Waco Regional Industry Clusters
The U.S. Cluster Mapping Project is a national economic initiative thatprovides over 50 million open data records on industry clusters and regional business environmentsin the United States to promote economic growth and national competitiveness. On June 11, 2014 the U.S. Secretary of Commerce announced the launch of a new version of the U.S. Cluster Mapping website ( that "reinforces the federal government's commitment to promote America's clusters and provide businesses and organizations with the data and strategies they need to capitalize on their region's assets."
What are Clusters?
Clusters are concentrations of related industries that make a region uniquely competitive for jobs and private investment. Clusters emergenaturally in the market process, providing productivity benefits to companies as they grow in size. Theybecome attractive to companies looking for a new locationand grow through the performance of companies already located there.Companies in clusters gain access to specialized regional suppliers, service providers, and institutions, and can also benefit from pools of skilled employees and shared infrastructure dedicated to their needs.Everyregional economy has its own distinct profile of clusters. In order to standardize clusters and allow for useful comparisons of clusters across regions, the U.S. Cluster Mapping Project provides a set of benchmark cluster definitions (or cluster categories) that are the same in all U.S. regions, whether they arestates, economic areas, metropolitan statistical areas, or counties.
Industries are first classified as "traded" or "local." Traded industries are industries that are concentrated in a subset of geographic areas and sell to other regions and nations. Local industries are present in most (if not all) geographic areas, and primarily sell locally. Within these two groups, sets of traded industries are organized into traded clusters based on an overall measure of relatedness between individual industries across a range of linkages, including input-output measures, use of labor occupations, and co-location patterns of employment and establishments. Local industries are grouped primarily based on similarities in activities reflected in aggregated U.S. industry categories. A regional cluster exists when the level of activity is overrepresented relative to the national average. This overrepresentation signals the presence of acritical mass at which cluster dynamics kick in. Strong clusters are defined as those where the location quotient, i.e. the cluster’s relative employment specialization, puts them into the leading 25% of regions across the U.S. in their respective cluster category.
Clusters are important to their firms and associated organizations (such as universities and local governments) for a number of reasons. Within clusters, these entities can operate more efficiently and can share common technologies, infrastructure, pools of knowledge, and demand. The presence of these clusters can be important drivers of regional competitiveness and innovation.
Comparative Regional Clusters
In order to more effectively compete, regions need to understand their cluster strengths as compared to other areas. To accurately make this comparison, a consistent, national set of cluster definitions mark the industry boundaries of each cluster. A good set of cluster definitions groups closely related and supporting industries that capture as many linkages as possible (e.g., technology, skills, supply, and demand). Each cluster is a geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types.
The value the U.S. Cluster Mapping Projectis derived from its defined set of standardized national clusters that provides the objective identification of the competitive position of clusters in a region, as well ascomparisons and relative performance measurement between any regions in the United States. This ability to compare clusters in one region to another is crucial for understanding and improving the competitiveness of a regional economy.Observations of the patterns of industry clustering across the United States may reveal unique advantages, disadvantages, and opportunities in a region.From these national strengths, regions may dig deeper using local knowledgeto identify not only existing but also other potential "region-specific” clusters.
Waco Metro AreaIncome and Employment Performance
Prior to identifying specific industry clusters it is useful to compare the relative performance over a period of years of the Waco MSA economy with the average of all 917 U.S. Metro Areas. The most frequently used measures of regional performance are the level and rate of growth in real GDP per capita, shown in figure 1 below. Over the period from 1998-2013 the average annual growth in Waco Metro Area GDP per capita in 2005 prices was 2.09%, reaching anaverage level of $43,473 per capita in 2013. Waco’s ranking among all 917 U.S.MSAs increased from 47th to 23rd over the period with its average growth rate ranking 11 in the nation. The average annual rate of growth has more than doubled the 1.03% average pace of growth of all U.S. Metro Areas and has virtually removed its differential with GDP per capita nationwide that averaged $43,485 in 2013 for all 917 metro areas. Figure 1 also shows that the pace of growth in the Waco Metro Area real GDP per capita has been relatively stable despite the 2001 and 2008-09 recessions.
Figure 2 shows that a significant source of gains in income per capita have been derived from higher labor productivity per worker as growth in Waco total employment from 1998-2014 that averaged 0.84% ranks 14th among the 917 U.S. Metro Areas. The higher demand for labor derived from this growth in productivity is a significant reason why employees in traded industries, on average,receive higher average wages than workers in local, non-traded industries.
Figure 1: Waco MSA Growth Rate in Real GDP, 1998-2013
Figure 2 shows that by 2014 Waco employment had almost recovered from the 2008-09 downturn with more recent data continuing to show employment growth. Much of the recovery in employment has been driven by several traded industry clusters shown in Table 1 with the fastest growth in firms that provide outsourced business services that have been increasingly used relative to in-house non-production workers since the recession.
Figure 2: Waco MSA Growth Rate in Employment, 1998-2014
Figure 3 shows that employment growth is not the best indicator of area economic growth because primary industries, such as food processing and manufacturing, have become less labor intensive. From 1998 to 2013 the average annual growth rate in Waco Metro Area productivity, measured by real GDP per labor force participant, amounted to 1.35%. In 2013 the average labor force participant added $97,036 to Waco real GDP.
Figure 3: Waco MSA Labor Force Productivity
The real value of Waco MSA exports as a percent of its GDP, shown in figure 4, amounted to 22.3% in 2013 and ranked 6th among all 917 U.S. metro areas. The average growth rate in exports of 5.62% ranked 34th among U.S. metro areas.
Figure 4: Waco MSA Exports as Percent of GDP
Employment growth in traded industries understates the growth rate in output and income generated by increasingly capital intensive industries, such as biopharmaceuticals and aerospace vehicles and defense. Following the 2008-09 downturn labor force productivity increased significantly and has continued to improve since 2013 as the demand for labor has increased faster than growth in the labor force. Figure 5 shows that the faster growth in labor demand relative the growth in the labor force continued to reduce the unemployment to an average rate of 4.47% in 2015. By May 2016 the Waco unemployment rate had fallen to 3.7%, maintaining its ranking of 35th among metro areas throughout the U.S. economy.
Figure 5: Waco MSA Unemployment Rate
Waco MSA Traded Industry Clusters
A traded industry cluster is based on a methodology that classifies 6-digit NAICS industry codes based on a combination of high employment specialization and high concentration among U.S. regions in order to identify geographically specialized and, hence, traded economic activity. In Economic Areas (EAs) defined by the U.S. Bureau of Economic Analysis (BEA) a traded industry has employment concentrated in top 10% EAs regions based on a highly specialized employment-based Location Quotient (LQ) such that the difference between the LQ at the 90th percentile and the LQ at the median over all EAs equal to 1.5 or greater. (The employment-based Location Quotient is measured by the share of total regional employment in the industry relative to the share in the U.S. economy. A high location quotient captures the degree to which the industry is “overrepresented” in terms of employment in the EA.) Based on specialization and concentration 778 of the 1,088 6-digit NAICS were classified as trade industries and the remaining 310 6-digit NAICS industries were classified as local. Classifying industries as traded or local allows them to be grouped into traded versus local clusters. (It is important to note that total employment, by itself, does not determine the relative importance of a traded cluster.)
Figure 6 shows that 36% of Waco industry clusters are classified as traded with the other 64% classified as local. Although traded clusters accounted for a little more than one-third of local employment the average wage in traded clusters is 31.3% higher than in local clusters, resulting in almost equal total wage income paid in the each of the two sectors. Industries in the traded sector are, on average, more capital intensive than in the local sector, resulting in higher than average labor productivity and wages.
Figure 6: Traded vs. Local Clusters
36% traded 64% local
Figure 7 shows Waco’s MSA 2014 total traded clustered industry employment and its ranking among 917 U.S. metro areas. Since traded industries sell products or services across regions and countries they are driven by external influences that affect regional output and employment. Local industry clusters, on the other hand, are found in nearly all regions with employment roughly proportional to population.
Figure 7: Waco Traded Clusters by 2014 Employment
Table 1 shows total employment in Waco traded industry clusters in 2010 and 2014 and the percent change in annual average employment between the two periods. During thefour-year recovery period following the 2008-09 recession there wasa net 2.6 percent gain in Waco MSA traded industry employment totaling almost one thousand workers.
Table 1: Waco Employment in Primary Traded Industry Clusters, 2010 – 2014
Waco Metro Traded Cluster Name / 2010 / 2014 / 2010-14Employment / Employment / %Change
Business Services / 4002 / 6149 / 53.6
Biopharmaceuticals / 375 / 750 / 100.0
Electric Power Generation and Transmission / 60 / 375 / 525.0
Production Technology and Heavy Machinery / 860 / 1095 / 27.3
Aerospace Vehicles and Defense / 2275 / 2475 / 8.8
Wood Products / 110 / 287 / 160.9
Plastics / 373 / 480 / 28.7
Trailers, Motor Homes, and Appliances / 130 / 235 / 80.8
Upstream Metal Manufacturing / 20 / 90 / 350.0
Automotive / 215 / 265 / 23.3
Vulcanized and Fired Materials / 90 / 130 / 44.4
Metalworking Technology / 545 / 568 / 4.2
Hospitality and Tourism / 1100 / 1122 / 2.0
Apparel / 185 / 195 / 5.4
Performing Arts / 94 / 93 / -1.1
Medical Devices / 76 / 70 / -7.9
Agricultural Inputs and Services / 50 / 40 / -20.0
Nonmetal Mining / 130 / 120 / -7.7
Oil and Gas Production and Transportation / 100 / 80 / -20.0
Marketing, Design, and Publishing / 476 / 451 / -5.3
Construction Products and Services / 520 / 492 / -5.4
Downstream Metal Products / 569 / 535 / -6.0
Information Technology and Analytical Instruments / 234 / 179 / -23.5
Financial Services / 799 / 740 / -7.4
Lighting and Electrical Equipment / 140 / 80 / -42.9
Education and Knowledge Creation / 7895 / 7834 / -0.8
Leather and Related Products / 130 / 49 / -62.3
Communications Equipment and Services / 245 / 140 / -42.9
Furniture / 1130 / 1015 / -10.2
Textile Manufacturing / 410 / 295 / -28.0
Livestock Processing / 2566 / 2392 / -6.8
Distribution and Electronic Commerce / 3764 / 3564 / -5.3
Printing Services / 546 / 343 / -37.2
Transportation and Logistics / 716 / 457 / -36.2
Paper and Packaging / 1080 / 670 / -38.0
Insurance Services / 2366 / 1946 / -17.8
Food Processing and Manufacturing / 2065 / 1630 / -21.1
Waco, TX Totals (Traded Cluster) / 36571 / 37540 / 2.6
Over the same 2010-2014 period total Waco MSA employment in both traded and more labor-intensive local industries increased by 3,500 hundred jobs that amounted to a 3.2 percent gain over the period.
A traded cluster generally consists of more than one specific industry component. For example, 2014 employment in the Waco Aerospace Vehicles and Defense cluster,shown in figure 8,had a combined influence that ranked 43rd among 917 U.S. metro areas with employment in two of its industry components ranked 22nd and 25thamong the 917 U.S. metro areas.
Figure 8: Waco Aerospace Vehicles and Defense Cluster, 2014
The Biopharmaceutical Industry cluster, shown in figure 9,currently consists of a single firm employing 750 workers recently announced a future expansion in Waco that will significantly increase its current ranking of 56th among the 917 U.S. metro areas.
Figure 9: Waco Biopharmaceutical Cluster, 2014
Waco’s largest traded industry cluster is Education and Knowledge Creation generated by the presence of Baylor University other higher education facilities that service students and other groups with permanent residence outside of Waco, shown in figure 10.
Figure 10: Education and Knowledge Creation Cluster, 2014
The Furniture Cluster stands out as a traded sector that ranks 58th among the 917 U.S. Metro Areas primarily because it includes mobile home manufacturing than ranks 6th among U.S. metro areas in terms of 2014 employment.
Figure 11: Furniture Cluster, 2014
Business Services is the traded cluster that created the most new jobs locally over the four-year period from 2010 to 2014. This rapid post-recession growth, however,began with layoffs of nonproduction as well as production jobs during the recession that outsourced service jobs in areas such as marketing and accounting. Many of these nonproduction jobshave continued to be performed by new business and professional service firms. Originally these jobs were classified as manufacturing based on the firm’s primary production function rather than their current classification in business services. Computer Services (ranked 115th) and Employment Placement Services (ranked 61st) are the only two components of the Waco business services cluster that have exceeded the predicted job growthdue to the general expansion of new business and professional service firms throughout the country that have proven to be innovative and productive alternatives to in-house employees.
Figure 12: Business Services Cluster
Analysis of traded clusters provides a useful starting point for the identification of competitive advantages that can enhance a region’s economic development. It may also be used to evaluate the relative effectiveness in locating and attracting industries that are traditionally linked together within a particular industry cluster.
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