Montana's manufacturing industry.

After four successive years of growth, Montana manufacturers saw a decline in activity during 2008. Through the first half of the year, most of manufacturing actually saw growth, and declines were primarily in Montana's wood products sectors (see pages 35-36). Based on announced layoffs, total employment and labor income in manufacturing were estimated to have decreased by year's end (Figures 1 and 2).

Housing continued to decline as the year progressed, giving rise to a financial crisis that has led to sharp U.S. and global economic downturns. Montana manufacturers faced much weaker demand for their products in addition to tighter credit availability. A strengthening U.S. dollar and lower commodity prices made some Montana producers less competitive worldwide. Lower prices for commodities did, however, decrease raw material and operating costs for some Montana manufacturers. Even so, by late 2008, virtually every sector of Montana manufacturing was negatively impacted and numerous layoffs were announced.

Overall, Montana's 2008 manufacturing employment was estimated to be about 5 percent lower than 2007 and about 7 percent lower than 2001 (Table 1 and Figure 1). However, the number of manufacturing workers in Montana during December 2008 was down approximately 800 workers from December 2007. Value of production dropped by an estimated $500 million, and income to workers fell by an estimated $174 million (about 13 percent) during 2008. Accounting for inflation, income to workers during 2008 was about 2 percent lower than income during 2001. Slightly less than one-half of the Montana manufacturing firms that the BBER surveyed reported decreased profits, with another 16 percent indicating profits equal to 2007.

Despite the declines, manufacturing remains a substantial component of Montana's economy. Measured as products left the plants, Montana manufacturers had sales of nearly $8 billion in 2008. The state's manufacturers generated almost 22,800 jobs (including the self-employed), and workers earned approximately $1.1 billion in labor income during 2008. The manufacturing sectors account for more than 20 percent of Montana's economic base, and four Montana counties each have more than 2,500 manufacturing employees and over $100 million in labor income from manufacturing (Table 2).

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[FIGURE 2 OMITTED]

Outlook: 2009 and Beyond

The 2009 outlook is for declines in Montana manufacturing activity and related employment, with expectations that the United States and other major economies will remain weak through 2009.

Montana manufacturers who responded to our annual survey are substantially less optimistic about the outlook for 2009 than they were for 2008. Only 19 percent foresee improved conditions for 2009, versus 45 percent who expected better conditions for 2008. About 38 percent expect worsening conditions in 2009, versus 18 percent for 2008. Over 50 percent of manufacturing respondents expect to keep their work force at the same level in 2009, while about 30 percent foresee a decrease.

In response to the question, "How, if at all, has the recent financial crisis affected your business?" many manufacturers indicated that sales were down because of the inability of customers to secure credit to purchase products. A number also indicated the financial crisis impacted their own ability to secure credit for operations and capital projects.

Many manufacturers indicated that transportation-related issues were impacting their business. About 94 percent identified "shipping and delivery prices going up" as very or somewhat important, while 96 percent said that fuel cost was very or somewhat important. More than 90 percent of Montana manufacturers rely on trucking as their primary mode of transportation for raw material inputs, and nearly 85 percent rely on trucking as their primary mode of transportation for outputs. Costs of fuel and freight were the major transportation-related issues most frequently noted by manufacturers as expected to affect their business in 2009.

On a positive note, access to markets does not appear to be a serious issue for most Montana manufacturers. Nearly 81 percent said "national carriers won't stop in area" was a very or somewhat unimportant issue, and 68 percent indicated that "not enough carriers available in area" was very or somewhat unimportant. However, 44 percent of manufacturers noted that "markets too far from plant(s)" was a somewhat or very important issue.

When manufacturers were asked to rate a list of issues in terms of general importance to their business, 71 percent of respondents rated health insurance cost as very important, followed by cost of energy (65 percent), and workers' compensation rates (62 percent). Workers' compensation rules and availability of qualified workers were very important to just under 50 percent of respondents.

Todd A. Morgan is the Bureau's director of forest industry research. Charles E. Keegan III is the retired director of forest industry research and a research professor. Jason Brandt is BBER's assistant director of forest industry research.

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