,187.0 Total $15,205.4 Source: Frost & Sullivan 6 6

9 EMPLOYMENT GE s economic presence in the state of Texas supports 39,049 direct, indirect, and induced fulltime equivalent jobs. This is nearly the same number of people that can fill Minute Maid Park. In all, one GE job in the state of Texas supports an additional 2.97 fulltime equivalent jobs in Texas, independent of the industry sector. GE employs 9,833 fulltime manufacturing and professional jobs in the state of Texas and GE s supply chain supports 13,893 fulltime equivalent jobs in order to address GE s business activity needs. Furthermore, 15,323 fulltime equivalent jobs are induced to serve the personal consumption needs of GE employee households. Specifically, for every 100 direct fulltime equivalent GE jobs employed in the state of Texas, 59 retail trade jobs (5,765 total FTE jobs) and 31 health care and social assistance jobs (3,035 total FTE jobs) are supported. In addition, for every 100 GE jobs, 22 fulltime equivalent accommodation and food service jobs (2,179 total FTE jobs) and 10 education services including teachers (1,015 total FTE jobs) are also supported by the presence of GE and its supply chain partners in the state of Texas. Every GE job in Texas creates 2.97 additional jobs within the state. This positive feedback helps to create jobs in a wider variety of industry sectors. GE's Impact on the U.S. State of Texas # of Additional Jobs Supported per 100 GE Jobs Employed, USD Million, 2016 Industry Sector Measure Retail trade 59 Professional and business services 46 Health care and social assistance 31 Manufacturing 24 Accommodation and food services 22 Educational services 10 All Others 105 Total Jobs Supported per 100 GE Jobs Employed 297 GE's Impact on the U.S. State of Texas Total Jobs Supported, Fulltime Equivalent Jobs, 2016 Accommodation and food services 2,179 Health care and social assistance 3,035 Educational services 1,015 All Others 10,370 Professional and business services 9,750 Manufacturing 6,935 Retail trade 5,765 Source: Frost & Sullivan 7

10 General Electric's Impact on the State of Texas s Economy GE compensates its average employee 2.19 times more than the state s average compensation rate. LABOR COMPENSATION GE s economic presence in the state of Texas has contributed to the generation of $3.876 billion in total direct, indirect, and induced compensation in Furthermore, GE compensates its direct employees significantly more than the average Texas business. Specifically, GE compensates its average employee 2.19 times more than the state s average compensation rate. This increased compensation rate leads to a significantly greater economic output potential; $13.17 of total direct, indirect, and induced economic output was created for every $1 of GE compensation expended in Total GE Attributed Direct, Indirect, and Induced Employee Compensation, Texas, 2016 Average GE Compensation Relative to State Average per State, Texas, 2016 $3.867B 2.19x GE contributed $2.97 million in total charitable contributions and provided 9,736 hours of pro bono volunteer hours to local charities in Texas. CHARITABLE IMPACT The benefits of GE s presence in the state of Texas go beyond the economy as indicated in its direct contributions to the communities of Texas. In 2016, GE corporate, GE s employees, and the GE Foundation contributed $2.97 million in total charitable contributions (equivalent to $302 per employee) to local charities in Texas. Overall, General Electric has clearly demonstrated its commitment to the state of Texas s overall economy and its communities through its continued investment and charitable contributions. GE's Charitable Impact Monetary Donations and Volunteer Hours, Texas, 2016 Metric Unit of Measure Measure GE Monetary Donations USD million $2.97 GE Monetary Donations per GE Employee USD/person $302 GE Volunteer Hours Pro Bone Hours 9,736 Source: Frost & Sullivan 8 8

11 INVESTMENT This report s economic analysis only includes the impact of GE s current operations in the state of Texas and does not include the additional economic benefits that GE brings to the state through capital investments. These investments lead to additional construction and infrastructure jobs and economic activity which are not covered in this report. In October 2016, GE Aviation opened its digital collaboration center in Austin with launch customer Qantas Airways. Through the partnership, data scientists, software developers and architects from GE and Qantas will work together to analyze data to achieve greater fleet intelligence and operational insights. GE Aviation occupies approximately 27,000 square feet at the facility. Initiatives in the pipeline could lead to a significant increase in employment in Austin for GE Aviation by the end of In December 2012, GE Transportation completed the 1-million-square-foot GE Manufacturing Solutions factory in Fort Worth, Texas. After purchasing the site in July 2011, the team spent over a year retrofitting the facility, creating additional construction and infrastructure jobs as well as bolstering the local economy. The facility is now one of GE s largest manufacturing rooftops worldwide, and represents an investment of $235 million overall. 9

12 General Electric's Impact on the State of Texas s Economy RESEARCH METHODOLOGY There are a number of approaches in measuring the economic impact of a given company s operational presence, but the most common and acceptable economic model is the input-output (I/O) method, invented by Nobel Prize-winner Wassily Leontief. The Leontief I/O model is based on using matrices that report the value of inputs (in producer prices) delivered at the national and regional level by a set of industry sectors used by the same set of industry sectors producing output at the national and regional level (and also measured in producer prices). These matrices, known as national input-output tables, are produced and published in the United States by the Department of Commerce s Bureau of Economic Analysis (BEA). There are 3 types of economic impacts direct, indirect, and induced that are generally recognized by economic practitioners of the I/O model: Direct Impact the total number of jobs created and its associated valueadd to the local economy, paid wages, and associated federal, state, and local income taxes generated from the primary economic entity of importance. The primary economic entity of importance can be a given company/corporation, industry sector, project, or organization. Indirect Impact the number of indirect jobs created, its associated wages, and generated federal, state, and local income taxes related to primary economic entity of importance s direct expenditures on goods and services within its supply chain and from each region s local economy. This is the economic activity generated by primary economic entity of importance s supply chain in order to serve primary economic entity of importance s operational needs. Induced Impact the economic impact created as a result of local spending by the households of employees of the primary economic entity of importance. These expended wages are used to create new wages, new GDP, and new federal, state, and local income taxes generated in order to deliver goods and services to the households of employees of the primary economic entity of importance. This is the economic activity generated by the household expenditures of the employees of primary economic entity of importance in the local economy

13 I/O matrix tables are used to calculate economic impact multipliers used in the EIA model. Multipliers are parameters that are used for calculating the total impact on all industry sectors in an economy (including cascading effects derived from the entire value chain) of changes in the demand for the output of any given industry sector. These multipliers describe the expected, or average, effects and not marginal effects. Thus, these multiples do not take into consideration economies of scale, unused production capacity or technological change but they still provide a good picture of the inter-relationships between industry sectors that supply valuable inputs and industry sectors that use these inputs to make more valuable products. Specifically, these multipliers can be used to calculate the direct and indirect economic impacts of a new investment in an economy or the size of the economic importance of a company, product, project, etc. in terms of the value of total production output (in producer prices), gross value added (which is also a proxy for gross domestic product), the total employment (in terms of the number of full time equivalent jobs created), total expenditures on labor compensation, tax revenue generation, and shareholder profits. An I/O matrix table models the organization of the United States entire industrial production system in a given year. The row of an I/O table reports the value of inputs sold to each industry sector for a given industry sector and the sum of a row report s the total value of sold inputs across all industry sectors. The column of an I/O table reports the value of the inputs used and paid for by a given industry sector. It is similar to a bill of material s used by a given industry sector and the sum of a given column equals the total expenditure on inputs used to create the given industry s output. Thus, I/O matrix tables show the relationships that exist between industrial sectors in a given region. An I/O table also includes expenditures paid out to various stakeholders for each of the industry sectors, including total compensation paid out to labor for their help in transforming the acquired inputs into valuable industrial output, expenditure to federal, State, and local governments in the form of production and import taxes, and payments to shareholders and creditors. The sum of all payments to the value chain for inputs and all other stakeholders for their contributions in transforming the inputs into valuable production output equals the total economic impact of the given industry sector s activity in the given region. 11

14 General Electric's Impact on the State of Texas s Economy As stated previously, the BEA provides national I/O tables that must be adjusted for regional scale and variance since the size and mix of industrial sectors participating in each region clearly varies from the aggregated national reporting. In order to control for this variance, location quotient (LQ) weights can be applied to the national table in order to scale and adjust the table. The LQ weight is calculated by taking the ratio of a given industry sector s share of regional earnings and the given industry sector s share of national earnings. If the LQ ratio is less than one, then the ratio is multiplied by the regional share of the industry sector s earnings relative to the national earnings. If the LQ ratio is greater than one, then only the regional share of the industry sector s earnings relative to the national earnings is used as the weight. In addition, primary research and expert judgment must be applied to check to make sure that the weighted I/O table is truly representative of each state s economic interactivity between industry sectors supplying inputs and industry sectors producing output. In other words, each intersection within the I/O table must be reviewed and adjusted accordingly if newer or better information is available. The following inputs were utilized in this economic analysis: o Total Production Output and Gross Value-Added of GE s operations and the U.S. state in general per U.S. state o GE provided inputs, including the number of production-related and professional jobs created per U.S. state and expenditures on goods and services for local operations from the local economy o Local employment trends per U.S. state o Average compensation and wages per laborer in each U.S. state o Number of employees per industry sector per U.S. state o Production, Import, and other taxes paid per U.S. state o Average household/personal expenditures on local goods and services o Expenditure on local charities by GE and each U.S. state in general 12 12

15 DEFINITIONS This analysis looks at various measures of economic impact of GE s presence in each of the states under investigation in this report. The list below of economic impacts shows the specific economic impacts measured for the purposes of this analysis. Total Economic Output Also called Total Value of Production Output, this metric reflects the total value of all production activity of a given primary economic entity of importance. A primary economic entity of importance can be a single corporation like GE, a set of companies, or an entire industry sector. Specifically, this measure is basically the value of all production activity, in producer prices, related to presence of GE in the state and includes the value of production of GE (direct impact), the suppliers of GE (indirect impact), and the businesses that serves GE employee household personal expenditure (induced impact). The Total Economic Output is also equal to the sum of all payments to all of GE s stakeholders including the raw material/input suppliers (payments for raw materials), direct employees (compensation payments), and payments to other stakeholders including governments (taxation), creditors (interest payments on debt), and profits (payments to owners). In other words, this metric can be thought of as a proxy for TOTAL REVENUE generated by GE plus TOTAL REVENUE generated by GE s supply chain plus TOTAL REVENUE generated by companies servicing GE and its employee s households. Total economic production output per time period can be easily deduced. Gross Value Added This metric is the total value created by GE due to the transformation of the sourced raw materials/inputs into something more valuable. This metric is equal to the sum of all payments to employees (compensation payments) and payments to other stakeholders including governments (taxation), creditors (interest payments on debt), and profits (payments to owners). This metric excludes payments to input suppliers. Labor Compensation This metric is the total wages and benefits created and paid out directly by GE (direct impact), the indirect labor payments of GE s supply chain, and any wages and benefits created and paid out by the local companies servicing the needs of GE employee households (induced impact). This is a component of Gross Value Added. Using the results of the I/O model developed for this report, the average GE labor compensation relative to the given state s average labor compensation (ratio of GE compensation relative to average state compensation; $GE wage/$ average state wage). Employment This metric is the total number of fulltime equivalent jobs created by GE (direct impact), the total number of fulltime equivalent jobs created by GE s supply chain as a consequence of servicing the raw material needs of GE (indirect impact), and the total number of fulltime equivalent jobs created by local companies 13

16 General Electric's Impact on the State of Texas s Economy servicing the needs of GE employee households (induced impact). All employment findings reported in this analysis are measured in fulltime equivalent jobs. Using multiples derived from the I/O model, types of jobs created by industry sector can be deduced. In addition, the number of indirect and induced jobs created due to GE s presence per one GE job created and total direct, indirect, and induced jobs created relative to total state jobs can be deduced. Charitable Impact This metric measures the total direct charitable expenditure by GE and its employees in the form of payments to local charities (monentary donations) or through donated time (charitable pro bono hours). Charitable Impact can be measured per GE employee and in total terms

17 APPENDIX General Electric's Impact on the U.S. State of Texas Economic Impact Summary Table, USD Million, 2016 Metrics Total Economic Impact Gross Valued Added Rest of Value Added* Labor Compensation Employees (People) Direct $4,707.3 $1,996.0 $841.4 $1, ,833 Indirect $9,311.1 $3,802.8 $1,692.5 $2, ,893 Total Direct and Indirect Impact^ $14,018.4 $5,798.9 $2,533.9 $3, ,726 Induced $1,187.0 $1,061.1 $459.2 $ ,323 Total $15,205.4 $6,860.0 $2,993.2 $3, ,049 * Includes estimated government tax types (Federal, State, and Local; Corporate, Income, Property, Sales, and Others), payments to creditors, and payments to owners (profits) ^ Excludes Second-order Induced Wholesale Trade and Construction Jobs. All Jobs are Full-Time GE + Upstream Value Chain Partners General Electric's Impact on the U.S. State of Texas Number of Jobs Supported by Industry Sector, # of Employees, 2016 Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs Manufacturing 4,594 2, ,935 Retail trade ,610 5,765 Professional and business services 5,240 4, ,750 Educational services ,009 1,015 Health care and social assistance ,032 3,035 Accommodation and food services ,587 2,179 All Others -- 6,286 4,085 10,370 Total 9,833 13,893 15,323 39,049 Note: Excludes Second-order Induced Wholesale Trade and Construction Jobs. All Jobs are Full-Time Equivalent. Source: Frost & Sullivan Analysis General Electric's Impact on the U.S. State of Texas Charitable Impact, USD Million, 2016 Metrics Total Charitable Impact Expenditure (USD Million) Volunteer Hours Texas $2.97M 9,736 Note: NPISH = Nonprofit Institutions Serving Households 15

18 General Electric's Impact on the State of Texas s Economy REFERENCES Angelos Pagulatos and Kurt R. Anschel. (October 1981). An I-O Study of the Economic Structure of Appalachian Kentucky. Growth & Change. Wiley-Blackwell Dan S. Rickman. (April 2001) Using Input-Output Information for Bayesian Forecasting of Industry Employment in a Regional Econometric Model. International Regional Science Review 24, 2: Information Sources: Bureau of Economic Analysis; U.S. Department of Commerce. Retrieved at Miller, Ronald E.; Blair, Peter D. (2009). Input-Output Analysis: Foundations and Extensions. Cambridge, GBR: Cambridge University Press 10. Retrieved at Rebecca Bess and Zoë O. Ambargis (2011) Input-Output Models for Impact Analysis: Suggestions for Practitioners Using RIMS II Multipliers. Presented at the 50th Southern Regional Science Association Conference. March 23-27, 2011, New Orleans, Louisiana U.S. Department of Commerce (1997) Regional Multipliers. A User Handbook for the Regional Input-Output Modeling System (RIMS II). Third Edition. March

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