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Montana's natural resource industries.

Montana's Natural Resource Industries

While Montana has seen both good and bad economic times in the last two decades, an enduring feature of the state's economy is its heavy reliance upon natural resource industries. Included in these are agriculture, wood and paper products, mining, oil and gas extraction, and nonresident travel and tourism. Together, these industries have accounted for 60 to 70 percent of the state's economic base in the last two decades.

Figure 1 shows total labor income that workers earned in Montana's basic industries each year since 1970 in inflation-adjusted dollars (or constant 1988 dollars). The screened portions of the graph indicate basic labor income accounted for by agriculture and by nonagricultural natural resource industries.

Labor income in all of the state's basic industries peaked in 1973 at more than $3.1 billion. In that same year, average labor earnings by all workers in Montana also hit its peak for the two-decade period at about $21,850 per worker (1988 dollars). In 1973, Montana's per capita income as a percent of the U.S. per capita income reached 95 percent, its highest level in decades. In comparison, after settling at about 90 percent in 1979-81, this ratio steadily declined to 78 percent in 1988, the lowest level in the two-decade period. Total labor income by basic industry in the state fell from about $2.4 billion in 1978 to a low of $1.6 billion in 1985, before improving to $1.8 to $1.9 billion in 1987 and 1988.

Employment in the state's basic industries gradually increased from 103,000 workers in 1970 to 109,000 workers in 1979 before falling back to about 103,000 workers in 1988. Significantly, when basic employment was at its highest levels in the late 1970s, labor income by all of the state's workers, both basic and non-basic, also was at its highest levels, totaling about $7.6 billion in both 1978 and 1979. Subsequently, total labor earnings declined in every year except one until 1986 when earnings stood at about $6.8 billion in 1988.

As you can see, conditions and trends among the state's basic industries are critical factors in overall conditions in the state's economy and the state's economic standing relative to other regions in the United States.

The natural resource industries, which represent significant portions of Montana's economic base, are briefly profiled in the following sections. Employment and labor income levels in each industry during the last two decades, the industry's changing share of the state's overall economic base measured in both labor earnings and employment, and those counties in the state most dependent upon these industries, are examined. While I will focus on past economic conditions in Montana, this retrospective look at the natural resource industries also may offer insights into the future of Montana's economy.


Agriculture, the state's largest basic industry, has had the single greatest impact on the overall trend in labor income by basic industry in Montana. Included in this sector are farm and ranch production and agricultural services directly contributing to agricultural production.

While employment levels in agriculture have only gradually declined during the last two decades, estimates of labor income received by agricultural producers indicate that their income position has eroded considerably. Labor income in agriculture, which averaged more than $1 billion per year (inflation-adjusted dollars) in the first half of the 1970s, fell to an average of $540 million in the second half of the 1970s. And in the 1980s, labor income fell to very low levels for several years before improving in more recent years.

Montana agriculture is heavily dominated by wheat and cattle production. Cattle prices plunged an average of $100 a head from 1981 to 1982 and these low cattle prices persisted before significantly improving in 1988 and 1989, largely as a result of falling cattle inventories nationwide. Cattle numbers in Montana, totaling 3.4 million head in the mid-1970s, now total about 1 million less at 2.4 million head, the lowest level since the early 1960s. However, cattle prices have improved and there is evidence that cattle herds have stabilized and are rebuilding.

Wheat prices temporarily soared above $5 per bushel in the early 1970s, largely stimulated by growing export sales to Eastern Bloc countries and falling domestic stocks. However, wheat prices weakened in the last half of the 1970s and were relatively low through much of the 1980s. Crop growers in Montana were further plagued by droughts in 1984 and 1985 and again in 1988.

Reflecting these trends, Montana agricultural producers' total cash receipts, which averaged about $2.5 billion per year in the early 1970s and more than $2 billion per year in the late 1970s and early 1980s, have totaled only about $1.6 to $1.7 billion in more recent years. What's more, government payments largely in the form of crop price support and disaster payments are now accounting for more than 20 percent of these cash receipts, as compared with 5 to 10 percent through much of the 1970s. For crop-related cash receipts only, government payments are accounting for 30 to 40 percent of these receipts in recent years.

While agriculture remains Montana's single largest basic industry, the industry's deteriorating income conditions have reduced its share of the state's economic base from over 40 percent in the early 1970s to under 20 percent in more recent years (measured by labor income). However, with the exception of some of the state's more populated areas and many counties in the western part of the state, agriculture continues to heavily influence economic conditions in many areas of Montana.

Wood and Paper

Products Industry

The wood and paper products industry includes lumber and wood production, services involved in timber management, and paper products manufacturing. Lumber and wood products production accounts for much of the industry as a whole.

Employment in this segment of the industry increased steadily through the 1970s, rising from about 9,300 workers in 1970 to more than 12,800 workers in 1978. Employment fell considerably during the national recession years of the early 1980s, then rebounded to about 11,300 workers in 1984. However, in each year since, employment has gradually declined, and stood at 10,300 workers in 1988. Although employment in lumber and wood products is declining, paper products employment has been fairly stable during the 1980s after relatively steady growth through much of the 1970s.

Total labor income by the industry as a whole increased markedly through much of the 1970s, peaking at more than $370 million in both 1978 and 1979. Income fell in subsequent recession years before improving in 1983. However, labor income has gradually declined in each year since. The $ 268 million in labor income that workers received in 1988 is more than $100 million less than they received a decade earlier.

Average labor earnings per worker in inflation-adjusted dollars in the lumber and wood products industry also peaked in 1978 at more than $27,000 per worker, as compared to about $23,000 in 1988. Workers in the paper products industry earn considerably more, averaging more than $40,000 per worker in 1988, roughly the same amount they did in 1978.

Expansion in the use of waste wood from sawmills and an extremely good market for wood products spurred growth in the industry durin g the 1970s. Sharp drops in U.S. housing and construction industries beginning late in 1979 led to several very difficult years. The period from 1983 through 1985 saw high levels of wood products consumption nationwide, but very low prices. Markets improved in 1986 and 1987 and lumber production in Montana reached record levels. However, employment in the industry continue to decline, largely as a result of increased mechanization and shifts from large-log sawmills to more automated facilities processing smaller diameter logs.

Timber on private industrial timberlands in the state is dwindling with higher than anticipated harvest rates in recent years, placing increased emphasis on the national forests to meet the industry's timber supply needs. Hence, a major factor affecting the industry in coming years is the continuing controversy over the proper management of timber cutting in the national forests.

Mining Industry

Montana's mining industry includes coal mining; mining of metals such as gold, silver, copper, and platinum; mining of nonmetals or industrial minerals such as vermiculite, talc, and phosphate, and processing of minerals extracted in the state. Oil and gas extraction, which is sometimes classified as a mining activity, is addressed in a subsequent discussion.

Coal mining employment expanded considerably through the 1970s with a surge in the demand for low-sulfur coal and the construction of large coal-fired power plants throughout the Midwest. Employment grew to more than 1,400 workers in the early 1980s and, after falling back for several years, peaked in 1985. Since then, coal mining employment has fallen by about 20 percent.

While Montana's overall coal resources are greater than any other state in the nation, it ranks eighth or ninth in production. Most of the coal produced in the state is sub-bituminous coal; coal that has a moderate Btu value, relatively high moisture content, and low sulfur content. Demand for low sulfur coal could increase if Congress enacts new legislation aimed at curbing power plant emissions to combat acid rain. However, the principal coal markets are relatively distant utilities in the Midwest and southcentral regions of the United States. Fifty to 60 percent of the cost of Montana coal delivered to these utilities are transport costs. Therefore, expansion of coal mining in the state hinges upon Montana coal producers' ability to overcome this distance factor.

Employment in the nonmetal mining industry has been stable to gradually improving through most of the 1970s and 1980s and currently stands at about 1,300 workers. Employment in Montana-mined minerals processing fell steadily from about 3,500 workers in 1970 to about 1,500 workers in 1980, and to only about 400 workers by 1985 where it largely remains. Most of the loss resulted from the scaling back and closing down of copper refining facilities in the state.

Metal mining employment, which declined from more than 4,000 workers in the early 1970s to about 1,200 workers in 1985, has doubled in the last three years and indications are that this trend will continue. Expansion of gold and silver mining throughout the state, resumption of copper mining in Butte by Montana Resources, and initiation and expansion of the platinum-palladium mine in Stillwater County largely account for this turnaround in metal mining employment.

As a result of these improvements in metal mining, total labor earnings in the mining industry as a whole have improved in recent years after years of decline. However, the $179 million workers received in 1988 is still considerably lower than income levels in the 1970s. Annual earnings for mining workers remain relatively high, averaging between $33,000 and $35,000 for the industry as a whole (compared with highs of more than $37,000 in the late 1970s and early 1980s). Coal mining workers are among the highest paid in the state, receiving nearly $48,000 a year.

Today, Montana's mining industry is much more diversified than in the past when heavily dominated by the copper mining and processing facilities of the Anaconda Company. This should make it a more resilient and less volatile industry overall in the years ahead.

Oil and Gas Industry

The oil and gas production industry in Montana includes businesses and workers involved in oil and gas exploration and extraction and those operating petroleum pipelines and crude oil refineries. Those employed in natural gas handling and transmission are not included in this basic industry because much of their activity involves distributing gas to in-state consumers and users, rather than out-of-state markets.

Most of the employment in this industry is in oil and gas exploration and extraction. What's more, this segment of the industry accounts for most of the variations in employment in the industry. State employment in exploration and extraction began building in the mid-1970s as oil prices started to rise and the industry responded with more drilling activity. Crude oil prices more than tripled between 1978 and 1981, sending the industry into a nationwide drilling "boom" period. During this period, employment in oil and gas exploration and extraction in Montana shot from about 2,500 workers in the mid-1970s to nearly 7,300 workers in 1981 at the height of the drilling boom.

However, oil prices, which at one point rose to more than $40 a barrel, began a rapid descent before collapsing to below $13 a barrel in 1986. Exploration and extraction employment fell to about 2,700 workers in 1986 and has continued to decline. In the aftermath of the drilling boom, employment in this segment of the industry now stands at about the same level as it did before the drilling boom began. Labor earnings per worker in inflation-adjusted dollars averaged about $27,000 in 1988, after rising as high as $34,000 per worker in 1980.

While the total amount of oil refined in Montana has remained relatively stable over the years, the number of operating refineries in the state has declined from ten in the early 1970s to four today. In the process, employment by petroleum refineries and pipelines has gradually declined from more than 1,300 workers in the early 1970s to about 830 in the last two years. Refinery and pipeline employees are among Montana's highest paid workers, averaging more than $50,000 per year each.

Regarding the outlook for the oil and gas industry in the next few years, segments of the industry remain financially troubled, particularly among independent oil companies that have traditionally done much of the exploration and drilling in Montana and rely on external investor financing. The insutry has been very slow to respond with increased drilling to recent improvements in oil prices. However, the worst should be behind the industry. Any growth in coming years will hinge largely upon the direction and stability of oil prices. At the same time, there haven't been any major discoveries of new, previously undeveloped oil and gas reserves for many years in Montana. There are major questions regarding the potential size of the state's remaining oil and gas resources.

Nonresident Travel and

Tourism Industry

While the nonresident travel and tourism industry includes business persons visiting the state on business, nonresidents passing through the state while traveling elsewhere, and vacationers and recreationists, much of the industry is heavily dependent upon or associated with the state's spectacular, naturally-occurring scenic and recreational resources.

Estimates of the number of nonresidents visiting the state in a given year and their level and pattern of expenditures are difficult to make, as are estimates of the employment and labor income resulting from these expenditures. However, the University of Montana's Institute of Tourism and Recreation Research recently estimated that Montana workers received roughly $160 million in direct labor income as a result of expenditures of about $658 million during a year-long period in 1988 and 1989. This is somewhat greater than a recent estimate by the Bureau of Business and Economic Research on labor income in the nonresident travel industry (estimated last year at about $130 million in 1987 or about $135 million in constant 1988 dollars).

Using previous studies and information generated in the Institute's study and combining it with historical data from a variety of other sources on sales, income, and employment by the major sectors affected by nonresident travel in Montana, the Bureau developed some general estimates of labor income and employment in the industry in past years, dating back from and benchmarked to the estimate of $160 million in 1988. Employment in the nonresident travel and tourism industry appears to have steadily grown through much of the 1970s and 1980s and this growth is continuing today. However, the labor income associated with this employment is increading only slowly because much of the employment growth in this industry involves relatively low-paying, and many times, only part-time or seasonal employment. Although slow, growth in the industry appears to be occurring nonetheless. With little growth, if not actual decline, occurring in several other basic sectors in Montana, nonresident travel and tourism is gradually increasing its role in Montana's economy--particularly as an employment source for Montana households that rely increasingly upon more than one breadwinner and more than one source of employment and income.

Summary and


Table 1 shows average annual rates of change in employment and real labor income for Montana's principal natural resource industries for four periods during the 1970s and 1980s. The 1970s were generally a period of growth in the state's natural resource industries, with the exception of agriculture and metal mining in the last half of the decade. Real labor income in the state's nonfarm, natural resource industries increased by more than 3 percent per year in the first half of the decade and by more than 4 percent in the second half. Coinciding with this, real labor income in all sectors of the state's economy grew by more than 5 percent and 2 percent a year during these same periods in the 1970s.

In stark contrast, however, the 1980s have been a period of decline for most of the natural resource industries (again, with the exception of metal mining in the latter half of the decade, nonfuel mineral mining more generally, and nonresident travel). Real labor income in the nonfarm, natural resource industries as a whole fell by about 3 percent of a year during both the first and second halves of the 1980s. Labor income received by agricultural producers hit disastrously low levels before improving in more recent years. As a result, the state's economy as a whole went flat, resulting in losses in real labor income through much of this period.

General estimates of what to expect in terms of growth or decline in these industries as we enter the 1990s are indicated in the right column of the table 1. In general, we expect the 1990s to be better than the 1980s for most of the natural resource industries, but expect only modest growth if at all for these industries overall through the first few years of the decade. The greatest losses will probably occur in the lumber and wood products industry, resulting from reduced timber supplies. Gains should continue in the metal mining industry and travel and tourism industry.

Figure 17 shows that the share of total labor income directly accounted for by Montana's natural resource industries as a whole has steadily declined over time, decreasing from about 28 percent in the early 1970s to just over 15 percent in the last half of the 1980s. Much of this decline is attributable to dramatic declines in labor income in agriculture. However, in the last half of the 1980s, income in agriculture has improved while labor income in nonfarm natural resource industries as a whole has declined.

The natural resource industries' share of total basic labor income also is declining, falling from an annual average of 69 percent in the first half of the 1970s to 58 percent in the last half of the 1980s.

While the share of the state's economy directly accounted for by natural resource industries has declined somewhat during the last two decades, conditions and trends in these industries remain fundamental determinants of local economic conditions around the state as well as the overall performance of the state's economy.

Larry Swanson, the Bureau's director of economic analysis, presented an overview of Montana's natural resource industries. He included agriculture, wood and paper products, mining, oil and gas, and nonresident travel and tourism.
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Title Annotation:1990 Economic Outlook Seminar
Author:Swanson, Larry D.
Publication:Montana Business Quarterly
Date:Mar 22, 1990
Previous Article:The 1990 Montana consumer outlook.
Next Article:Agriculture forecast.

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