Tag Archives: Lexington MSA

Clusters and Regional Strategy

Q: What drives high-wage growth, higher patenting rates, and economic resiliency?

A: Industry clusters.

Clusters are a regional concentration of related industries in a particular location.  It isn’t just proximity that make clusters special, it’s that an entire value chain exists within a cluster: suppliers, manufacturers, distributors, academic institutions, researchers, and workforce training – which results in tight linkages, better market insights, larger spools of specialized talent, and faster deployment of new knowledge.

Clusters act as a catalyst for economic growth, enhancing productivity and spurring innovation. Consider the clusters that have blossomed around automobile factories in Kentucky. According to the Kentucky Cabinet for Economic Development (PDF), more than 460 “motor vehicle-related” facilities are now located in the state, employing more than 82,000 workers.

Recently launched, the U.S. Cluster Mapping Project is a national economic initiative that provides over 50 million open data records on industry clusters and regional business environments in the United States to promote economic growth and national competitiveness. The project is led by Harvard Business School’s Institute for Strategy and Competitiveness in partnership with the U.S. Economic Development Administration.

The U.S. Cluster Mapping tool provide a powerful understanding of the industry dynamics shaping a regional economy and highlights opportunities for coordination and join action.  It can also offer insights into new and emerging clusters in different regions. Charts and maps from the tool illustrate, for example, that the Lexington-Fayette MSA, generally regarded as the “Horse Capital of the World”, is also major center of biopharmaceutical development and printing services.

Lexington-Fayette MSA Traded Industry Clusters
Lexington-Fayette MSA Traded Clusters

Rather than chasing investment in generically “attractive” industries, Commerce Lexington has long worked to strengthen the region’s distinctive competitive position in light of its location, existing strengths and industry mix, and business environment qualities. With one of the nation’s most educated populations, a low cost of living, ideal location and infrastructure, and a rich entrepreneurial history, it’s not hard to identify the Bluegrass Region’s unique value proposition. Click here to learn more about our strategic industry sector targets.

– CLX Economic Development Team

Commerce Lexington Update

  • Commerce Lexington Inc. and Lexington Mayor Jim Gray announced that hydra, a manufacturer of aromatherapy and bath products to more than 2,000 retailers around the world, has moved its company headquarters from San Francisco to Lexington. Click here to read the press release.
  • The U.S. Small Business Administration has awarded a State Trade Export Promotion (STEP) Grant to the Commonwealth of Kentucky, which is designed to encourage and boost international trade among small businesses in the Commonwealth. The STEP program has two objectives: 1) increase the number of small businesses that begin to export and 2) increase the value of exports for small businesses that currently export.
  • Commerce Lexington will host Kentucky Secretary of State, Alison Lundergan Grimes for a Public Policy Breakfast on Wednesday, Oct. 15.

August Unemployment

August unemployment figures (released a couple weeks ago) show a continued seasonal decline in the unemployment rate. Lexington dropped from 8.3% to 8.2% and the region from 9.3% to 9.0%. See picture below:

august unemployment

august unemployment

Probably the most interesting parts of the above chart are the July spikes in unemployment returning to normal. Still not entirely sure what they represent, but something happened in Scott County in late summer that I really would like to have some more information on. The funny thing is that despite the spikes from a few counties, overall, unemployment for the region was relatively unaffected overall. This would be due to the 800lb gorilla in the room, Lexington. With just under half of the labor force residing in Fayette County, large changes in Lexington’s unemployment will have a much more pronounced effect on the region than the smaller counties. Here is what that looks like visually for August:

august labor force

august unemployment

A more comprehensive breakdown for the statistical table geeks like me looks like this:

august labor contribution

As you can see, there is a pull between Fayette and Woodford counties and the rest of the region’s counties. Fayette and Woodford are contributing more labor force than unemployed persons, the rest of the counties, the opposite.

Big word of caution here: the program that these statistics come from, the Local Area Unemployment Survey (LAUS), measures unemployment based on residence, not place of work. Many of the unemployed in the surrounding counties could have lost a job in Lexington and vice-versa. I’ll try to dig up some way to flesh that out in a later post.

The Lexington Economy

The Bureau of Economic Analysis simultaneously released their local GDP data for 2007 and 2008 this week. Usually this data is delayed by at least a couple of years, so having 2008 data before the end of 2009 was quite exciting (as far as research geeks like myself go). Knowing that the stock market crash happened right before the start of the third quarter last year, I definitely expected not-so-great news on the output front. Turns out, I was only partially right.

For the record, in 2008, Lexington’s MSA (metropolitan statistical area, more on this later) churned out $22.7 billion dollars in nominal output. This was divided between $13.7 billion in service-producing industries, $5.8 billion in goods-producing industries, and $3.3 billion in government activities.

In order to compare these numbers to past years, you need real GDP, or for inflation to be taken out of the picture. Adjusted for inflation and chained in 2001 dollars, you get the numbers in the chart below. As you can see, overall, Lexington’s output grew slightly from 2007 to 2008. Slightly equates to .8% to be exact. The closest comparison is between 2002 and 2003, when output only grew by .6%.

real gdp lexington msa

The biggest question mark in all this analysis is what 2009’s numbers will end up showing. My inclination is to think that if one quarter of serious recession was enough to drag down growth to .8%, then a full year of recession will show no growth or contraction. Notice the decrease in goods-producing output. This category is 5/6 manufacturing, with construction, mining, and agriculture making up the remainder. While service-producing and government activities both grew or were flat in 2008, the overall output was dragged down by goods production. It will be interesting to see if there is as serious of a reduction in services as I predict there will be in goods. If both services and goods decrease significantly, it could make for some uncomfortable numbers in 2009.

Just a note: Lexington’s MSA includes the counties of Bourbon, Clark, Fayette, Jessamine, Scott, and Woodford. Illustrating the point that governmental and political distinctions don’t always accurately describe economic activity, both Madison (Richmond and Berea) and Franklin (Frankfort) are not technically part of our MSA. Instead they are designated as distinct micropolitan areas, which (in my world at least) means that they don’t exist in BEA figures, which are only released at the national, state, and MSA level. I think it is a pretty easy assumption that both Madison and Franklin counties are part of our local economy, so it is also a safe assumption that Lexington’s economy is larger than the stated $22.7 billion.

Lexington’s Economy at a Glance

While doing research for the upcoming revision of the Commerce Lexington business prospectus, I had the opportunity to dig a little deeper into Lexington and the Bluegrass’ economic output.

Despite a solid base of manufacturing and automotive suppliers, the Bluegrass Region is mainly a service-based economy. By itself, manufacturing is a larger employer and wage-payer than any one service sector in the Bluegrass. However, when combined, the various service sectors easily outpace manufacturing in both employment and wages. Especially strong in the areas of healthcare and education, the service sector continues to be the main economic engine for the region.


The Bluegrass is a greater than $20 billion economy marked by consistent, sustainable growth. Between 2001 and 2006, the Bluegrass