Montana's manufacturing industry.
* employs over 24,000 people earning $1 billion in labor income,
* produces approximately $5 billion in output annually, and
* accounts for over 20 percent of Montana's economic base.
Even though manufacturing firms faced higher raw material, energy, and shipping costs, as well as higher health insurance premiums, a slight majority reported increased profits in 2004. Several factors lead to better conditions including improvements in economies in the United States and in developing countries, a weak U.S. dollar, continued relatively low interest rates, and increased military and homeland security spending.
The rise in output value was primarily due to higher per-unit prices, and was not reflected in substantial increases in volume or employment. Comparisons of 2003 and 2004 manufacturing employment numbers indicate a decline early in 2004 followed by increases later in the year. Total worker earnings were up slightly for the year. While the employment losses were concentrated in the durable products sector of manufacturing (primarily wood products), the gains occurred in the non-durable products sector.
Current exchange rates have benefited most firms, but negatively impacted those that import their raw materials or production equipment. Additionally, there continue to be raw material shortages. Most notable are concerns over the supply and cost of timber (see pages 31-32), steel, and petroleum-based products such as plastic.
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While Montana's manufacturing industry has struggled for much of the last three years, there was substantial growth in the industry throughout the 1990s, a decade in which Montana manufacturers added over 2,000 jobs to employ more than 27,000 workers. This increase was followed by a decline that continued through 2003, when employment fell back under 25,000 workers. (The change from SIC to NAICS has made it problematic to provide consistent and continuous time series data for employment and labor income.) After suffering job losses during the "manufacturers' recession" in 2001, firms throughout the nation continued to cut back through 2003. Job losses in Montana were proportionately less than in the nation as a whole in 2002, but proportionately higher in 2003.
Outlook: 2005 and Beyond
Montana manufacturers have a modestly optimistic outlook for 2005. Close to half (47 percent) of the state's largest manufacturers responding to BBER's annual survey of manufacturers expect improved conditions, while 34 percent think 2005 will turn out about the same as 2004, leaving only 19 percent who foresee worsening conditions. Fifty-seven percent expect to keep their work force at the same level in 2005, while a full 30 percent foresee an increase. Forty-five percent of firms expect higher profits in the coming year, with 33 percent expecting them to stay the same as 2004. Given three years of declines prior to 2004 and some slowing of growth in the U.S. economy expected in 2005, this is an encouraging outlook by Montana manufacturers.
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When manufacturers were asked to rate a list of issues in terms of their importance to their business, 99 percent of respondents rated health insurance costs as important, followed by workers' compensation rates, which were also important to 99 percent of responding businesses, and the cost of energy, important to 96 percent.
As in previous years, numerous Montana manufacturers mentioned concerns over raw material availability and availability of qualified labor. Also mentioned by a number of manufacturers were transportation, shipping, and freight problems involved in getting products to markets at a competitive price, in a timely fashion, and the high cost of in-shipping of raw materials. Taxes important to manufacturers are detailed in the sidebar.
Looking at the first decade of the 21st century, it will be difficult for Montana manufacturing industries to duplicate the growth of the 1990s, which ran counter to national trends. Within the state, a number of factors ranging from an improved tax structure to the growing ability to do business online have made manufacturing in Montana more competitive. Increases in energy costs and reduced timber availability indicate potential to lose manufacturers. However, stronger natural resource commodity markets may allow some growth, especially if supply problems and energy costs are overcome.
A portion of the growth in the 1990s, and perhaps declines since 2000, were related to a mix of business and non-business decisions to locate plants in Montana or move them elsewhere. Personal or lifestyle decisions on the part of entrepreneurs developing or relocating manufacturing facilities will continue to be a significant, if unpredictable, factor in shaping Montana's manufacturing industry.
While most Montana taxes influence the state's business owners in one way or another, some are a larger concern than others (Table 3). Montana manufacturers were surveyed to determine the relative importance of these taxes, resulting in 93 percent of respondents indicating the business equipment tax as important to their business. Other important taxes included the property taxes (88 percent), followed by corporate income taxes (86 percent), and personal income taxes (85 percent). Of lowest importance was the state inheritance tax; however, it is still important to 43 percent of respondents. Capital gains taxes were cited as important by 67 percent.
Charles E. Keegan III is director of forest industry research at The University of Montana Bureau of Business and Economic Research. Thale Dillon is a BBER research associate. Robert Campbell is director of UM's Montana Business Connections.
Table 1 Employment and Labor Income in Montana's Manufacturing Sectors, 2001 and 2004 Labor Income [thousands 2002$] Employment Manufacturing Sector 2001 2004 2001 2004 Wood, Paper & Furniture $408,930 $386,851 10,033 8,971 Petroleum & Chemical Manufacturing 162,588 175,369 1,600 2,049 Food & Beverage 108,412 111,519 3,401 3,554 Metals & Related Products 113,573 90,962 2,546 1,997 Cement, Clay & Glass 42,071 46,538 1,093 1,176 Printing & Related Support Activities 35,538 37,502 1,228 1,203 Machinery, Equip. & Inst., Light Mfg. 205,923 159,386 6,606 5,449 TOTAL $1,077,034 $1,008,128 26,507 24,399 Source: Bureau of Economic Analysis, U.S. Department of Commerce. Table 2 Manufacturing Employment and Labor Income Among Montana Counties, 2002 Percent of 2002 State's Manufacturing Manufacturing County Employment * Employment Yellowstone 3,535 15% Flathead 3,338 14% Gallatin 2,808 12% Missoula 2,917 13% Ravalli 1,447 6% Cascade 1,055 5% Lewis & Clark 864 4% Lake 919 4% Lincoln 849 4% Silver Bow 511 2% Remaining 46 Counties 5,011 22% STATE TOTAL 23,254 100% 2002 Percent of Manufacturing State's Labor Income Manufacturing County [thousands 2002$) Labor Income Yellowstone $191,727 20% Flathead $155,617 16% Gallatin $108,165 11% Missoula $133,884 14% Ravalli $54,771 6% Cascade $43,316 5% Lewis & Clark $38,728 4% Lake $28,196 3% Lincoln $32,188 3% Silver Bow $22,885 2% Remaining 46 Counties $138,061 15% STATE TOTAL $947,538 100% * County-level estimates do not include the logging industry, which would add over 2,500 jobs and close to $100 million to labor income. Sources: Bureau of Business and Economic Research, The University of Montana-Missoula; Bureau of Economic Analysis, U.S. Department of Commerce. Table 3 Tax Issues ("The Importance of Various State Taxes to Your Business"] Type of Tax Important * Unimportant ** Business Equipment Tax 94% 7% Property Tax 88% 12% Corporate Income Tax 85% 14% Personal Income Tax 84% 15% Capital Gains Tax 67% 33% Inheritance Tax 43% 57% * Percentage of respondents who answered "Very Important" or "Somewhat Important." **Percentage of respondents who answered "Very Unimportant" or "Somewhat Unimportant." Source: Bureau of Business and Economic Research, The University of Montana-Missoula (annual survey of Montana manufacturers).
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|Author:||Keegan, Charles E., III; Dillon, Thale; Campbell, Robert|
|Publication:||Montana Business Quarterly|
|Date:||Mar 22, 2005|
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