Economic Impact Report FAQ

What is the Economic Impact Report?

The Economic Impact Report estimates how supplier spending contributes to the economy. It measures not only the direct value of spending, but also the additional economic activity generated as money moves through suppliers, employees, and local businesses.

In simple terms, the report answers the question: "How did our spending support jobs, income, and economic growth?"

What methodology does the report use?

The report uses the Regional Input-Output Modeling System (RIMS II), developed by the U.S. Bureau of Economic Analysis (BEA). RIMS II uses industry and regional economic data to estimate how spending affects employment, wages, and business activity.

What are Direct, Indirect, and Induced impacts?

Direct Impact

The immediate economic activity created by your spending.

Example: Spending $1 million with a supplier creates a direct impact of $1 million.

Indirect Impact

The economic activity generated when suppliers purchase goods and services from other businesses.

Example: A supplier purchases raw materials, software, equipment, or professional services to fulfill a contract.

Induced Impact

The economic activity generated when employees spend their earnings in the local economy.

Example: Workers use their wages to pay rent, buy groceries, dine at restaurants, and purchase other goods and services.

What metrics are included in the report?

The report may include:

Jobs Supported

An estimate of the number of jobs created or sustained through the spending being analyzed.

Tax Impact
This number represents the estimated tax revenue generated through the direct, indirect, and induced economic activity supported by the organization's supplier spend.

Total Compensation

The total earnings generated for workers, including wages, salaries, and benefits.

Total Value Added

The contribution to Gross Domestic Product (GDP) generated by the spending. This includes employee compensation, business profits, and taxes on production.

Value Added is often considered one of the most important metrics because it measures the actual economic value created.

Total Output

The total business activity generated throughout the economy, including direct, indirect, and induced effects.

What is the difference between Total Output and Total Value Added?

Total Output measures all business activity generated by the spending, including purchases made between businesses.

Total Value Added measures the actual economic value created after accounting for those business-to-business transactions. It is similar to GDP and is often viewed as a better indicator of economic growth.

How are the economic impact calculations performed?

The process generally follows four steps:

1. Identify the amount of supplier spending.
2. Determine the supplier's industry and location.
3. Apply the appropriate RIMS II multipliers.
4. Calculate direct, indirect, and induced impacts.

For example, if $500,000 is spent with a supplier and the applicable output multiplier is 2.4, the estimated total output would be $1.2 million.

What are RIMS II multipliers?

RIMS II multipliers are factors that estimate how spending affects the broader economy. They help calculate outcomes such as jobs supported, labor income generated, and total economic output.

How are RIMS II multipliers developed?

The Bureau of Economic Analysis develops multipliers using data that tracks how industries buy from and sell to one another. The data is adjusted for regional economic conditions to determine how much spending remains within a local economy and how much flows elsewhere.

Because spending patterns differ across industries and locations, each multiplier is specific to a particular industry and geographic region.

Why do economic impacts vary by industry and location?

Different industries have different supply chains and labor requirements. Likewise, some regions source more goods and services locally than others.

As a result, the same amount of spending may produce different economic impacts depending on where the spending occurs and which industry receives it.

What can organizations do with Economic Impact Report results?

Organizations commonly use Economic Impact Reports to:

• Demonstrate the economic value of supplier spend and procurement programs.
• Show leadership how supplier spending supports jobs, wages, and economic growth.
• Identify regions where spending generates the greatest economic impact.
• Support local sourcing and community investment initiatives.
• Quantify the broader benefits of spending with small and impact suppliers.

How should I interpret the report results?

The results are estimates based on established economic models and government data. They should be viewed as indicators of economic impact rather than exact measurements.

The report is designed to show the broader economic influence of spending, including the ripple effects that occur as money moves through businesses and households.

What is the key takeaway from the Economic Impact Report?

The Economic Impact Report shows how spending extends beyond a single supplier transaction. By applying RIMS II multipliers, the report estimates how spending supports jobs, generates income, creates economic value, and drives business activity throughout the economy.