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How Mix Shift Analysis Can Help a Business Forecast Market Trends
When it comes to predicting economic growth and decline, tools such as mix shift analysis can help you forecast market shifts.
If you’ve been trying to predict market shifts of a local economy, you know how much of a challenge it is to perform such a complicated analysis. There are so many parameters of economic growth and decline to keep in mind that it’s easy to lose yourself in all the data.
Whether you’re looking for the most lucrative investment opportunities, starting a new business operation, or getting ahead of the latest market trends, knowing the pulse of a local economy is vital for improving corporate decision-making.
However, since predicting economic shifts requires plenty of time, effort, and resources, business leaders rely on the latest tools to handle all the hard work. One of the best tools for discovering peak performance points of a local economy is a mix share analysis.
It combines both structured and detailed shift-share analysis. It can provide a company with accurate and up-to-date information regarding the growth rate of a local economy and give you a clear picture of all competitive industries in the area.
If you want to learn how to analyze shift-share, you must understand its main aspects first.
The process of mix shift analysis
The process of mix shift analysis refers to a specific analysis model widely used in economics for determining various aspects of a particular region, such as assessing the most competitive industries in the area and their impact on the local markets.
As an analysis model, mix and shift-share analyses help businesses distinguish between regional and national growth and decline. The main goal is to determine the main regional factors and how much upturn or downturn they bring.
This analytics model measures the growth of each industry in the region by using the industrial employment rates and comparing them to the national average to determine the growth rate from industry to industry.
If the national markets have the same growth rates as their regional counterparts, we can safely say that those regional industries aren’t very competitive.
On the other hand, if a particular regional industry greatly surpasses the national average, that’s a highly competitive industry that has the potential to set new trends and market fluctuations.
Such unique attributes can show investors which industries are the most lucrative regarding potential investment opportunities in a particular region.
Four main components of mix shift analysis
Analyzing mix shift-share depends on the four main components of shift-share analysis. Let’s quickly review all four of them.
Industrial mix effect
The industrial mix effect refers to determining the most competitive industries in a specific region by assessing parameters such as the industrial growth and decline rates. You compare both rates to the national average to see which industries are growing in the area.
Two main elements are necessary for calculating the industrial mix effect – the regional industry’s job growth rate and the national rate. The main goal is to assess the independent growth of a particular industry compared to the overall economic development.
National growth effect
This effect is the foundation of all shift-share analytics and the core element for performing mix shift analysis of regional and national growth of industries across different regions.
The national growth effect refers to economic growth and employment rates that set the standard for both individual and regional markets.
If one region achieves increased employment rates and positive economic growth, individual industries will also achieve the same results. However, keep in mind that many determining factors impact the growth of separate sectors and regions, and each area comes with unique characteristics.
Expected change
The expected change is an essential parameter that shows how much a regional industry has grown or declined regarding the available jobs or occupations over a given period.
It includes both the industrial mix effect and the national growth effect or, more precisely, the combination of the two. If the expected change is greater than the sum of these components, it shows the region’s competitive effect.
Competitive effect
To better understand how one regional market behaves under certain conditions, you need to look at a specific industry by the region you’re assessing. The competitive effect is a combination of different regional factors that help you ascertain the individual growth of one sector in a specific area.
However, instead of monitoring the usual factors such as the employment rate, the competitive effect relies on the expected growth changes within a region. Essentially, it allows you to better understand the anticipated growth by comparing it to the actual regional development.
Conclusion
The mix shift analysis provides you with accurate and up-to-date details regarding the economic performance of any regional industry to help improve your investment decisions. However, you must consider numerous factors when assessing how lucrative a particular regional sector is.
These factors are constantly changing and fluctuating, and it’s pretty challenging to predict the outcomes of the changes in the local and regional employment rates. Each region has unique competitive advantages and disadvantages that drive its economic progress.
The mix shift analysis is vital for recognizing the best opportunities and making informed investment decisions. It all comes down to understanding how this analysis works, its benefits, and its shortcomings to create an effective investment strategy.
