OAR Box 1781 

Prepped by Ollie Stewart 

Document Number: 

68) IV-A-1 

Docket Number: 

A-90-37 

p.i 

i 

Printed 10/29/2008 10:46:21 AM Sheet 68 of 142 
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*ERG 

Eastern Research Group, Inc. 

7397-72-01 

Environmental Science 

and S S S September 30, 1997 

Economic and 

Regulatory Analysis 

Mr. Dennis Crumpler 

Environmental and 

Office of Air Quality Planning 

occupational Health ^ Standards 

Services 

Integrated Implementation Group (MD.-12) 

Environmental Protection Agency 

software^ppi^ons Researc h Triangle Park, NC 27711 

'i 8 

.•Ct^j J 

Pollution Prevention Dear Dennis: 

Technoio Evaluation * ^ SUDrmttmg

 a technical memo entitled "Business Cycles in Major Emitting 

Source Industries". The work was performed under Contract No. 68-D3-0033, Work 

Assignment IH-72, "Support Promulgation of New Source Review (NSR) Reform 

Environmental . . „ 

Sampling and Analysis Regulation s . 

Technical Writing and 

Editing 

If you have any questions or comments, please feel free to contact me at 461-1286. 

Sincere) 

Graphic Design 

and Media Services 

'Connor 

Project Manager 

Public Relations and •_, . 

outreach Enclosure 

Education and Training 

Equal Ooportunrry Employer 

Printed on Recycled Paper 

JRO'C:kam 

cc: Sandra Clark, EPA/OARM (MD-33) 

Mary Wilkins, EPA (MD-12) 

Janet Mangum, ERG 

Darcy Wilson, ERG 

Project File 7397-72-01 

1600 Perimeter Park (Office) 

P.O. Box 2010 

Morrisville. NC 27560-2010 

Phone 919-461-1419 

Fax 919-441-MI8 

Corporate Headquarters: 

110 Hartwell Avenue 

Lexington. MA 02173-3134 

Phone 617-674-7200 

Fax 617-674-2851 

2200 Wilson Boulevard 

Suite 400 

Arlington. VA 22201 -3324 

Phone 703-841-0500 

Fax 703-841-1440 

900 Perimeter Park (Lab) 

P.O. Box 2010 

Morrisville. NC 27560-2010 

Phone 919-461-1419 

Fax 919-461-1579 

2455 Horsepen Road 

Suite 220 

Herndon. VA 20171 -3426 

Phone 703-713-6500 

Fax 703-713-6540 
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MEMORANDUM 

Date: September 25,1997 

From: David Casanova, ERG 

To: John O'Connor, ERG 

Subject: Busmess Cycles in Major Emitting Source Industries 

I. Introduction 

The term business cycle refers to the recurrent ups and downs in uie level of economic activity which 

extend over a period Of several years. Business cycles are made up of four separate phases: 1) the 

peak—output is assumed to be at or near full capacity, 2) the recession—output and employment decline, 3) 

the trough—output and employment bottom out at their lowest levels, and 4) the recovery—output and 

employment expand (McConnell, 1984). 

Specific business cycles vary greatly in duration and intensity. Some economists prefer to use the 

term fluctuations, rather than cycles, since the latter term implies regularity and the former does not 

(McConnell, 1984). The irregularity of the fluctuations is apparent in the data examined in this 

memorandum. Due to the inconsistencies of business cycles, there is much difficulty in drawing conclusions 

about past business cycles or making predictions about future business cycles based on any one business 

cycle—either for the national economy or for individual industries. 

II. Business Cycles in Major Emitting Source Industries 

ERG examined several industries which are described as Clean Air Act major emitting sources. 

Industry business cycles were examined using industry output data for the years 1982 to 1994 inclusive based 

on the Office of Management and Budget's Standard Industrial Classification (SIC) code for individual 

industries (OMB, 1987). Output was measured as real gross product originating (GPO) by industry. Data 

for GPO were obtained from the Bureau of Economic Analysis and converted to 1994 dollars using the 

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Engineering News Record's Construction Cost Index (BEA, 1996; BEA, 1997; and ENR, 1997). GPO is 

defined as the contribution of each private industry and government to gross domestic product An industry's 

GPO is equal to its gross output (sales or receipts and other operating income, commodity taxes, and 

inventory change) minus its immediate inputs (consumption of goods and services purchased from other 

industries or imported) (BEA, 1996). Although data were available for years prior to 1982, ERG believes 

that data from 1982 on present a more accurate picture of the modem economy than would previous data.1 

It should be noted that peaks in a business cycle are usually defined as the last quarter of growth 

before at least two quarters of decline and that troughs in a business cycle are usually defined as the last 

quarter of decline before at least two quarters of growth. These definitions require quarterly data in order to 

identify business cycle changes. Figures 1 and 2 indicate the slight differences between annual and quarterly 

data. Figure 1 presents U.S. gross domestic product using annual data; Figure 2 presents U.S. gross domestic 

product using quarterly data. The annual data provides an picture of an economy with smooth constant 

growth, except for a brief downturn in 1991. The quarterly data more accurately presents the erratic 

movement of the U.S. economy uirough time; the recession of the early 1990s is much more evident when the 

quarterly data is used. Since only annual data were available at the four-digit SIC level, this analysis provides 

less precise estimates of business cycle peaks and troughs. It should also be noted that the vertical scales for 

each of the figures differ by industry and should not be used for inter-industry comparison. 

Charcoal Production 

Charcoal production (not including activated charcoal) is included in SIC code 2861: Industrial 

Organic Chemicals—Gum and Wood Chemicals. It should be noted that this SIC code includes the 

manufacture of numerous other items which could affect the data. Figure 3 presents the annual GPO of this 

four-digit SIC code. There are industry peaks in 1984 and 1989, while there is a trough in 1987. This 

suggests a five year cycle peak to peak. 

'The period from 1972 to 1982 was characterized by double-digit inflation, the oil price shocks of 1973 

and 1976, and the monetary policy-induced recession of uie early 1980s. This is why the period prior to 1982 

is not characteristic of the period since 1982. 
Figure 1 

Annual U.S. Gross Domestic Product, 1982-1994 

Trillions of 1994 Dollars 

cl. 

i 

Source: Slater, C. M. 1996. Business Statistics of the United States: 1995 Edition. Lanham, MD: Bernan Press. 

bi 
Figure 2 

Quarterly U.S. Gross Domestic Product, 1982-1994 

Trillions of 1994 Dollars 

J7.0 

$6.5 

$6.0 — 

$5.5 

$5.0 

M j I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I \ 

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 

Year 

Source: Slater, C. M. 1996. Business Statistics of the United States: 1995 Edition. Lanham, MD: Bernan Press. 

13 
Figure 3 

Annual Output, 1982-1994: Gum and Wood Chemicals Manufacturing (SIC Code 2861) 

Billions of 1994 Dollars 

$0.9 

i 

$0.8 — 

1992 1993 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http7/www.stat-usa.gov/BEN/bea2/national/scbio.hbnl/ves.exe on September 23,1997. 
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Carbon Black Manufacturing 

Carbon black manufacturing is included in SIC code 2895: Miscellaneous Chemical 

Products—Carbon Black. Figure 4 presents the annual GPO of this four-digit SIC code. There are industry 

peaks in 1984 and 1990, while there are industry troughs in 1983,1987, and 1992. This suggests a six year 

cycle peak to peak and four and five year cycles trough to trough. 

Portland Cement Manufacturing 

Portland cement manufacturing is included in SIC code 3241: Hydraulic Cement Figure 5 presents 

the annual GPO of this four-digit SIC code. It should be noted that this SIC code includes the manufacture of 

numerous other items which could affect the data. There are industry troughs in 1983 and 1991; the only 

industry peak during this period appears to be in 1984. This suggests an eight year cycle trough to trough. 

Lime Manufacturing 

Lime manufacturing is included in SIC code 3274: Concrete, Gypsum, and Plaster Products—Lime. 

Figure 6 presents the annual GPO of this four-digit SIC code. There are industry troughs in 1983,1986, and 

1991; there are industry peaks in 1985 and 1988. This suggests three and five year cycles trough to trough 

and a three year cycle peak to peak. 

Iron and Steel Manufacturing 

Iron and steel manufacturing is included in SIC code 3312: Steel Works, Blast Furnaces (Including 

Coke Ovens), and Rolling Mills. Figure 7 presents the annual GPO of this four-digit SIC code. There are 

industry peaks in 1984 and 1988, while there are industry troughs in 1983,1986, and 1992. This suggests a 

four year cycle peak to peak and three and six year cycles trough to trough. 
Figure 4 

Annual Output, 1982-1994: Carbon Black Manufacturing (SIC Code 2895) 

Billions of 1994 Dollars 

•U 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/bea2/national/scbio.html/ves.exe on September 23,1997. 

T l 

CO 
Figure 5 

Annual Output, 1982-1994: Hydraulic Cement Manufacturing (SIC Code 3241) 

Billions of 1994 Dollars 

oo 

$4.2 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/bea2/national/scbio.html/ves.exe on September 23,1997. 

Tl 

O 
Figure 6 

Annual Output, 1982-1994: Lime Manufacturing (SIC Code 3274) 

Billions of 1994 Dollan 

$1.1 

4> 

$1.0 — 

$0.9 — 

$0.8 — 

$0.7 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at hnp^/www.stat-usa.gov/BEN/bea2/national/scbio.html/ves.exe on September 23,1997. 
Figure 7 

Annual Output, 1982-1994: Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills (SIC Code 3312) 

Billions of 1994 Dollan 

$60.0 

$55.0 — 

$50.0 — 

$45.0 — 

$40.0 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at httpy/www.stat-usa.gov/BEN/bea2/national/scbio.html/ves.exe on September 23,1997. 

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Primary Copper Smelting 

Primary copper smelting is included in SIC code 3331: Primary Smelting and Refining of Copper. 

Figure 8 presents the annual GPO of this four-digit SIC code. There are industry peaks in 1983,1989, and 

1992 while there are industry troughs in 1986 and 1991. This suggests six and three year cycles peak to peak 

and a five year cycle trough to trough. 

Primary Aluminum Production 

Primary aluminum production is included in SIC code 3334: Primary Production of Aluminum, 

Figure 9 presents the annual GPO of this four-digit SIC code. There are industry peaks in 1983 and 1988, 

while there are industry troughs in 1986 and 1993. This suggests a five year cycle peak to peak and a seven 

year cycle trough to trough. 

Primary Zinc Smelting and Primary Lead Smelting 

Primary zinc smelting and primary lead smelting are included in SIC code 3339: Primary Smelting 

and Refining of Nonferrous Metals, Except Copper and Aluminum. It should be noted that this SIC code 

includes the manufacture of numerous other items which could affect the data. Figure 10 presents the annual 

GPO of this four-digit SIC code. There are industry peaks in 1983 and 1989, while there are industry troughs 

in 1986 and 1993. This suggests a six year cycle peak to peak and a seven year cycle trough to trough. 

Secondary Metal Production 

Secondary metal production is included in SIC code 3341: Secondary Smelting and Refining of 

Nonferrous Metals. Figure 11 presents the annual GPO of this four-digit SIC code. There are industry peaks 

in 1984 and 1988, while there are industry troughs in 1986 and 1993. This suggests a four year cycle peak to 

peak and a seven year cycle trough to trough. 

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Figure 8 

Annual Output, 1982-1994: Primary Smelting and Reflning of Copper (SIC Code 3331) 

Billions of 1994 Dollan 

$7.0 

V 

$6.0 — 

$2.0 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/rjea2toational/scbio.html/ves.exe on September 23,1997. 
Figure 9 

Annual Output, 1982-1994: Primary Production of Aluminum (SIC Code 3334) 

Billions of 1994 Dollan 

$10.0 

I 

$5.0 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/bea2/naticmaVscbio.htrnl/ve3.exe on September 23,1997. 

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Figure 10 

Annual Output, 1982-1994: Primary Smelting and Reflning of Nonferrous Metals, Except Copper and Aluminum (SIC Code 3339) 

Billions of 1994 Dollan 

$6.0 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/bea2/nati<mal/scbio.html/ves.exe on September 23,1997. 

TJ 
Figure 11 

Annual Output, 1982-1994: Secondary Smelting and Reflning of Nonferrous Metals (SIC Code 3341) 

Billions of 1994 Dollan 

$9.0 

CJ\ 

i 

$5.0 

1982 1983 1984 1985 1986 1987 1988 

Year 

1989 1990 1991 1992 1993 1994 

Source: U.S. Department of Commerce, Bureau of Economic Analysis website at http://www.stat-usa.gov/BEN/bea2/hau'onBl/scbio.html/ves.exe on September 23,1997. 

I 
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DX Conclusions 

As can be seen in the nine industries analyzed here, business cycles differ markedly by industry. 

Even in industries in which multiple business cycles were identified, the business cycles were not of the same 

duration. Peak to peak cycles ranged from three to six years, while trough to trough cycles ranged from three 

to eight years. 

At the national level, an entire business cycle cannot even be identified between 1982 and 1994. The 

most recent national cycles (determined by the National Bureau of Economic Research and widely used for 

business cycle analysis) arc from July 1981 to July 1990 peak to peak (nine years) and from November 1982 

to March 1991 trough to trough (over 8 years) (Slater, 1996). However, it should be noted that the period 

from November 1982 to July 1990 represents the longest peacetime expansion in U.S. history. 

Industry business cycles of five years or more are sufficiendy frequent that a five year period would 

probably be insufficient to provide reasonable certainty that industiy fluctuations had been captured. Since 

the longest business cycle identified among uiese industries was eight years, a minimum often years of data 

is recommended to capture an entire industry cycle. 

IV. References 

BEA. 1996. "Improved Estimates of Gross Product by Industry, 1959-94." Survey of Current Business. 

August 1996:133-155. Washington, DC: U.S. Department of Commerce, Economics and Statistics 

Administration, Bureau of Economic Analysis. 

BEA. 1997. Data downloaded from Bureau of Economic Analysis at 

http7*/www.stat-usa.gov/Bl^/bca2/national/s*bio.html/ves.exe on September 23,1997. Washington, DC: 

U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis. 

ENR. 1997. "Construction Cost Index." Engineering News Record. March 31,1997:64. New York: 

McGraw-Hill Co. 

McConnell, CR 1984. Economics: Ninth Edition. New York: McGraw-Hill Co. 

OMB. 1987. Standard Industrial Classification Manual: 1987. Washington, DC: Executive Office of the 

President, Office of Management and Budget 

Slater, C. M. 1996. Business Statistics of the United States: 1995 Edition. Lanham, MD: Beman Press. 

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