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Regional resource industry dependency.

As the fourth largest state in the nation, Montana - or portions of it - is regularly included in several different regions. Northwestern Montana, for instance, is often considered part of the greater Pacific Northwest, a region extending from northern California up through Oregon, Washington, and into British Columbia. Eastern Montana often views itself as part of the Upper Great Plains which extends from the Dakotas and Minnesota to Saskatchewan and Manitoba. Moreover, the mountain range running north and south through western Montana physically links the state to the Rocky Mountain region which stretches from the mountainous areas of Colorado and Utah up through Alberta and eastern British Columbia.

The economies of all three regions - the Pacific Northwest, the Upper Plains, and the Rocky Mountains - are relatively dependent upon natural resource industries. As mentioned earlier in this issue, natural resource dependency greatly influences overall economic conditions among states and provinces in the region. However, this dependency varies considerably among states in the region and is changing over time as many natural resource industries decline.

How does Montana compare with other states in the region in terms of its dependence upon these natural resource industries today vs. ten years ago? How did these industries fare during the 1980s from one region to the next? And how have resource industry trends affected overall economic conditions among states in the region? These questions are addressed in the following analysis and discussion.

Figures 1, 2, and 3 show what occurred during the 1980s in the overall level of labor income directly generated in natural resource industries in the above-mentioned three regions. Figure 1 covers the Pacific Northwest region and includes data for Washington, Oregon, and Idaho. Data for Colorado, Utah, and Wyoming are included in Figure 2, covering the Rocky Mountain region. Figure 3 shows labor income in natural resource industries of the Upper Plains region; it includes data for Minnesota, North Dakota, and South Dakota. Montana's natural resource industry labor income is isolated in Figure 4. Because of data limitations we are unable to present comparable figures for the Canadian provinces.

Figures 1 through 4 include all labor earnings received by wage and salary employees and by self-employed individuals working in these industries. Also included are labor income data for farming and ranching (or agricultural production) and food processing. The figures also include labor income data from logging and wood and paper products manufacturing; coal mining and oil and gas exploration, production, and refining; and nonfuel mineral industries including metal and nonfuel, nonmetal mining and primary metals processing.

The 1980s were a difficult period for many of the region's natural resource sectors. Real labor income has improved somewhat recently, but in all three regions it is less today than at the start of the 1980s: it is down 5 percent in the three Pacific Northwest states; down 16 percent in the Rocky Mountain states; and down 11 percent in the three Upper Plains states. Nationwide over the same period, labor income in these natural resource industries fell 14 percent.

Figure 4 shows labor income levels for Montana's natural resource industries during the 1980s. Total labor income in 1990 was a full 22 percent less than in 1979. Only two other states in the region had greater percentage declines in these resource industries than Montana: North Dakota, where real labor income declined by 32 percent; and Wyoming, where it declined a staggering 39 percent. Within the region, these same three state economies struggled the most during the 1980s.

After severe declines in early and mid-decade, agriculture has largely recovered in all three regions. (In fact, agriculture and food processing labor income in both the Pacific Northwest and Rocky Mountain states is higher in 1990 than in 1979). But total labor income in non-agricultural resource sectors remains considerably below 1979 levels: it is down 25 percent in the Pacific Northwest states and down 35 percent in the Rocky Mountain states. In 1990, Montana's real labor income for non-agricultural resource sectors was a full 30 percent lower than in 1979. As a result of these declines, nine of the region's ten states - including Montana - are less resource industry dependent today than when the 1980s began.

Declining Resource Industry Dependency

Generally, one gauges the natural resource dependency of a state economy by measuring the percent of total labor income directly attributable to such resource industries. The greater the percentage, the greater a state's economic dependency on natural resource industries.

Figure 5 shows regional resource industry dependency in 1979 and in 1990; it includes comparisons for each of the ten states and for the U.S. economy as a whole. With one exception (Colorado in 1979), all states in the region were more dependent on resource industries in both 1979 and 1990 than the U.S. economy as a whole. Wyoming, South Dakota, and Idaho are the region's most resource dependent states; over 20 percent of each state's total labor income came from natural resource industries in both 1979 and 1990. The least resource dependent states are Colorado, Utah, Washington, and Minnesota, each with 12 percent or less total labor income among resource industries in 1990. Oregon and Montana fall about in the middle. In both states, resource industries accounted for about 15 percent of total 1990 labor income.

Figure 6 shows change over time in the region's resource industry dependency. Only Idaho increased its dependency; all other states in the region are considerably less dependent today than ten years earlier. Utah's decline was especially striking - total labor income directly accounted for by resource industries fell by 37 percent between 1979 and 1990. Montana's resource industry share of total labor income fell by 17 percent. These declines are consistent with what occurred nationally; the U.S. economy's dependence upon natural resource industries declined by over 30 percent during the decade.

Agriculture and Food

Figures 7 and 8 show levels of labor income and employment in agriculture and food processing during the 1980s for all ten states in the region, including Montana. Labor income fell early in the decade, then recovered during the latter part of the decade. Employment levels remained steady for the same period; employment gains in agricultural services offset losses among farm and ranch owners and operators.

Overall during the 1980s, agricultural producers in the Pacific Northwest and Rocky Mountain states have done considerably better than in the Upper Plains; they've posted real labor income gains of over 30 percent while Plains states' farmers lost ground by 17 percent. (See Table 1.) Combined agricultural labor income for Washington, Oregon, and Idaho now actually exceeds that of the traditional farm states, North and South Dakota and Minnesota. The same overall trend exists for farm employment figures.

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Table 1 also breaks out figures for Montana alone. Note that by 1990 - after a disastrous drop in the mid-1980s - Montana's agricultural income and employment had almost recovered to 1979 levels.

The degree to which a given local area depends on agricultural production varies considerably in the ten-state region. (See the map in Figure 9a.) The region's three most agricultural dependent counties are all in eastern Colorado: Agricultural production accounted for over 66 percent of that area's total labor income in 1989. Montana's most agricultural dependent counties are in the east central portion of the state: Petroleum and Garfield Counties each derive 60 percent of their total labor income from agriculture. As a whole, agricultural dependency is most pronounced in southwest Minnesota, North and South Dakota, eastern Montana, southern Idaho, and eastern Oregon and Washington.

Growth in the value-added food processing sector is something all these states covet, but few have enjoyed. As Figures 7 and 8 show, the region as a whole has experienced very little change in the size of this sector over the past decade. However, all three subregions experienced some growth in income and employment more recently; Utah and Washington had the biggest gains. Montana's food processing sector has steadily declined, although at a slower rate in more recent years.

See article by Myles Watts in this issue for a discussion of this sector's state and regional outlook.

Wood and Paper Products

While agricultural production is spread throughout the region, logging and wood products manufacturing are concentrated in Oregon, Washington, Idaho, and far-western Montana. (See the map in Figure 9b.) A sizable wood products industry exists in Minnesota as well, but is not reflected in the map because county-level data is withheld for proprietary reasons.

Adams County, south of Lewiston on the eastern edge of Idaho, is the single most dependent county in the entire region on logging and wood products manufacturing. Next most dependent are Crook County in Oregon, and Clearwater County in Idaho - just over Lolo Pass from Missoula. Logging and wood products manufacturing account for over 40 percent of area labor income in each of these counties. Montana's most timber-dependent areas are Lincoln, Sanders, and Mineral Counties in the northwest comer of the state, and Granite County south of Missoula. In each of these counties, logging and wood products account for 20 to 30 percent of total labor income.

Figures 10 and 11 show labor income and employment levels in lumber and wood products, and paper products manufacturing during the 1980s for the ten-state region. Labor income and employment fell regionwide early in the decade with nationwide recessions, then recovered. However, industry labor income in 1990 remained nearly 30 percent below the 1979 level.

During this period in Washington and Oregon, wood products labor income fell by 37 percent and 34 percent, respectively, even though Washington's logging activity declined only slightly (see Figure 12), and Oregon's increased by 6 percent. Montana's labor income in wood products declined by more than 30 percent since 1979, even though the state's logging activity increased by 17 percent - from 1.1 to 1.3 billion board feet including logging on both public and private lands. After marked declines early in the decade, wood products employment in Montana has been generally stable since 1985.

In the paper products sector, labor income and employment have grown steadily in Idaho and Washington and stabilized in Oregon after declines in the early 1980s. Montana's paper products employment peaked in 1984 and 1985 and has since fallen by 9 percent. Labor income received by Montana's paper products workers also rose before falling in more recent years.

Later in this issue, Charles Keegan discusses the outlook for this industry.

Energy Industries

Next, recent income and employment trends are reviewed in several energy producing sectors: coal mining and production; and oil and gas exploration, production, and refining. Figure 13 compares a dozen states across the United States - including five from the region - which have the country's largest reserves of coal. As the graph shows, Montana's coal reserves are greater by a considerable margin than any other U.S. state. Montana's estimated coal reserves are 120 billion short tons; compare that to second ranked Illinois' 78 billion tons. Wyoming's coal resources are estimated at 68 billion short tons. Other states in the region with significant coal reserves are Colorado, North Dakota, and Utah.

Figure 14 shows the rates at which the region's coal resources are being mined. About 95 million short tons were mined in Wyoming in 1980; production had nearly doubled by 1990. Montana's coal production also increased over the period, but at a much slower rate-from 30 million tons in 1980 to 38 million tons in each of the last three years.

These same coal-producing states also are the region's chief producers of oil and gas. Wyoming's crude oil reserves, estimated at 794 million barrels, and natural gas reserves, estimated at nearly 10,000 Bcf (billion cubic feet), are the largest in the region. Montana is currently fifth of the ten states in crude oil reserves and fourth in natural gas reserves.

A brief "boom" in oil and gas drilling occurred in the early 1980s as crude oil prices around the world skyrocketed. But the increase in drilling activity was short-lived; crude oil prices fell as quickly as they had risen. (See Figure 15.) Labor income and employment in the region's oil and gas industry parallels the trend in drilling activity, as Figures 16 and 17 show. Regionwide employment in oil and gas exploration fell from a high of 82,000 workers in 1981 to its current level of about 39,000. Montana employment in oil and gas exploration exceeded 7,000 workers in 1981, but now stands at 2,100. Overall, this region's energy industries once employed 112,000 workers earning more than $5 billion a year. They now employ half that many.

Much of the decline is a result of less activity in the oil and gas industry. However, despite increases in coal production, employment and labor earnings also are falling in that sector. For example, while coal production doubled in Wyoming during the 1980s, labor income received by coal mining workers increased by only 8 percent, and employment remained about the same. Montana's coal mining employment dropped by 17 percent in spite of a 26 percent increase in state coal production. Regionwide, 1990's coal mining employment is down 25 percent from ten years earlier; Colorado and Utah experienced the greatest declines.

Thus, coal producers have been able to simultaneously increase production and decrease employment by expanding use of labor-saving technologies. Most of the

region's employment and labor income losses have occurred since the mid-1980s - which suggests a declining trend will continue. Labor income received by coal mining workers regionwide has dropped by 23 percent in just the last five years. Montana's labor income dropped 25 percent.

Petroleum refineries and pipelines are the value-adding sectors of this industry. Washington and Minnesota are seeing recent employment and labor income gains in this sector. However, declines continue in Montana and Wyoming.

The energy industry outlook is mixed. Virtually every future energy scenario developed by the U.S. Department of Energy and other forecasters involves increasing use of coal. So coal production in the region should steadily increase. World crude oil prices will probably remain at relatively low levels in the near term, as will levels of oil and gas exploration and drilling in the region.

Nonfuel Minerals Industry

The nonfuel minerals industry includes several sectors: metal mining; mining of nonfuel, nonmetal minerals; and primary metals refining and processing (including processing of both metal ores and scrap metals). As shown in Figures 18 and 19, this sector also declined considerably during the 1980s. Labor income fell from $5.3 billion in 1979 to as low as $2.6 billion in 1987. However, recent gains in metal mining and primary metals processing have helped the industry recover somewhat. Metal mining employment in the ten-state region collapsed from 49,000 workers in 1979 to 17,000 workers in 1986. Then employment increased in 1988 and 1989 as metal prices surged. Even so, 1990 regionwide labor income in this sector is far below its level a decade ago: $945 million in 1990 compared with more than $2 billion each year in 1979, 1980, and 1981.

Metal mining made its biggest recovery in Montana. Since 1985, the state's metal mining employment has more than doubled; labor income has nearly tripled. In 1990, Montana's metal mining labor income was fifth in the ten-state region. However, labor income in Montana's nonmetal mining sector has fallen by 20 percent since 1985 and the state now ranks seventh in the region. Montana's once flourishing metals refining and processing industry now ranks sixth in the ten-state region.

Resource Industry Dependency

and Economic Growth

How does resource industry dependency affect a region's potential for longt-erm economic growth and stability? Because resource industries tend to be unstable and slow-growing - if not declining - sectors of the economy, heavy dependence on them by a state or region is viewed by many economists as an economic liability. This notion is evaluated in light of the region's recent experience.

Table 5 shows resource industry dependency, percentage change in resource industry labor income, and percentage change in economywide labor income for each state in the region and for the U.S. as a whole. Percentage changes in income are shown for the entire decade (1979-90), and for the last five years (1985-90) - during which much of the region, including Montana, recovered somewhat from the mid-1980's very poor economic conditions.

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First let's examine how resource dependency may affect a state's long-term economic growth potential. Figure 20 plots a state's 1979-level resource industry dependency in relation to its change in total labor income over the decade. As measured by the decade's overall percentage change in labor income, states with the least resource industry dependency entering the 1980s tended to experience the greatest economic growth during the 1980s. Colorado, the state least dependent on resource industries, increased its total labor income by 25 percent over the decade. The three other least dependent states - Utah, Washington, and Minnesota - also grew by 20 to 25 percent.

Meanwhile, states more dependent on resource industries fared quite differently. The most dependent state, Wyoming, suffered through a labor income decline of 20 percent. North Dakota, also heavily resource industry dependent, did not fare well. Nor did Montana.

Therefore, the region's experience during the 1980s reinforces the notion that resource industry dependency may limit a state's potential for long-term economic growth.

At the same time however, recent improvements in the region's natural resource industries played an important role in many states' recent economic recoveries. Figure 21 shows that states with the greatest percentage gains in resource industry labor income since 1985 also tend to be those with the greatest recoveries. Resource industry labor income in both Idaho and South Dakota increased 35 percent; economywide, labor income in these states increased nearly 20 percent. Two of the three states in the region with continuing declines in their resource industries - Wyoming and North Dakota - also had continuing declines in statewide labor income.

Led by increases in agriculture and metal mining, Montana's resource industry labor income increased by more than 40 percent for the period. This increase helped improve economic conditions in the state, but total labor income recovered by only 7 percent. Agriculture accounted for much of Montana's recent gain in resource industry labor income. But incomes in that sector were merely returning to levels lost in the mid-1980s. Therefore, this may account for the resulting gain in overall labor income being less substantial than might have been expected.

Regional experience suggests that resource industry dependency may be considered a long-term economic liability. However, resource industries are components of the region's economic base, and they continue to play a central role in the economy. Moreover, improvements among resource industries can greatly assist in improving overall economic conditions. n

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Larry D. Swanson is rector of economic analysis at the Bureau of Business and Economic Research, The University of Montana, Missoula, Montana.
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Title Annotation:Natural Resource Industries; The Montana Economy within a Regional Context
Author:Swanson, Larry D.
Publication:Montana Business Quarterly
Date:Mar 22, 1992
Words:3145
Previous Article:Montana's major urban areas: trends and forecasts.
Next Article:Agriculture.
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