2004 redefinition of the BEA economic areas

Survey of Current Business, Nov, 2004 by Kenneth P. Johnson, John R. Kort

ON November 17, 2004, the Bureau of Economic Analysis (BEA) released updated definitions of BEA economic areas that reflect changes in economic growth and population in the U.S. regions and that now include the newly recognized micropolitan areas. As a result, BEA's estimates of personal income for these economic areas continue to support statistical analyses that reflect current regional economic activity.

This release marks an advance in the timeliness of the redefinition of BEA economic areas by a full quarter. BEA's estimates of personal income for these areas are now consistent with the new standards for statistical areas that were released by the U.S. Office of Management and Budget (OMB) in February 2004 and with population data from the 2000 decennial census. The accelerated redefinition of BEA economic areas meets BEA's Strategic Plan goals of continually improving methodologies and of improving the consistency among accounts in the Federal statistical system.

BEA's economic areas define the relevant regional markets surrounding metropolitan or micropolitan statistical areas. They consist of one or more economic nodes--metropolitan or micropolitan statistical areas that serve as regional centers of economic activity--and the surrounding counties that are economically related to the nodes. These economic areas represent the relevant regional markets for labor, products, and information. They are mainly determined by labor commuting patterns that delineate local labor markets and that also serve as proxies for local markets where businesses in the areas sell their products. In less populated parts of the country, newspaper readership data are also used to measure the relevant regional markets. (1)

The redefinitions of the BEA economic areas are based on commuting data from the 2000 decennial population census, on redefined statistical areas from OMB (February 2004), and on newspaper circulation data from the Audit Bureau of Circulations for 2001. (2) This article describes the procedures that are used to disaggregate the Nation into economic areas, and it presents a sample of local area personal income estimates for the 179 new BEA economic areas.

The major highlights of the 2004 redefinition of the BEA economic areas are as follows:

* The number of BEA economic areas has increased from 172 to 179.

* The number of BEA component economic areas (CEAs) has decreased from 348 to 344.

* The redefinitions incorporate OMB's 2004 revised standards for metropolitan statistical areas (MSAs) and new standards that recognize, for the first time, micropolitan statistical areas.

Overview of the redefinition procedures

The BEA economic areas were redefined in three major phases: The identification of economic nodes, the assignment of counties to CEAs, and the aggregation of the CEAs to the BEA economic areas (chart 1). First, statistical areas from among those recently defined by OMB were identified to serve as nodes for the CEAs. As a result, 344 nodes were formed; these nodes consist of 1,311 counties from among the 3,141 counties and independent cities in the 2000 census of population. Second, the remaining 1,830 counties were assigned to 344 CEAs. Third, these CEAs were then aggregated to form 179 BEA economic areas. Throughout the three phases, linkages among counties, CEAs, and economic areas were developed in an iterative fashion, and assignments for all of the counties were "in play" until convergence was established. (3)

Identification of nodes

Economic nodes are metropolitan areas or micropolitan areas that serve as the main centers of economic activity. The regional economic nodes were identified in four steps. First, 107 of the 120 combined statistical areas (CSAs) that were identified by OMB include at least one metropolitan statistical area (MSA), and each of the 107 MSA-based CSAs was designated as a regional node. (4) Second, an additional 198 MSAs that were identified by OMB and that are not part of any CSA were designated as regional nodes. Together, the 305 MSA-based regional nodes consist of 1,233 counties.

Third, selected micropolitan statistical areas were provisionally identified as regional nodes if they were located in counties that were not in any of the MSA nodes and if they had one or more of the following characteristics:

* The selected area has a population of at least 50,000 in the 2000 census,

* The selected area consists of at least 3 counties, or

* The selected area consists of at least one county that serves as the primary source of newspaper readership for 5 or more counties.

A provisional micropolitan-statistical-area-based node was designated as a regional node only if it formed a preliminary area of at least 5 counties. Thirty-seven micropolitan-based nodes that consist of 76 counties were designated.

Finally, two economically isolated, but geographically large, single-county micropolitan areas were designated as nodes--Juneau in the Alaskan panhandle and Alpena in northern Michigan. (5) Altogether, 344 nodes were identified, and these nodes consist of 1,311 counties.