AN ECONOMIC ASSESSMENT — FINAL 1982
FLATHEAD RIVER BASIN ENVIRONMENTAL IMPACT STUDY
Sponsored By: U.S. ENVIRONMENTAL PROTECTION AGENCY
-------
cf
&<£
olt>Q
c. I
THE FLATHEAD BASIN:
AN ECONOMIC ASSESSMENT
Submitted To:
The Steering Committee for the
Flathead River Basin Environmental
Impact Study and the U.S. Environ-
mental Protection Agency
Submitted By: Montana Department of Administration
May 15, 1982
This project has been financed, in part, with Federal funds from the
Environmental Protection Agency under grant number R008316013. The
contents do not necessarily reflect the views and policies of the
Environmental Protection Agency.
U.S. EPA Region 8 Library
80C-L
999 18th St., Suite 500
Denver, CO 80202-2466
-------
TABLE OF CONTENTS
Page
LIST OF TABLES iii
LIST OF CHARTS/FIGURES v
LIST OF MAPS vi
ACKNOWLEDGEMENTS vii
1 INTRODUCTION 1
2 COMPARATIVE GROWTH 2
2.0 Some General Patterns 2
2.1 A Closer Look At Sources of Local Growth 11
2 .2 Changing Employment Patterns 14
2.3 Employment Multipliers And Changing
Employment Mix 17
2.4 Size of Firm For New Employment 21
2.5 Unemployment 23
2.6 Employment and Population Growth 31
2.7 Components of Population Change 36
2 .8 Demographic Waves 43
2.9 Per Capita Income 44
2.10 Income Growth 50
3 WOOD PRODUCTS 53
3.0 The National Setting 53
3.1 National Productivity, Inflation and
Interest Rates 59
3.2 Wood Products—The State Perspective.... 71
3.3 Wood Products—The Local Area 76
3.4 Wood Products—Projections 79
4 TOURISM AND TRAVEL 86
4.0 State Overview 86
4.1 Local Overview 96
4.2 The Local Market 100
4.3 Local Projections 105
4.4 Summary 106
5 OTHER BASIC INDUSTRIES 109
5.0 Primary Metals 109
5.1 Agriculture 121
5.2 Trade Center Income and Employment 128
5.3 Government 130
5.4 Oil and Gas 131
5.5 Other Developments 134
-------
TABLE OF CONTENTS (Continued)
Page
6 EMPLOYMENT AND POPULATION PROJECTIONS 138
6.0 Introduction 138
6.1 Model Design 139
6.2 Inputs and Outputs 140
6.3 Projection Format 142
6.4 Subcounty Allocation 153
6.5 Age Detail 157
7 OTHER FUTURES 159
7.0 introduction 159
7.1 New Business—Outside Business 159
7.2 Industrial Location Determinants 162
7.3 The Capital Issue 179
8 SUMMARY 184
-------
LIST OF TABLES
Page
2.1 Components of Basic Employment Change 5
2.2 Population Growth for Montana Counties 7
2.3 Growth Centers and Sources of Growth 10
2.4 Relative Importance of Basic Sectors 12
2.5 Flathead Basin Employment 15
2.6 Selected Employment Multipliers 18
2.7 Montana Business Size Comparison 22
2.8 Private Non-Agricultural Employment Growth
By Size of Establishment 23
2.9 Unemployment Rate for Civilian Labor Force... 25
2.10 Unemployment Comparison 25
2.11 Seasonality Comparison 30
2.12 Population Ratios 35
2.13 Components of Population Change 39
2.14 Percent of Population 39
2.15 Migration Table 41
2.16 1980 Age Distribution 42
2.17 Net Migration 42
2.18 Per Capita Income 47
2.19 Income Growth 52
2.20 Source of Income Growth 52
3.1 Hypothetical Annual Payments 57
3.2 Savings as a Percentage of Total Income 62
3.3 Montana Lumber Employment and Output 73
3.4 Timber Volume for Flathead and Lake Counties. 77
3.5 Wood Products Productivity Change 78
3.6 Shipments of Lumber and Plywood from Manu-
facturers in Flathead, Lake, Lincoln and
Missoula Counties, 1976 79
3.7 Timber Volume Assumptions 84
3.8 Employment Projections 85
4.1 Travel and Tourism Employment and Earnings... 89
4.2 Employment and Earnings in Selected Industries 90
4.3 Characteristics of Nonresident Visitors, 1979 92
4.4 Trip Purpose 95
4.5 Size of Party 95
4.6 Expenditures 96
4.7 Cars Counted at Glacier National Park 98
4.8 Ranking of States By Access to U.S. National
Markets 102
4.9 Glacier Park Market 104
4.10 Travel and Tourism Employment Projections.... 105
4.11 Visitor Days Glacier National Park 106
-------
LIST OF TABLES (Continued)
Page
5.1 Comparison of Domestic Aluminum Demand 119
5.2 Important Agricultural Products, Flathead
and Lake Counties 123
5.3 Farm Proprietors Income and Employment 124
5.4 Total Agricultural Employment, Flathead and
Lake Counties 128
5.5 Gas and Oil Lease Applications, Flathead
National Forest 132
5.6 Gas and Oil Exploration Employment Scenarios. 134
6.1 Medium Scenario (Flathead) 144
6.2 Medium Scenario (Lake) 145
6.3 Low Scenario (Flathead) 146
6.4 Low Scenario (Lake) 147
6.5 High Scenario (Flathead) 148
6.6 High Scenario (Lake) 149
6.7 Flathead River Basin Total Population 152
6.8 Actual and Projected Population (Medium
Scenario), Local Communities 154
6.9 Actual and Projected Population (Medium
Scenario), Percent of Total 155
6.10 Low and High Scenario for Selected
Communities 156
6.11 Age Distribution 158
7.1 State Manufacturing Cost Comparison Index
Values 164
7.2 Development Potential By Industrial Group.... 175
-------
LIST OF CHARTS/FIGURES
Page
2.1 Comparative Growth 3
2.2 Nonbasic/Basic Employment Flathead County.... 4
2.3 Number of Counties by Population Growth. Rate. 9
2.4 Relative Growth by Sector 13
2.5 Unemployment and Seasonality of Employment... 28
2.6 Growth Areas and Basic Employment and
Population 33
2 .7 Demographic Patterns 45
3.1 National Housing Starts and Montana Wood
Products Employment 56
3.2 Housing Starts and Inflation 60
3.3 Productivity Growth 62
3.4 U.S. Inflation Rates 63
3.5 Inflation and the Money Supply 67
3.6 Inflation and Debt 67
3.7 Inflation and Unemployment 69
4.1 Glacier Park Cars Counted 99
5.1 Earnings in Basic Industries, Flathead County
In 1972 Dollars 110
5.2 Residential Electrical Use 112
6.1 MASS II Model 141
6.2 Flathead County Population Trends 150
6.3 Lake County Population Trends 151
7.1 Manufacturing Intensity and Market Access.... 168
7.2 Industrial Growth and Comparative Cost 170
-------
LIST OF MAPS
Page
5.1 Primary and Secondary Aluminum Manufacturing.. 114
5.2 Cash Earnings from Farm Marketings —1979 122
5.7 Montana's Primary Retail Trade Areas 129
-------
ACKNOWLEDGEMENTS
Special recognition is extended to the Flathead Valley
Steering Committee, to Mr. Ron Cooper, Project Manager, to
Dr. Phil Brooks of the Department of Administration for
editorial assistance and to the Environmental Protection
Agency for their cooperation and assistance in preparing
this report. Recognition is also extended to Bruce Finnie
of ECO Northwest Ltd., for economic research, model develop-
ment and document preparation.
-------
1
1 INTRODUCTION
The well-being of any locality is closely, but not
exclusively, tied to economics. Anticipating the future of
the Flathead economy is important to local decision makers
in government and in private business. The events of the
past two years have vividly reinforced the fact that the
economy is unsure and often influenced by events beyond our
immediate control. Large-scale layoffs in the timber
industry, and the 1979 decline in tourism related to gas
availability and price are reminders of how suddenly lives
can be changed as a result of national and international
events.
The purpose of this document is to provide an evalua-
tion of the Flathead Valley economy; past, present and
future. An examination of the performance of the local
economy in terms of employment, unemployment, income, and
population then is first presented, followed by a series of
closer looks at the performance and current issues in each
major economic sector. Long-term growth scenarios are also
discussed. The final sections focus on the economic develo-
pment potential in the region and how local leaders may
affect the growth of the area. The intent of this report is
not to recommend directions but to summarize facts and
issues that will aid the decision makers who will help shape
the future of the Flathead Basin.
-------
2
2 COMPARATIVE GROWTH
2.0 SOME GENERAL PATTERNS
The Flathead Basin (Flathead, Lake and portions of
Sanders and Missoula Counties) has experienced much more
rapid growth than either the state or national norm. Figure
2.1 illustrates how the local economy outpaced both Montana
and the United States by a factor of nearly two to one over
the past decade. In order to either understand why such
rapid growth occurred, or if such growth will continue in
the future, it is instructive to distill the sources of
growth into component parts. In other words, why did the
growth take place?
Export base theory and the related concept of economic
multipliers helps to point out why the local growth rate has
been so high. This theory divides economic activity (income
and employment) into two categories; "basic and nonbasic."
Basic jobs or income bring money into the area, generally
through exports. Local examples include agriculture,
timber, primary metals (The Anaconda plant) and tourism.
These sectors support the nonbasic category such as retail
trade, services, and government related jobs. The principle
assumption of the theory is that nonbasic income and employ-
ment trends are related to the overall performance of the
basic industries. Figure 2.2 shows this link, i.e., non-
basic employment expands as basic jobs increase. A similar
-------
3
FIGURE 2.1
COMPARATIVE GROWTH
(1970-80)
50%
40%
30%
' 20%
POPULATION EMPLOYMENT
GROWTH GROWTH*
Sources: U.S. Bureau of the Census, 1980 Census of Population and
Housing, Advance Reports, Final Population and Housing Unit Counts,
Montana and United States Summary, issued February and April 1981
respectively.
Montana Department of Labor and Industry, Montana Employment
and Labor Force, February 1981.
U.S. Bureau of Labor Statistics, Monthly Labor Review, Vol.
104, No. 2, February 1981.
*Employment data not available for the portions of Sanders and
Missoula Counties in the Flathead Basin.
-------
4
FIGURE 2.2
NONBASIC/BASIC EMPLOYMENT
FLATHEAD COUNTY
9441
o
cx
UJ
o
NH
00
cr
CO
5424
6829
7180
BASIC EMPLOYMENT
7531
Source: Derived from U.S. Bureau of Economic Analysis,
Regional Economic Information System, unpublished employment
data, 1967-1979.
-------
5
link also exists between changes in basic employment and
population, i.e, basic employment rises and population
increases—basic employment falls and population declines.
The Flathead area's population grew rapidly last decade
since the area's basic economic sectors...timber, tourism,
and primary metals...were all expanding. Not surprisingly,
this expansion was much greater than that experienced state-
wide. From 1968 to 1978, for example, basic jobs statewide
increased 8.7 percent while local basic employment was up
15.2 percent. Basic employment increases by economic sector
are shown in Table 2.1
TABLE 2.1
Components of Basic Employment Change
(1968-1978)
Flathead Basin
State
Agriculture
-308
-7652
Mining
5
1420
Construction
169
341
Wood Products
154
1889
Other Manufacturing*
109
342
Transportation & Utilities
-122
647
Trade and Services**
348
8035
Government* * *
-207
-1514
Tourism/Travel
1288
7424
+1436
+10,932
Source: Derived from U.S. Bureau of Economic Analysis,
Regional Economic Information System, unpublished
employment data.
Note: * Includes Primary Metals
** Includes Non-farm Proprietors (non-agricultural
self-employed persons)
*** Includes Military
-------
6
The Flathead region accounted for about 19 percent of
Montana's entire population growth since 1970. The area's
total population change between 1970 and 1980 was exceeded
only by Yellowstone County and the Missoula area. Addi-
tionally, the Valley's rate of increase (31%) over that
decade was surpassed by only a few counties; Ravalli (56%),
Rosebud (64%), Jefferson (34%) and Gallatin (32%).
Table 2.2 and associated Figure 2.3 illustrate how
local population growth compared with other Montana coun-
ties. Table 2.2 and Figure 2.3 also point out some rather
interesting characteristics about growth in Montana. During
the 1950s and 1960s employment growth in most areas of
Montana was very slow. Growth in jobs was not keeping pace
with the natural population increase, i.e., births less
deaths. As a result, many Montanans went looking for work
elsewhere. The situation during the last decade was
different. Statewide employment expansion was sufficient to
halt Montana's long-term pattern of out-migration. In fact,
during the 1970s more people moved into Montana than moved
out. This in-migration was concentrated in a relative
handful of Montana's 56 counties, again shown in Table 2.2.
For all practical purposes, all of Montana's population
growth during the 1970s occurred in a dozen or so areas.
Most other counties, many of them rural and loosing agricul-
tural employment, still experienced out—migration. While
the state's overall economic performance was much improved
-------
TABLE 2.2
POPULATION GROWTH FOR MONTANA COUNTIES
Number of Population Growth
Group Counties 1970-80
Counties
Population Growth
1970-80
Percent of
Statewide
Growth
1970-80
Percent of
Population Higation
1980 1970-80
10
11
12
10
11
Greater than
36%
31% to 36%
25% to 31%
21% to 26%
16% to 21%
11% to 16%
6% to 11%
1% to 6%
-4% to 1%
-9% to -4%
-14% to -9%
Greater than
-14%
Rosebud
Flathead
Lake
Ravalli
Gallatin
Jefferson
Broadwater Lewis & Clark
Missoula
Mineral Richland
Yellowstone Sanders
Mussellshsell Stillwater
Carbon Park
11,951
29,268
28,252
25,373
1,660
2,482
Big Horn Custer Madison
Golden Valley Teton Sweet Grass 3,114
Blaine Hill Powell
Dawson Meagher Prairie
Fergus Pondera
2,434
Beaverhead Granite Lincoln
Judith Basin Cascade Phillips
Glacier Liberty Roosevelt 1,569
Wibaux
Carter Garfield Toole
Chouteau McCone Treasure
Petroleum Daniels Wheatland -2,309
Fallon Sheridan
Powder River Silver Bow
Valley
Deer Lodge
-5,452
-3,134
13.0%
31.8%
30.7%
27.6%
1.8%
2.7%
3.3%
2.6%
1.7%
-1.7%
-5.9%
-3.4%
4.1%
15.4%
15.6%
16.9%
1.2%
2.6%
5.1%
8.6%
18.1%
4.3%
6.5%
1.6%
+10,214
+21,478
+20,256
+16,256
+949
+928
0
-3,100
-13,793
-5,380
-10,239
-4,464
TOTAL
+92,070 100.0%
100.03
+33,105
Sources: U.S. Bureau of the Census, 1980 Census, Final Population and Housing
Units Counts. Migration estimates by Western Analysis, Inc.,
Helena, Montana.
-------
FIGURE 2.3
NUMBER OF COUNTIES BY POPULATION GROWTH RATE
Balanced
(6 Counties)
Out-Migration
(33 Counties)
10
Tn-Iligration
(17 Counties)
greater ,
than ~14"
-10%
0%
10%
20%
30%
36% or more
LOSS
GAIN
POPULATION GROWTH (1970-1980)
Source: Derived from Table 2.2.
-------
9
(the 1970s versus the 1960s) growth was far from uniform in
a spatial sense. The top 14 counties, those with over a 20
percent population gain between 1970 and 1980 accounted for:
° 97 percent of all population growth, and
° 98 percent of all basic employment growth
These growth-centers, and their sources of growth are listed
in Table 2.3.
-------
TABLE 2.3
GROWTH CENTERS AND SOURCES OF GROWTH
Growth Center
Billings
Missoula
Helena
Bozeman
Kalispell
Colstrip/
Decker
Population Change
Counties 1970-80
Income
Adjusted Basic
Employment Change
1970-80
Growth Sources
Yellowstone 20,668
Missoula/Sanders 28,136
Rava11j/Mineral
Lewis 5- Clark/ 12,290
Jefferson/Broadwater
Galatin/Park 11,823
Flathead/Lake 17,117
Rosebud/Big Horn 4,906
5,056 Trade/Manufacturing/
Transportation/Tourism
4,025 Construction/Wood Products
Transportation/Trade/Tourism
1,826 Primary Metals/Utilities/
Government/Tourism
2,352 Construction/Wood Products/
Electronics/Transportation/
Trade/Tourism
1,933 Primary Metals/Wood Products/
Tourism/Trade
2,044 Coal/Utilities/Construction
TOTAL 94,940 17,296
Sources: U.S. Bureau of the Census, 1980 Census; and Research and Statistical Services Bureau,
Montana Department of Administration, MASS II Model.
-------
11
2.1 A CLOSER LOOK AT SOURCES OF LOCAL GROWTH
Sources of growth vary from community to community.
While the definition of "basic" employment and income remain
the same, what is "basic" in one area may not be "basic" in
another. Table 2.4 summarizes the sectors that are basic
(bringing money into the local economy) in the Flathead
Basin. The wood products industry is the largest basic
employer in the area, agriculture is next, then tourism,
primary metals, retail trade, etc. The ranking changes
somewhat when the employment levels for each sector are
adjusted for differences in income. For example, tourism is
estimated to account for about 20 percent of total basic
jobs in the area but, less than 10 percent of the total
basic income. Tourism jobs typically pay "about" one-half
the norm for basic jobs. Wood products jobs pay more than
the norm. These adjustments are incorporated in Table 2.4
under the column labeled income adjusted. Comparisons of
the relative size of the basic sectors provides one view of
what drives the local economy.
A second and more meaningful measure of the relative
impact of the various basic sectors is to look at which
sectors are actually growing. This approach results in a
different interpretation. Figure 2.4 shows that growth in
the area was the result of expansion in primary metals, wood
products, tourism, and to lesser degree retail trade—
nonresidents purchasing goods and services in the county.
-------
12
TABLE 2.4
Relative Importance of Basic Sectors
(Flathead and Lake County Total)
1978
Percentage of Total
Unadjusted
Basic Employment Income Adjusted
Agriculture
20.8%
20.0%
Mining
0.2
0.3
Construction
4.7
5.1
Wood Products
23.2
28.4
Primary Metals
12 .3
18.2
Other Manufacturing
2.5
2.4
Transportation/
Communications &
5.2
8.1
Utilities
Trade and Services
11.0
8.3
Government
0.2
0.2
Tourism
19.9
9.1
Total
100.0%
100.0%
Source: Montana Department of Administration, MASS II Model.
Note:* Income adjustments are based on state averages.
These adjustments appear to overstate the local
importance of agriculture. This issue is dis-
cussed later in the section 5.1. The reader is
advised to review Table 2.20 and Figure 5.1 for
additional comparisons.
-------
FIGURE 2.4
RELATIVE BASIC GROWTH BY SECTOR*
FLATHEAD BASIN
(1968-78)
CD
Z
<
3:
o
e£
I—
O
<_>
o;
CJ
oo
CO
o
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
+58.6%
fO
+->
>
to
E
S-
Q_
o
Z3
T3
O
S-
a.
"O
o
o
+44.7%
E
•r—
S-
13
O
+32.6%
+10.8%
a)
-a
s-
O)
i-
ZJ
3
O
i.
C7>
«C
o
o
S-
ZJ
u
ftJ
3
C
fd
t-
a>
-9.4%
~
-11.7%
-26.1%
Source: Montana Department of Administration,
MASS II Model.
*Note: Income adjusted basic employment
-------
14
Agriculture, government, and other manufacturing were
loosing employment—in effect retarding overall growth. It
is important to recognize, however, that agriculture,
federal government, and light manufacturing are important
economic sectors within the local economy. Collectively
these industrial groups represent or support 23.5 percent of
all activity in the area even though they are not growing.
The decline in other manufacturing from 1968-78 was the
result of a one-time plant closing (a camper/trailer firm).
The decline in agriculture is part of a long-term and con-
tinuing adjustment in farm size due to increasing produc-
tivity, i.e., fewer and fewer workers required to produce an
increasing amount of output. Each basic sector and its
long-run growth perspective is discussed in Chapters 3-5.
2.2 CHANGING EMPLOYMENT PATTERNS
Most of the employment growth in the Flathead Region,
Montana and throughout the nation has occurred in the
service sector (public and private) as opposed to commodity
producing businesses. In the Flathead area, only eight
percent of all employment expansion between 1968-1978 took
place in sectors which produce a tangible product, i.e.,
agriculture, mining, construction, and manufacturing. Ninety
two percent of all growth resulted from expansion of the
-------
15
service sector—retail trade, professional services,
finance, trucking, government, etc. Table 2.5 illustrates
this pattern of uneven growth across economic sectors.
TABLE 2.5
Flathead Basin Employment
1968 1978
Farm Related 2618 2270
Mining 17 22
Construction 798 1445
Manufacturing 4030 4425
Transportation &
Utilities 1286 1511
Wholesale -
Retail Trade 3280 5434
Finance &
Real Estate 375 861
Services 1976 3989
Nonfarm Proprietors 2024 3526
Government 3441 4800
Total 19,845 28,283
Source: U.S. Bureau of Economic
Economic Information System.
change
-348
5
647
395
225
2154
486
2013
1502
1359
8438
Percent of
Change
-4.1%
0.0%
7.7%
4.7%
2.7%
25.5%
5.8%
23.9%
17.8%
16 ¦ 1%
100.0%
Analysis, Regional
Today, only 29 percent of the area's employed workforce
is engaged in the production of commodities. The vast
majority are involved with the exchange of commodities, with
the provision of services, the transportation of products,
or in the public sector. At the state level twenty four
percent of all workers are employed in goods producing
industries. The national figure for comparison is similar
at twenty six percent of the total employed labor force.
This uneven growth—commodity versus noncommodity—may
be puzzling to those who believe that services and trade
-------
16
jobs can come only as a result of industrial development.
It is important to remember that at the turn of the century,
the majority of the national labor force was employed in
some form of primary production, i.e., food, lumber, metals,
etc. These industries have experienced rapid productivity
gains, requiring relatively fewer production workers for an
increasing amount of either physical or real dollar output.
Also, overall income has increased, both in Montana and
nationally, bidding up the demand for nonbasic activity. As
a related phenomenon, the state and national became in-
creasingly urbanized.
More recently, there has been a large increase in the
labor force as a result of a change in the age structure of
the population. The "baby boom" has resulted in more people
entering the labor force than ever before. The age effect,
coupled with the fact that more women are working outside
the home, has greatly expanded the number of individuals
seeking employment. The commodity producing industries,
where productivity has grown the most, have been unable to
provide employment for these new workers. The service and
trade sectors have not experienced this rapid growth in
productivity and have largely absorbed these individuals.
Simultaneously, consumption of the output of the service and
trade sectors has grown. Public and private sector services
more often are substituted for activities once provided in
the home. Purchases by both businesses and final consumers
over time have shown a significant increase in "nonmaterial"
consumption and employment. Furthermore, it is likely that
-------
17
this pattern of growth will hold in the future. Although it
is true that many of the positions offered in these sectors
have been part-time, even after adjustment to full-time
equivalents, the rate of increase in employment has been
great.
2.3 EMPLOYMENT MULTIPLIERS AND CHANGING EMPLOYMENT MIX
The shift from a goods producing to a service oriented
economy does not, however, detract from the export base
theory of growth. Areas which have increases in basic
employment or income will have comparatively more rapid
expansion in noribasic employment and therefore total jobs.
Conversely, local economies with a declining base will not
have normal secondary expansion or very likely, will
experience an actual decline drop in nonbasic jobs. The
service shift has, nevertheless, affected the number of
nonbasic jobs that can be supported by a basic job. For
example, in 1968 a basic job supported .98 nonbasic jobs in
Flathead County and .90 nonbasic jobs in Lake County. By
1978, the most recent information that we have, this ratio
had increased to 1.35 and 1.25 nonbasic jobs per basic job
in each respective county. These ratios, commonly known as
multipliers vary between economic sectors as shown in Table
2.6. The variations in the multipliers simply reflect income
-------
18
TABLE 2.6
SELECTED EMPLOYMENT MULTIPLIERS
1978
Flathead County
Adjusted Unadjusted
Lake County
Adjusted Unadjusted
Primary Metals
Wood Products
Tourism
Other Manufacturing
Federal Government
Agriculture
1.96
1.71
.71
1.54
1.92
1.35
2.29
2.00
.83
1.80
2.24
1.57
n/a
1.59
. 66
1.43
1.79
1.25
n/a
1.89
.78
1.70
2.12
1.49
Source: Montana Department of Administration, MASS II Model
n/a = Not applicable
differences between sectors. That is, the multiplier for
wood products is higher than tourism since the average wood
products employee makes over two times as much as the
typical worker in the tourism industry. Higher wages simply
support more nonbasic activity. The Flathead county ratios
are higher than Lake's since Kalispell is a trade-center.
People from Lake County and the surrounding region buy goods
and services in Kalispell which makes their multiplier
higher and conversely the rural areas lower than the norm.
(The affect of trade leakages is discussed in greater detail
in Chapter 5.) As an example of how to interpret Table 2.6,
if employment in wood products (Flathead County) increased
by 100 the total employment impact would be:
Wood Products +100
Non basic jobs 100 X 1.71 = 171
Total Impact
+271 jobs
-------
19
Multipliers should only be applied when the effect is
permanent. A short-term change in basic employment such as
the current, but temporary downturn in wood products employ-
ment, will not have an immediate impact on secondary employ-
ment. Therefore, use of a multiplier is not appropriate.
However, if the decline were permanent, the multipliers
shown in Table 2.6 provide a good estimate of long-term
local impact. Multipliers are no more than a convenient way
to estimate the overall effect, primary and secondary, of a
change in basic employment. The ratios reveal that a change
in basic activity has a corresponding effect on other forms
of employment (nonbasic) in the local area.
Two different types of multipliers are provided in
Table 2.6—an unadjusted and an adjusted employment mul-
tiplier. The adjusted multipliers account for the fact that
a nonbasic job pays less than a basic job. The unadjusted
multipliers do not reflect this difference. The lower
adjusted multipliers more accurately reflect the local
impact of a change in employment. The higher unadjusted
figures overstate impact since the nonbasic job effect does
not account for part-time employment, a common occurrence in
the nonbasic sectors.
How well does this theory hold in explaining growth
patterns? Most of the county level nonbasic employment
variation (throughout Montana) is associated with a corres-
-------
20
ponding county level increase or decrease in basic activity.
The impact of basic jobs on the overall population level is
even more pronounced. Areas simply do not grow without a
basic employment or income stimulus. It is very important
to keep in mind, however, that an area can experience some
nonbasic employment growth if its basic employment level is
constant. Remember, a basic job today supports more non-
basic workers (many of them part-time) than it did a few
years ago. The changing multipliers are all part of the
service sector shift discussed above.
Of the 5391 job increase in nonbasic employment which
took place between 1968 and 1978 in Flathead County, nearly
two thirds of the increase was the result of changes in
service sector orientation. The rest was attributable to
basic job growth. If adjustments are made to reflect income
differences between basic and nonbasic jobs; then 60 percent
of the nonbasic expansion was the direct result of basic
expansion; the other 40 percent stemming from changes in
service concentration change. The overall impact of basic
employment on growth is somewhat easier to relate to popu-
lation change where nearly all population change was
directly linked to basic job growth.
-------
21
2.4 SIZE OF FIRM FOR NEW EMPLOYMENT
The shift from a commodity to a service oriented
economy has resulted in a major shift in the distribution of
jobs between big and small firms. No local data are avail-
able but in Montana and throughout the nation, it is the
small firms which contribute crucially to new job creation.
For example, nearly 75 percent of private employment in
Montana is found in firms with fewer than 50 workers (see
Table 2.7). Over 60 percent of the 1970-1976 growth in
private employment occurred in firms of this size (see Table
2.8). The significance of small firms for employment growth
nationally also is important to note. Their ability to add
new jobs has increased relative to large businesses. Total
jobs in businesses employing less than 100 people increased
13.2 percent between 1967-1972, compared with 8.9 percent
for businesses employing over 1000 workers. A decade
earlier large firms grew three times as fast as small firms.
Most of the new private jobs have been in small inde-
pendent businesses. The data, however, should be inter-
preted cautiously nearly all of the local, state and
national employment growth since 1970 took place in the
trade and service sectors. At the local level, this type of
expansion is to a great extent, a response to "basic"
employment rather than a cause of growth.
-------
22
TABLE 2.7
Montana Business Size Comparison
(Private Wage and Salary Employment*)
1977
Percent of
Percent of
Business Size
Total
Total
(employees)
Establishments
Emplovment
1-4
53.0
16.8
5-9
18.3
13.3
10-19
10.7
16. 2
20-49
5.7
20.4
50-99
1.4
8.8
100-249
0.6
10.2
250-499
0.1
3.5
500-599
0.1
3.0
> 1000
0.1
7.8
100.0%
100.0%
Sources: Derived from U.S. Bureau of the Census, County
Business Patterns, Montana Summary, 1976.
Research and Analysis Section, Montana Depart-
ment of Labor and Industry, 202 and 790 employment
series, 1977.
Note: * Excludes agriculture, government, and non-farm
proprietors self-employed persons.
-------
23
TABLE 2.8
Private Nonagricultural
Employment Growth By Size of Establishment
Montana
(1970-1976)
Number of Employees
Per Establishment
Percentage of Statewide
Employment Growth
(1970-1976)
1-19
20-49
50-99
100-249
> 500
43 .0
19.5
7.6
17.0
12.9
100.0%
Sources: Derived from U.S. Bureau of the Census, County
Business Patterns, Montana summary, 1976.
Montana Department of Labor and Industry, 202
and 790 employment series, 1970 and 1976.
2.5 UNEMPLOYMENT
The unemployment rate probably is the most frequently
used statistic in economic discussions and perhaps the most
misunderstood. Its calculation depends on two factors: the
level of employment and the total size of the labor force.
Data for the former are gathered regularly and can be
accurately determined. But the "size of the labor force" is
difficult even to define and its calculation requires many
assumptions, e.g., who is actively seeking employment?
Table 2.9 provides recent unemployment rate data for
the local area, the state and the nation. It is important
to note that the unemployment rate in the state and through-
-------
24
out the nation has increased in the last several decades.
This general rise has been primarily the result of the
tremendous growth in the labor force since the mid 1960s.
As mentioned earlier, the "baby boom" has resulted in more
people entering the labor force than ever before. This
effect, coupled with the fact that many women are seeking
employment outside the home, has greatly expanded the labor
force. The basic industries, where productivity has grown
the most, have not been able to provide employment for these
new workers. And as a consequence of increasing income and
a rapidly expanding supply of workers, the service trade
sectors have absorbed most, but not all of these new
entrants into the labor force. Therefore, total employment
growth has been somewhat less than the increase in the
number of individuals seeking jobs, resulting in a long-term
increase in the overall unemployment rate. But, as the
impact of the "baby boom" fades, unemployment rates should
improve.
As a result of these structural changes, it is diffi-
cult to say whether unemployment is "really" higher than it
was ten or twenty years ago since our current rates are
measuring a very different phenomenon. After adjustments
are made for average hours worked, productivity per worker,
and demographic waves, it is "possible" that real unemploy-
ment has remained constant.
-------
25
TABLE 2.9
Unemployment Rates for the Civilian Labor Force
Annual Average Unemployment Rates
Flathead Co.
Lake Co.
Montana
U.S.
1970
7.0%
6.7%
4.3%
4.9%
1971
6.9%
6.4%
4.8%
5.9%
1972
7.2%
5.5%
4.8%
5.6%
1973
7.0%
5.-i%
4.8%
4.9%
1974
9.3%
6.4%
5.2%
5.6%
1975
10.2%
8.1%
6.4%
8.5%
1976
9.2%
7.2%
6.1%
7-7%
1977
8.8%
6.9%
6.4%
7.0%
1978
7.8%
6-5%
6.0%
6.0%
1979
6.9%
6.1%
5.1%
5.8%
1980
8.5%
7.1%
6.0%
7.1%
Sources: Montana Department of Labor and Industry, Montana
Employment and Labor Force, February 1981.
U.S. Bureau of Labor Statistics, Monthly Labor
Review, February 1981.
TABLE 2.10
Unemployment Comparison
Unemployment Employment Growth
1976-1980 Percent Change
Average 1975-1980
Flathead 8.2% 32.5%
Lake 6.8% 22.4%
Montana 5.9% 16.6%
Source: Montana Department of Labor and Industry, Montana
Employment and Labor Force, February 1981.
-------
26
Tables 2.9 and 2.10 indicate that local unemployment
exceeds the state or national norm even though the area's
employment growth has been comparatively rapid. This is an
interesting phenomenon, but not unusual. There are sub-
stantial variations in the rate of unemployment at the
county level. For example during 1975, unemployment rates
ranged from a low of 2.5 percent in Daniels County to a high
of 16.6 percent in Lincoln County—following the completion
of Libby Dam.
Unemployment generally has been much higher in western
Montana than throughout the rest of the state, particularly
in the eastern agricultural region. This imbalance has
existed for years. This persistent difference apparently
has been the result of three factors—seasonality, employ-
ment growth and population change.
Employment in western Montana is subject to large
seasonal variations—fluctuations in employment over the
course of a year due mostly to climate and industrial mix.
Large seasonal variations in employment mean that sub-
stantial numbers of workers will be unemployed during part
of the year; this results in a higher annual rate of unem-
ployment. Outdoor industries such as wood products-
especially logging—are affected by severe winter weather
and spring thaws; tourist-related activities, although
increasing in the winter season, still are concentrated in
-------
27
the summer months as a result of custom and climate. The
importance of these two seasonal industries in western
Montana contributes to the area's high unemployment rate.
Figure 2.5 illustrates the relationship between the season-
ality of employment and annual rates of unemployment, and
clearly shows the tendency toward higher unemployment rates
in western Montana counties.
The data indicate, paradoxically, that counties with
lower than average employment growth generally have low
unemployment rates. Correspondingly, areas with high
employment growth have higher than average unemployment
rates. The data also show that areas with rapid population
growth have high unemployment. Conversely, counties with
slow population growth or declining population have lower
than average unemployment.
No single variable fully explains, for example, why
Montana's western counties have unemployment rates much
higher than the eastern counties. However, all three
variables (population growth, employment growth and season-
ality) in combination explain much of the variation. There
are no laws in economics, only general tendencies. In this
instance, these tendencies are:
-------
28
FIGURE 2.5
UNEMPLOYMENT AND SEASONALITY
OF EMPLOYMENT
Lincom •
LOW MEDIUM HIGH
SEASONALITY INDEX
Source: Montana Office of Commerce and
Small Business Development, Economic
Conditions in Montana: Report of the
Governor, 1930.
-------
29
(1) If any area's population growth exceeds employment
growth, unemployment will be generally high. This only
makes sense; it is interesting to note, however, that employ-
ment growth is usually higher in areas of relatively high
unemployment and that unemployment is lower in areas with
slow employment growth. Areas of high employment growth
also have high population growth which forces unemployment
upward. Areas with slow employment growth usually have
out-migration which tends to reduce the unemployment rate.
These tendencies hold true throughout the nation as well as
within Montana.
(2) Much of the county variation in unemployment
appears to be the result of industrial mix. This factor is
as important as either population or employment growth. If
an area has a high concentration of seasonal industries, as
is the case in western Montana, unemployment will be higher
than an area with less seasonal influence.
Table 2.11 shows the seasonality of each industry for
Montana and the nation. Note that the local economy has an
even higher concentration in seasonal industries (wood
products, construction, and toursim) than the state norm.
-------
30
TABLE 2.11
Seasonality Comparison*
(Average 1960-1975)
United States
Seasonality
Index
Montana
Seasonality
Index
Lumber and Wood Products
20%
8%
Primary Metals
15%
7%
Other Durables
19%
7%
Food and Kindred Products
20%
12%
Other Nondurables
7%
3%
Metal Mining
8%
6%
Coal and Other Non-
metallic Mining
18%
10%
Oil and Gas
22%
5%
Construction
50%
20%
Railroad
8%
5%
Other Transportation
12%
4%
Communications and Utilities
7%
4%
Wholesale Trade
7%
4%
Retail General Merchandise
23%
25%
Food Stores
10%
5%
Automotive
11%
4%
Eating and Drinking
29%
12%
Building, Furniture, Misc.
14%
8%
Finance, Insurance and
Real Estate
6%
4%
Hotels
55%
24%
Other Services
7%
5%
Federal Government
22%
4%
State and Local Government
8%
10%
Source: Derived from monthly state and national employment
data, Montana Department of Labor and Industry,
and U.S. Bureau of Labor Statistics.
* Note: Defined as percent variation per year from the
yearly mean value; i.e., monthly high minus
monthly low divided by the yearly average.
-------
31
2.6 EMPLOYMENT AND POPULATION GROWTH
Natural population growth (births less deaths) is
generally not related to economic activity. An area's birth
rate is much more the product of social attitudes and life-
style. While it is true that lower income classes have
higher than average birth rates, the variation across states
and counties is not a significant influence on population
change. For similar reasons life expectancy is functionally
related to lifestyle and stress. Income influences while
present are not a major factor in determining an area's
natural population growth.
The second component of population change — migra-
tion-is very much related to relative economic growth. If
an area is growing faster than the norm, the area will
attract people. Jobs are available and people follow jobs.
Those counties which have slow growth will lose population
through out-migration. In these cases, job expansion is not
keeping pace with the natural population (and labor force)
growth and individuals are forced to seek work elsewhere.
In Montana, 99 percent of the variation in county population
levels is explained by county employment. There are only
two Montana counties where county population is higher than
one would expect, given the local employment base. These
two counties are Ravalli and Lake where some "limited"
non-employment growth has occurred. Lake County has a
-------
32
relative concentration of older individuals (suggesting
retirement migration). This growth influence, however, has
been relatively minor. This issue is discussed in more
detail in the next section.
Figure 2.6 illustrates the link between population and
basic jobs for those Montana counties which experienced
population expansion exceeding 10 percent from 1970 to 1980.
Essentially all of the statewide growth took place in these
same counties. Note that the Missoula area (Missoula,
Ravalli and Mineral Counties) is not exactly on the solid
line shown in Figure 2.6. The point representing Missoula
is above the line, indicating a higher poplation level than
you would expect given the basic employment figure. Some
non-employment related population (students) is present.
People may be moving into the area without jobs. While such
an event does occur it is important to realize that it is
atypical.
While basic employment expansion and population growth
are closely linked, the population effects of overall
employment increases are more difficult to analyze. The
population change resulting from growth in the nonbasic
sector is generally much lower than that resulting from an
increase in basic activity. In Montana, many of the jobs
within the nonbasic sectors have been filled by women
entering the labor force and, as a result, migration effects
have been negligible. It is not surprising, then, that
employment currently is growing much faster than population.
-------
33
FIGURE 2.6
GROWTH AREAS AND
BASIC EMPLOYMENT AND POPULATION
5000 10000 15000 20000
Basic Employment (Income Adjusted)
Source: Montana Department of Administration,
MASS II Model.
-------
34
An additional basic job has several effects. First the
new basic job has a direct impact. Commonly, an entire
family unit is associated with a basic job. This direct
effect accounts for approximately three people. In Montana,
each basic job, however, supports approximately 5.5 people.
The difference, or 2.5 people, is the result of an induced
effect through the number of nonbasic jobs and resultant
population supported by these positions. High income jobs,
therefore, support more overall people than lower paying
jobs. Although there is variation in the number of people
supported per basic job between counties, the variation is
for the most part related to commuting patterns; i.e.,
people may work in one county and live in another.
Between 1969 and 1979, income adjusted basic jobs grew
by 2347 in Flathead County. This increase would support an
additional 12,908 people (2347 x 5.5) which is very close to
the actual 1970-80 population increase of 12,506 people for
Flathead County. The export base theory of growth seems to
hold up well. Table 2.12 shows the population ratios for
each basic sector in Flathead and Lake County.
-------
35
TABLE 2.12
Population Ratios
(Number of People per Basic Job)
Flathead County-
Lake County
Unadjusted Adjusted
Primary Metals
Wood Products
Tourism
Cther Manufacturing
Federal Government
Agriculture
8.1
7.1
2.9
6.4
8.0
5.6
n/a
8.5
3.5
7.7
9.6
6.7
n/a
7.1
2.9
6.4
8.0
5.6
Source: Montana Department of Administration, MASS II
Model
n/a = Not applicable
The reader should note that the unadjusted number of
people supported per basic job in Lake County is higher than
in Flathead. The higher ratio is the result of two causes.
First, there are more people over 55 in Lake County than the
state norm—23.5% of the total population versus 19.8% at
the state level. This suggests that approximately 700
individuals "may" have moved to Lake County for non-employ-
ment reasons. Also, there are fewer people working in Lake
County (the result of the reservation) relative to the
population base: 39 percent versus 45 percent at the state
level. This is common in rural areas since some of the Lake
County income flows to Flathead because Lake County resi-
dents shop in Kalispell. (These trade-flows are discussed
in Chapter 5.) These two adjustments equate the ratios as
shown in the adjusted Lake County column in Table 2.12.
-------
36
As with employment multipliers, some discretion must be
used when using population multipliers. Only permanent
changes in basic employment affect population. For example,
the temporary downturn in wood products employment will not
immediately affect population. A long-term decline in this
industry would, however, result in a population loss. Also,
when a plant closes as was the case in Anaconda, Montana,
the impacts can be less since many people may retire early
and remain in the area. Some maintenance of the facility is
necessary which also helps to offset the loss. Additionally
not all people who work in a county live or shop in the same
county. As a result, a large scale drop in employment will
have a smaller impact than a crude population ratio would
suggest. Based on the experience in Anaconda, Montana, when
the smelter closed, the author recommends reducing the
impact multiplier by half in a declining situation. Hypo-
thetically, if 500 jobs in wood products were lost in Flat-
head County, the population would be closer to 1800 as
opposed to 3600 as the multipliers in Table 2.12 infer.
Without doubt, all simple theories have exceptions.
2.7 COMPONENTS OF POPULATION CHANGE
The previous section discussed one aspect of the nature
of population change, i.e, the employment growth impact on
population. The fertility and mortality components of
population growth are also important.
-------
37
Three drastic variations in the rate at which national
population reproduces and increases itself have occurred in
the past half century. The first was the "birth dearth" of
the Depression years when total births dropped to about 2.5
million from an average of close to 3 million a year.
During those years the number of children born to the
average woman declined to close to 2.1 births per life
time—the replacement level that would result in a stable
population if maintained indefinitely. The second shift,
the well-published "baby boom" of the post World War II era,
witnessed a fertility rate of 3.8, and the number of births
per year exceeded 4 million during the mid-1950*s. The
first, shift, often known as the "baby bust" has been marked
by a progressively steep decline in the fertility rate. In
1976, a low point to date, the fertility rate was 1.77 with
3.17 million births occurring nation-wide that year. Since
then, both the fertility rate and number of births have
slightly increased, but the overall rate is still well below
the natural replacement level. Nevertheless, some demo-
graphers anticipate that the fertility rate will increase in
the future to approximately the replacement level by 1990.
Although Montana's historical fertility and mortality rates
have been slightly higher than the national norm, the domi-
nant reason for the difference in population growth rates
between Montana and the nation has been the result of migra-
-------
38
tion. This has been true also for the Flathead area.
Between 1970 and 1980, the author estimates that 12,800
individuals moved into the area.
Table 2.13 reveals the importance of in-migration for
the Region as well as Montana between 1970 and 1980. Of the
total population change in the local area, 75 percent of the
increase was due to in-migration—new people. They came
because of available jobs not just because the area is a
nice place in which to live. At the state level, 36 percent
of the increase was the result of in-migration. The impor-
tance of migration statewide is less significant than in the
local area since overall Montana employment expansion was
less. The natural growth estimates were based on Montana
birth and death patterns since 1970, i.e, an eight percent
expansion due to natural causes since 1970. More precise
data on natural growth will be available within a year.
County specific vital rates do not as a rule significantly
vary from the state norm.
-------
39
TABLE 2.13
COMPONENTS OF POPULATION CHANGE
1970-1980
Natural Growth + Migration = Total Change
Flathead
3,100
9,400
12,500
Lake
1,200
3,400
4,600
Region
4,300
12,800
17,100
Montana
58,700
33,400
92,300
Sources: Derived from Bureau of Records and Statistics,
Montana Department of Health and Environmental
Sciences, and from the U.S. Bureau of Census, 1980
Census, Final Population Counts).
As mentioned earlier, some of the local growth in Lake
County appears to have been the result of retirement. As
shown below in Table 2.14. Lake County has relatively more
older individuals. The proportion of the total population
over 55 in Flathead is not, however, signficantly different
from the state average.
TABLE 2.14
Percent of Population
Percent of Population Receiving Social
over 55 years of age Security Benefits
Flathead County 19.4% 8.5%
Lake County 23.5% 10-1%
Montana 19.8% 8.2%
Sources: U.S. Bureau of the Census, 1980 Census of Popula-
tion and Housing, Summary Tape File 1A, Montana.
Social Security Administration, unpublished 1980
county records, Helena, Montana.
-------
40
Normally, most migrants are young. Table 2.15 illus-
trates that three-fourths of all migrants are under 35 years
old. Thus as a result, those areas in Montana which have
experienced long-term out-migration have higher than average
median ages since the young people leave and the older
individuals remain. Over an extended period, the loss of an
area's youth (and often times talent) can further retard
local growth prospects. Conversely, rapidly growing areas
with high in-migration generally have somewhat lower median
ages since younger individuals are moving in. In the case
of Lake and Ravalli Counties (south of Missoula) the situa-
tion is somewhat different, some older individuals are
migrating into these counties.
Table 2.16 shows the age distribution for Flathead and
Lake Counties and the state. Tables 2.16 and 2.14 both
indicate relatively more people in the higher age groups. As
mentioned earlier, this occurrence may suggest retirement
migration. It could also be indicative of past migration
patterns. For example, Table 2.17 shows that during the
1950 to 1960 period 2,346 individuals left Lake County.
This comparatively high level of out-migration given the
county's small population base may explain why Lake County
currently has more older people. That is, the people that
left during the 1950's were young. Conversely, those
individuals who stayed were relatively older—over 30 years
-------
41
old. Today these individuals would be in their 60s and 70s.
In other words, the retirement migration argument may be of
no consequence.
TABLE 2.15
MIGRATION TABLE
1975-1978
Age
Percent of Total
0-4
10.0%
5-9
9.8%
10-14
7.5%
15-19
7.0%
20-24
15.9%
25-29
15.1%
30-34
10.3%
35-39
6.4%
40-44
4.3%
45-49
3.2%
50-54
2.6%
55-59
2.3%
60-64
1-9%
65-69
1.9%
70-74
0.9%
75 >
1.2%
100.0%
Source: U.S. Bureau of the Census, Current Population
Reports, Series P-20, No. 331, "Geographical
Mobility: March 1975 to March 1978," 1978.
-------
42
TABLE 2.16
1980 AGE DISTRIBUTION
Percent of Total
Age Flathead Lake Montana
-/o
0-4 8.2% 9.0%
5-9 7.9% 8.1% 7.7%
10-19 17.2% 17.9% 17.4%
20-29 17.3% 14.8% 18.5%
30-44 20.5% 17.6% 19.0%
45-59 14.1% 13.8% 14.0%
60-74 10.7% 13.8% 11.0%
75> 4.1% 5.0% 4.2%
Total 100.00% 100.0% 100.0%
Source: U.S. Bureau of the Census, 1980 Census of
Population and Housing, Summary Tape File 1A,
Montana.
TABLE 2.17
NET MIGRATION
Lake County Flathead County
Montana
1970-80
1960-70
1950-60
+3,400
+ 218
-2,346
+9,400
+3,308
-3,564
+33,400
-58,153
-24,578
Source: U.S. Bureau of the Census, 1970-1980 estimates
from Table 2.13
-------
43
2.8 DEMOGRAPHIC WAVES
The unstabilizing effects of major changes in fertility
rates coupled with volatile migration patterns, have and
will continue to result in major waves in Montana's popu-
lation. In the past, some cohorts, or age groups, expanded
dramatically, but in the future they will shrink abruptly.
Other cohorts will shrink and then expand much faster than
the overall population level, all as a result of changes
which took place years ago but are only now being felt.
These waves are shown for Montana in Figure 2.7. Analysis
of the local impact of the demographic composition of the
population is included in the projections section of this
report.
Demographer Denis Johnston of the Census Bureau has
vividly depicted the "baby boom" as being similar to a
"melon being digested by a boa constrictor..-it will undergo
strains and pose a succession of problems for the nation's
institutions as it moves through the age cycle." A few
examples of these strains so far have included:
Declining grade and high school enrollment.
Rising unemployment and inflation as a result of
rapid increases in the number of new entrants into
labor force.
A dramatic increase in the demand for new homes
and a host of other consumer products targeted at
specific age groups. The post-war babies are now
young adults with their own families. Since 1970,
the number of new Montana households has grown by
-------
44
approximately 56,000, a 26 percent increase.
National increases were more on the order of 20
percent. The aggregate economic and social impact
of age structure changes has been significant. In
addition to an increased demand for new homes, a
host of other consumer products have been targeted
at specific age groups (recreational forms and
facilities, quick-food restaurants, clothing
styles, etc.). The effects extend from the expan-
sion of credit to school enrollment cycles as well
as to the composition and growth of the labor
force mentioned earlier.
Rising crime rates related to a short-term swell
in the number of young individuals who are more
prone to commit crime.
Future impacts will include:
Declining college enrollment.
Slower economic exansion but lower inflation and
unemployment resulting from slower labor force
growth.
Mounting costs of retirement and health care
programs as the population becomes older.
Falling crime rates as the relative number of
young people declines.
2.9 PER CAPITA INCOME
Table 2.18 provides per capita income and personal
income per employee for the local economy and for Montana.
Flathead County's per capita income is slightly above the
state norm while Lake County's per capita level is approxi-
mately 27 percent below the Montana average.
-------
45
FIGURE 2.7
DEMOGRAPHIC PATTERNS
i:0000 - /
Y
MONTANA SCHOOL COHORT
(6-13 Years of Age)
uooco
POPULATION!
MONTANA HIGH CRIME RISK COHORT
(18-34 Years of Age)
MONTANA HIGH SCHOOL COHORT
(14-17 Years of Age|
/
MONTANA LABOR FORCE COHORT
(16-64 Years of Aqa)
»OPtJLAtlONl
19#0 1986 '970 197S '9«0 '905 ?W>
•960 1 965 1970 '975 ' 980 '985 1990
MONTANA COLLEGE COHORT
(18-21 Years of Age)
Y
•960 '365 '970 -975 -93Q
¦?05 990
MONTANA RETIREMENT COHORT
(Over 65 Years of Age)
'360 !985 '970
¦a?5 ' 980 '988 ' ««0
Source: Demographics and Public Planning, Governor's Office, 1979.
-------
46
Lake County's relatively low income is the result of
several influences. First, and probably most significant,
Lake County's population is 17 percent Native American. No
current Native American income data are available, however,
it is safe to assume that income is very low on the Flathead
Reservation. The 1970 Bureau of the Census data indicate
that the median family income on the reservation was 41
percent lower than the comparable state figure. If this
same difference is still present, about 7 points of the 27
point difference in per capita income can be explained by
lower Native American income. Lake County also has a slight
concentration in lower paying industries (see income concen-
tration index) and fewer people working relative to the
population base. The employment/population rate is also 13
percent lower than the state average. Fewer people working
results in lower per capita income.
The per capita income levels in both counties would be
higher in the absence of employment seasonality. For
example, the seasonality index for Flathead County is 13.5
percent. This index implies a 13.5 percent variation in
employment from the highest employment month to the lowest
month. Seasonal variation due to industry mix at the state
level is nine percent. The industrial mix (a concentration
in wood products and tourism) adds approximately two points
to Flathead's average unemployment rate. if unemployment
-------
47
TABLE 2.18
PER CAPITA INCOME
(Five Year Average: 1975-1979 Unless Specified)
Percent of State
Flathead Lake Montana Flathead Lake
Per Capita Income (1)
$ 6,
,406
$ 4,
596
$ 6.318
101.
¦ 4%
72.
.7%
Personal Income per
Employee (1)
$15;
,141
$13,
647
$14,127
107.
¦ 2%
96.
.6%
Unemployment Rate (2)
8.
.6%
7.
0%
6.0%
143.
• 3%
1.
17%
1980 Employment/Populat
ion
8%
Rate (3)
40,
.6%
38.
44.7%
90.
.8%
86.
.8%
1975 Seasonality
3%
Index (4)
13,
.5%
9.
9.0%
150,
.0%
103
.2%
1978 Income Concentration
Index (4)
104,
.0%
95.
8%
100.0%
104
• 0%
95,
.8%
Sources: 1 U.S. Bureau of Economic Analysis, Regional Economic Informa-
tion System
2 Montana Department of Labor and Industry, Montana Employment
and Labor Force, February 1981.
3 U.S. Bureau of the Census, 1980 Census, Final Population &
Housing Unit Counts.
4 See derivation below:
— 23
Calculation of Seasonality Index = ) X.E../E.
j=1 Zj J J
Where X. = seasonal index for industry
E.. J = employment in industry , codntyi
ani E. = employment in industry?, state
J J
X. was derived using monthly state data (790 Employment Series) from
l§60-75 and was calculated for each industry as follows:
X. = High-Low Employment Month
Average Employment
Earnings Index =
percent of total
Earnings per worker industry. Montana x employment industry.
Average earnings per worker ^Montana) (County^) ^
-------
48
were lower, Flathead's per capita income level would exceed
the state average by more than the current one percent. It
is, however, important to realize that Montana's per capita
income area is below the national norm. Since 1970 Montana
per capita income levels have averaged 12 percentage points
below the U.S. base.
One of the more frequently asked questions concerning
Montana's economy is: Why is per capita income 12 percent
lower than the national norm? There are no definitive
explanations, but several possibilities exist.
—Employment in nearly all Montana industries is more
seasonal than their national counterparts. Montana's
employment base also is concentrated in industries which are
more seasonal than their national counterparts. In other
words, many individuals may not work year around in Montana,
thus reducing the per capita income level. This effect may
account for roughly seven percentage points of the income
gap.
—One commonly advanced explanation for Montana's lower
per capita income level is that the state's economy has a
larger than normal concentration of low paying industries.
This does not appear to be true? in fact, most Montana
hourly wage rates are somewhat above the national norm. And,
since average weekly hours worked per employed person
-------
49
are comparable to the national level, the seasonality hypo-
thesis again is confirmed. In other words, since Montana
wages are slightly higher than the national level and work
weeks (hours) are similar, a substantive part of the work
force must not be employed year-round.
—Another factor which may contribute to Montana's
lower per capita income is the state's population growth.
With income rising at the national rate and population
growing faster than the national average, changes in per
capita levels in Montana will be less than the national
increase. In addition, estimation error in population
during the 1970s would account for about 1.4 points of the
discrepancy between Montana and national per capital/income
levels. In other words, Montana per capita income levels
were underestimated by approximately one percent during this
period.
— The cost of living may be lower in Montana than
nation wide. Although no state-specific income adjustments
exist, regional deflators suggests that prices are slightly
lower in the western region of the country. If this is
true, the "real" difference between Montana and the nation
is less than 12 percent.
—The costs of crime, pollution, congestion, and com-
muter travel appear to be lower in Montana. Also, nearly
all Montanans live within areas which other Americans are
-------
50
willing to spend literally days and hundreds of dollars to
visit. Even though these sorts of influences are not
accounted for in standard income estimates or cost of living
indices, there is a direct and substantial effect on the
well being of Montana residents.
2.10 INCOME GROWTH
Income growth in the Flathead Region has exceeded the
growth experienced at either the state or national levels
for the period of 1968-1978. Flathead County growth rates
were greater than those of Lake, not surprisingly, since
employment in Flathead County grew more rapidly. Table
2.19 presents income growth rates for 1968-1978 in both real
and nominal terms. The nominal growth rates are not price
adjusted whereas real growth reflects the impact of infla-
tion on actual income.
In terms of the long-run trend, much of the absolute
increase in income, both in Montana and nationally, has been
the result of inflation. For example, Montana's per capita
income increased 230 percent between 1960 and 1978, while
the real growth in purchasing power (per capita) grew by a
more modest amount, 49 percent. And, in Montana, real per
capita income has actually declined marginally since 1973,
the state's best agricultural year. Inflation and the
impacts of the recession likely will result in a decline in
real income for Montanans for the next year also.
-------
51
Much of the historical upward drift in prices has been
the result of factors mentioned previously: slower produc-
tivity gains in nonbasic activity and rapid labor force
expansion. Throughout the 1970s nominal increases in income
through expanded employment often have outpaced real output
levels, resulting in higher prices and declining purchasing
power. Assuming that federal fiscal and monetary actions
become more conservative and that the national declines in
investment reverse, inflation should slow in the 1980s as
the effects of the "baby boom" play out.
Table 2.20 illustrates the relative importance of each
industry in Flathead and Lake County and how much of the
overall growth was associated with each industry. For
example, in 1978 manufacturing accounted for 29 percent of
all wage and salary income in Flathead County. Over the
period of 1968 to 1978 manufacturing increases accounted for
27 percent of all income growth.
-------
52
TABLE 2.19
INCOME GROWTH
Percent Change 1968-78
Nominal Growth Real Growth*
Personal Per Capita Personal Per Capita
Income Income Income Income
Flathead County
204%
139%
62%
27%
Lake County
190%
130%
55%
22%
Montana
175%
147%
47%
32%
United States
153%
131%
35%
23%
Source: U.S. Bureau of Economic Analysis, Regional Economic
Information System.
U.S. Bureau of Labor Statistics, Monthly Labor Review,
February 1981.
*Note: Data are adjusted to reflect average prices indicated by
the consumer price index; 1968 = 104.2; 1978 = 195.3.
TABLE 2.20
SOURCE OF INCOME GROWTH
Flathead Lake
Percent of
Percent of
Percent of
Percent of
Total Income
Total Change
Total Income
Total Change
1978
1968-78
1978
1968-78
Farm
2.0%
1-4%
5.8%
-4.7%
Farm Services
0.3%
0-3%
0.7%
0.8%
Mining
0.1%
0.0%
0.2%
0.3%
Construction
8.7%
10.1%
8.8%
11.3%
Manufacturing
29.2%
26.9%
14.7%
15.3%
Transportation
and Utilities
11.0%
10.5%
3.0%
3.6%
Wholesale Trade
3.8%
4.3%
2.7%
3.4%
Retail Trade
12.6%
11.6%
13.6%
12.8%
Finance
3.8%
4.5%
5.1%
6.3%
Services
13.3%
14.9%
20.2%
25.3%
Government
15.1%
15.6%
25.2%
25.7%
Total
100.0%
100.0%
100.0%
100.0%
Source: U.S. Bureau of Economic Analysis, Regional Economic Informa-
tion System.
-------
53
3 WOOD PRODUCTS
PERFORMANCE AND OUTLOOK
(A National and Local Perspective)
The purpose of the following chapters is to evaluate
the long-term potential of the basic sectors within the
Flathead Basin. These scenarios are later used to generate
population and employment projections for the region. The
present chapter also examines how national economic policies
determine the future of the wood products industry in
Montana and in the local area.
3.0 THE NATIONAL SETTING
The wood products industry represents the single
largest economic force in the Basin. Much of the growth of
the local economy has been directly associated with the
expansion of this key sector. The past two years, however,
have been a difficult period for the lumber business. High
levels of inflation and interest rates have pushed the cost
of owning a home beyond the grasp of many Americans. And,
no new home construction translates into bad times for
western Montana.
The new policy of the Federal Reserve Bank to allow
"market determined" mortgage rates has placed a significant
and not totally justified burden on the wood products
-------
54
industry. The effort to reduce inflation by reducing con-
sumptive debt, a policy which is in the best interest of the
nation, is without a doubt, not in the best interest of
local mills—in the short-run!
Manufacturing and construction payrolls are more
adversely affected than those of other industries during a
recession. Those states which have a high concentration in
manufacturing, particularly durable goods, tend to be most
sensitive to a downturn in national business activity.
Since the Western states, including Montana, have relatively
less manufacturing and more service and government employ-
ment, the local influence of a national recession usually is
less. The notable exception to this tendency is found in
those Montana counties which have the wood products industry
as their economic base. These areas are significantly
influenced by national construction activity, which sharply
declines during a recession. The dramatic job loss in the
wood products industry (Figure 3.1) between 1979 and 1980
can be traced directly to national events and national
economic policy. The main difference, then, between Montana
and the more industrialized states is that recessionary
impacts are limited to a handful of counties versus the
whole state. Clearly, this pattern is of no comfort to
local businesses and their employees.
-------
55
In order to analyze how federal actions impact the
housing market, it is first of all necessary to appreciate
the impact of home mortgage rates on the cost of owning a
home. Table 3.1 illustrates this dramatic impact. If a
family were to purchase a home, say their first home, for
$70,000, it would be necessary under conventional mortgage
terms to make a downpayment of 20 percent, or $14,000 in the
present example. These figures are not unrealistic in many
areas of the United States. The mortgage would be $56,000
which is a considerable debt considering that family income
is often less than $30,000 before taxes. As a rule of
thumb, whenever home payments exceed 25 percent of family
income, it becomes very difficult for families to purchase
homes. In our example, this problem area occurs at a 13
percent mortgage rate or greater. Not surprisingly, for the
past year or so, most homes have been sold on "contract"
with lower than conventional rates to allow the seller to
move houses. Because of high interest rates, new construc-
tion activity has fallen dramatically placing many local
wood products workers on the unemployment line.
Back in the 1960s and early 1970s when inflation was
comparatively low, in the three to five percent range,
mortgage rates were considerably lower than the current
level. Banks and savings and loan institutions must operate
-------
56
FIGURE 3.1
NATIONAL HOUSING STARTS AND
MONTANA WOQO PRODUCTS EMPLOYMENT
2.5 -
u> 2.0 -
X
2 s
-------
57
TABLE 3.1
HYPOTHETICAL ANNUAL PAYMENTS
($56,000 Debt/$30,000 Income)
Mortgate Rate Annual Payment Percent of Family Income
(30 year term) ($30,000 before taxes)
5%
$ 3,643
12 .1%
7%
4, 513
15.0%
9%
5,451
18.2%
11%
6,441
21.5%
13%
7,471
24.9%
15%
Q, 529
28.4%
17%
9, 606
32.0%
19%
10,698
35.7%
Source: Derived from above stated assumptions.
at a profit, just like any other business. Lending institu-
tions add their costs of doing business (plus a profit) to
the inflation rate in order to determine the mortgage rate.
The long-run rate that savings and loans or banks pay
depositors must also exceed the inflation rate; i.e., the
real interest rate is positive. If this were not true there
would be no deposits. Many people, however, over the last
decade chose to hold their wealth (savings) in forms other
than savings deposits. It was "more profitable" to go into
debt by buying a home since the value of the "house" was
appreciating at a faster rate than the interest payment or
the rate they would receive on a savings account. Savings
fell, and mortgage rates increased. These factors con-
tribute four to five points to the mortgage rate. For
example, if the inflation rate were five percent, the mort-
-------
58
gage rate would be in the eight to ten percent range. Prior
to 1965, inflation rates were less than two percent and the
cost of borrowing money was relatively low, often six per-
cent or less. But, as inflation increased, mortgage rates
also rose.
During this period savings and loans were also pro-
tected, to a degree, from bank competition. In effect,
housing mortgage rates were subsidized. The present situa-
tion, however, is different since home mortgages rates are
becomming more similar to business loan rates. Deregulation
within the financial community has also contributed to
higher home prices. Money market funds, another new event
within the financial markets, makes saving money more worth-
while and borrowing far less attractive.
When one looks at the problems of the depressed housing
market, it is necessary to consider several different points
of view. These issues are fundamentally national in scope
although the local impact has been clearly negative. The
country's current economic woes appear to be the result of
past sins; inflation/debt and falling productivity both
related events; declining productivity and investment levels
result in increasing prices. Inflation results in higher
prices, lower housing starts and less local jobs in wood
products. This tendency, shown in Figure 3.2, illustrates
-------
59
that inflation results in lower housing starts and hence
fewer local jobs.
3.1 NATIONAL PRODUCTIVITY, INFLATION AND INTEREST RATES
Growth of American productivity was rapid, by
historical standards, during most of the post World War II
period. But in the last half of the 1960's the rate began
to slacken. Until 1974, this slackening was not particu-
larly disturbing from the standpoint of long-term growth.
Beginning in 1974, the situation became disturbing and also
puzzling. The productivity trend turned far more adverse,
and the influences responsible for the slow-down prior to
1974 were no longer sufficient to explain the decline below
the earlier trend. The major productivity series—output
per person employed, output per hour, and output per unit—
all showed much the same pattern of retardation.
The trend rate of productivity growth in other major
industrial countries, also has been declining in recent
years. This decline, however, started earlier and has
lasted longer in the United States than in other industrial
economies. During the first 20 years after the World War
II, output per hour for all employees in the private nonfarm
business sector rose at an average annual rate of just under
2H percent. From 1965 to 1973 the increase was 1\ percent.
Since 1973 the annual growth of productivity has been less
-------
FIGURE 3.2
HOUSING STARTS AND INFLATION
o
CO
H
H
cn
e>
a
M
CO
C/3
O
O
O
o
3d
rH
W
i-l
<2
O
M
H
2600
2400
2200
2000
1800
1600
1400 -
1200
72
71
73
78
77
79
• 76
• 70
74
• 80
• 75
—T"
10%
T
12%
—I
14%
—r
4%
6%
-T"
8%
INFLATION
RATE
Source: Developed from housing start and inflation data, U.S. Department
of Commerce, Survey of Current Business.
-------
61
than 1 percent. Much of the drop in productivity (and
increases in inflation) is assocated with declines in
investment and savings—which may have been the result of
too much housing speculation. Funds for housing compete
with funds for business investment and productivity growth.
Without increased business investment, productivity
gains cannot be realized; without savings there can be no
investment. Within the context of western industrialized
nations, people in the United States spend far more and save
far less than our international neighbors who, not just by
coincidence have higher productivity growth. Table 3.2 and
Figure 3.2 reveal this propensity for us to emphasize the
present over the future.
Variations in growth rates are strongly related to
national savings and hence investment as can be seen from
Figure 3.3. About 50 percent of the growth rate variation
is explained by savings, the rest is related to such other
variables as the income distribution and employment mix of
the respective countries.
The issue of capital formation in the United States is
nothing less than critical. As mentioned earlier, short-term
variations in productivity determine our current inflation
problem to a large degree. Conversely, to an equal degree
our real savings rate explains a large part of our produc-
tivity problems. Personal per capita savings of $330 per
year (1979) is too low to allow for needed investment.
-------
62
TABLE 3.2
SAVINGS AS A PERCENT OF
TOTAL DISPOSABLE INCOME*
1978
United States
4.9%
France
17.2%
West Germany
13.7%
Italy
23.1%
Netherlands
12.9%
United Kingdom
14.4%
Japan
21.2%
Canada
10.4%
Source: United Nations Databook, 1979.
FIGURE 3.3
PRODUCTIVITY GROWTH
NATIONAL SAVINGS RATE - PERCENT OF GNP
Source: World Bank, World Bank Databook, 1978.
*Note: disposable income is defined as income after taxes.
-------
63
INFLATION AND INSTABILITY
The mid-1960s, a period of rapid growth with stable
prices, provided a kind of economic euphoria. Many econo-
mists began to minimize the perils of economic fluctuations,
inflation, or stagnation. More recent experience has demon-
strated, however, that we cannot take for granted our free-
dom from business cycles. The burdens of rapidly rising
prices, of unemployment, and of slow recovery from a reces-
sion are now more freshly and painfully appreciated.
Everyone now feels the increasing burden of inflation.
Of the total price increases since 1929, two-thirds of the
change has occurred since 1970. Beginning with 1929, it
took 40 years for prices to double, the next doubling took
slightly over 10 years and, if the present trend continues,
prices will double again in the next 7 years. Inflation
rates since the early 1960s are shown in Figure 3.4.
FIGURE 3.4
U.S. INFLATION RATES
(Annual Increase)
,\
/ v
2 3
/
Source: U.S. Department of Commerce,
Survey of Current Business.
-------
64
Economists, and practically everyone else, debate the
"livability" of inflation, its overall consequence, and its
effect on particular groups. People also hold divergent
views on the proposition that inflation is like an epidemic
disease, which must be stopped, or else it will expand, grow
more severe, and overwhelm everything.
Inflation which represents an increase in prices on the
average places a burden on those who cannot prepare for
it—and preparing for it is at best quite difficult. People
with relatively fixed incomes suffer from a loss in pur-
chasing power when prices rise. That includes people on
annually determined salaries which change slowly. It also
includes older people living on pensions or annuity incomes
which do not change at all when prices rise.
Creditors also suffer—people who have loaned out
money, for example, by purchasing private or government
bonds or putting money in a savings account (a loan to the
bank). Why? Because a loan paid back with dollars with
lower purchasing power for real goods and services repre-
sents a loss in wealth. Think, for example, about someone
who bought a ten-year Series E federal savings bond in 1960
and held it to maturity. He found in 1970 that the pur-
chasing power of the principal he had loaned to the govern-
ment had fallen 29.8 percent. That is the amount by which
the Consumer Price Index, or cost-of-living index, rose from
-------
65
1960 to 1970. The loss would have been much greater during
the 1970-1980 period.
On the other hand, debtors and people whose incomes
increase fairly quickly as prices change benefit from infla-
tion. Debtors pay back the mortgage loan on their houses
with dollars which have substantially less purchasing power
than the dollars loaned ten years ago; people who own busi-
nesses that can adjust prices quickly can maintain or better
their position as their profits rise along with prices.
The inflationary psychology of "buy now, it will cost
more next year" simply fuels the engine of inflation,
driving it faster and faster each succeeding period. Going
into debt to buy at today's prices has become an increas-
ingly popular method for both the public and private sector
to maintain or increase living (or expenditure) standards in
the face of inflation. Average gross weekly real earnings
per worker are the same today (1979 - $94.85) as they were
in 1962. Since 1962, however, consumer and federal real
debt has increased approximately 80 percent. The lion's
share of this new debt resulted from consumer expenditures
...credit and home mortgages. Federal real debt increased
19 percent over this period while consumer debt increased
124 percent. Business debt (stocks, bonds, and loans) is
not included in this comparison because such debt is invest-
ment rather than consumption oriented. Although state and
local government debt is expanding rapidly, government is no
-------
66
more inflationary than consumer debt related to buying new
cars and houses. Federal debt, as a percent of real GNP,
has been relatively stable since 1970 and is substantially
less now than in the previous decades. It has actually
fallen from 58 percent of GNP in 1960 to 35 percent today
(1979). That is not to say that the federal government does
not contribute to inflation by deficit spending. Within the
last twenty years only one federal budget was balanced.
But, relative to consumer debt, the inflationary impact is
probably much less. Government contributes to inflation in
more subtle ways; through regulations, requirements, trade
restrictions, price supports, and money supply manipulation.
The Board of Governors of the Federal Reserve Banking
System typically has increased the nation's supply of money
much faster than the real output of goods and services. For
example, between 1965 and 1979, average yearly money supply
growth was 5.7 percent, while yearly real GNP growth
averaged only 3.4 percent. Increasing money growth faster
than real output logically adds to prices—more money with a
fixed amount of product drives up prices. The relationship
between money supply growth and inflation is shown in Figure
3.5. Figure 3.6 shows how debt and inflation are related—
the other side of the coin, since money supply growth allows
debt to occur. In this instance, debt includes net federal
-------
67
FIGURE 3.5
INFLATION AND THE MONEY SUPPLY
'** ZV 3 V *V 4%
GROWTH IN MONEY SUPPLY
-------
68
and consumer borrowing, i.e., home mortgages, automobile
loans, credit cards, and other forms of installment buying.
Accelerated growth in the money supply theoretically
helps to keep interest rates down. And, low interest rates
allow borrowing to occur at a faster pace than high interest
rates would permit. This results in a very important
dilemma; a policy trade-off of heroic proportion:
° Should the Federal Reserve bank allow money supply
growth to accelerate...stimulate debt and consumption,
adding jobs to the economy, but fueling inflation?
° Or, should money supply growth be restrained...driving
up interest rates... reducing borrowing and consumption,
putting people out of work, but slowing inflation?
This trade-off between inflation and unemployment is
shown in Figure 3.7. The unemployment rate in this case has
been adjusted for productivity growth (output per worker)
and changes in average hours worked. The relationship
suggests that as more workers are employed (low unemploy-
ment), prices tend to increase faster than when few workers
are employed (high unemployment). This means that when more
people are working, and hence spending, prices go up.
If growth in the money supply is restrained, some
additional unemployment may result. For example, m 1979
the money supply growth rate was only 3.9 percent, much
lower than the previous year's rate of 7.8 percent. This
-------
69
FIGURE 3.7
INFLATION AND UNEMPLOYMENT
(Modified Phillips Curve*)
'NOTE Uses population rattier man laDor force base and adjusts employment for crianqes
in productivity and average hours worked as opposed to normal definition of un-
employment
Source: Economic Conditions in Montana - 1980,
Office of the Governor, Helena, Montana.
-------
70
reduction resulted in much higher inflation and interest
rates in 1979 and 1980, adding considerable cost to buying a
new house (up about 25 percent on a monthly basis) resulting
in a sharp drop in construction, in the demand for wood
products, and eventually causing a major drop in wood
products employment in western Montana. If money growth is
accelerated, we all pay an inflationary premium, betting
that we will reap the benefits of a short-term employment
gain. Usually, it doesn't work this way; prices go up with
no other effect.
Many economists, often called monetarists, suggest that
the boom and bust cycles of business may be smoothed out by
more responsible monetary policies, i.e., not letting the
money supply grow faster than real output. This is a bitter
pill to swallow at times (particularly for national poli-
ticians), since slower money growth means less debt, and
less consumption and job growth in the short-run. Infla-
tion, on the other hand, seriously erodes family income.
The trade-offs are quite real. We, as a society have
adopted short-run policies for long-run problems. Society
is now paying the price of those past errors.
LOCAL IMPORTANCE
What does this really mean for the local economy? In
all probability, mortgage rates will remain high by past
standards. Conversely, construction and wood products
demand will remain low—resulting in several years of "hard
-------
71
times" for the wood products sector. As inflation improves,
mortgage rates will also decline and jobs in wood products
will increase.
Economics has often been labled the "dismal science."
The future is full of uncertainty—no one really really
knows what the next 20 years will bring. We can only look
at general patterns and rely on "best-guesses." To develop
this best guess scenario, it is important to first investi-
gate the outlook for wood products within Montana.
3.2 WOOD PRODUCTS — THE STATE PERSPECTIVE
After World War II, the tremendous increase in con-
struction activity insured a continued demand for Montana
wood products. This postwar increase also was related to
declining timber supplies in other parts of the nation.
Producers began to view Montana1s resources, which to this
point had not been fully utilized, with more interest.
Increasing prices and improved technology in terms of
harvesting steep slopes gave rise to numerous small mills
during this period. This postwar boom, however, was rela-
tively short-lived. As the result of rising interest rates,
mortgage constraints, and the falling demand for mine
timbers, the industry experienced a sharp reduction in
output and employment. But within a few years, the industry
-------
72
regained stability and became more diversified by producing
pulp, paper, particleboard and other products.
As prices for lumber products continued to rise, a
strong market developed for residuals from the existing
industry. These technological innovations not only expanded
employment but also improved the efficiency of the entire
system. Many of these new products were produced using
by-products of other firms which were previously burned or
disposed of by other means. Other advantages included less
seasonal fluctuation in employment and another income source
(sale of chips to the mills).
Increasing national demand for plywood because of a
shortage of logs for plywood in other areas also helped
Montana's industry grow. Mills were increasingly modernized
and new products were added, such as laminating, paneling,
finger-jointing, pressed logs, and studs, all products which
can be made from smaller trees. Many of these new tech-
nologies and products were the result of or in reaction to
rising prices, increasing shortages, and growing demand—of
course, all related.
OUTPUT AND EMPLOYMENT
Table 3.3 presents employment and production data since
1960 for wood products. Industry employment climbed to over
-------
73
TABLE 3.3
MONTANA LUMBER EMPLOYMENT AND OUTPUT
Output
(Millions of
Employment Board Ft)
1960
7300
1035
1961
7400
1152
1962
8000
1259
1963
8500
1166
1964
8400
1271
1965
8600
1311
1966
8900
1375
1967
8700
1347
1968
8900
1499
1969
8900
1397
1970
8200
1281
1971
8700
1397
1972
9200
1311
1973
9800
1445
1974
9500
1165
1975
8100
1038
1976
9100
1197
1977
9800
1250
1978
10700
1256
1979
11100
1257
1980
8800
983
Note: The production figure is measured in millions of
board feet of cut timber and does not include
processed materials.
Source: Western Wood Products Association, 1980
Statistical Yearbook of the Western Lumber
Industry, and previous years.
Montana Department of Labor and Industry, Montana
Employment and Labor Force, Feb. 1981; Fiscal Year
1979 Annual Planning Information For Montana,
Rural CEP Area, Balane-of-the-State, Billings
SMS A, Great Falls SMSA, June 15, 1978, Appendix
IV; and unpublished data.
-------
74
11,000 persons in 1979, a banner year. However, as interest
rates climbed during the later half of 1979 and in early
1980, the demand for new housing fell sharply and employment
correspondingly declined. As a result, the 1980 level was
down about 2000 jobs when compared to 1979. Hopefully, the
losses are for the most part temporary, with the exception
of the Evans plant in Missoula which employed about 200
workers and closed. Other "housing cycles" are revealed in
the data, e.g., the last cycle peaked in 1973 and bottomed-
out in 1975. Fortunately, Montana's market is largely in
the West and Midwest which generally is not as affected by
recessions as the more industrialized sections of the
country. The data suggest other conclusions as well.
First, because of increases in the efficiency in
utilizing wood residue previously discarded, employment has
continued to grow while the actual harvest has declined
slightly. There also has been a slight decline in produc-
tion efficiency, when crudely measured as board feet cut per
logger. Within the last fifteen years, this measure of
output per worker has fallen by approximately 20 percent.
This decline may reflect several related events. Specifi-
cally, there are fewer large trees, new areas of development
are increasingly more costly to harvest (slope, accessi-
bility, etc.), the mix of harvest between private and public
-------
75
lands has changed and so has Forest Service policy—which
has grown increasingly more restrictive. A related issue,
perhaps, is that lumber prices have been rising at nearly 20
percent per year for the past five years.
Second, although not shown in the table, there has been
a marked shift in the composition of the harvest—the
federal contribution (mostly Forest Service) declining and
private forests picking up the difference. In 1970 and
1971, public timber amounted to approximately two-thirds of
the harvest, the rest coming from private lands. However,
within a few years the pattern of public and private harvest
significantly changed, placing relatively less emphasis on
public lands and more on private. The allowable cut on
public land has been much higher than the actual cut since
the early 1970s. This may have resulted from federal wilder'
ness review or possibly other actions on the part of the
Forest Service, which resulted in a more conservative cut.
On the other hand, it may simply have been a matter of
arithmetic—the way in which the allowable cut was calcu-
lated. Regardless of the cause, the effect was to shift the
burden of harvest to private lands. Private (company) lands
are generally well managed but small private individual
holdings often are not.
-------
76
3.3 WOOD PRODUCTS — THE LOCAL AREA
Table 3.4 illustrates that the local (Flathead National
Forest, Flathead Reservation, private and state cut in
Flathead and Lake Counties) volume of timber dropped over
the past decade. Using a three year average of the first
and last three years of data in Table 3.4, the actual
harvest fell by 20 percent. Employment, however, over the
same period grew by 12 percent. For comparison, the state-
wide harvest fell 6 percent and employment increased 18
percent. The data also show that national forest output has
declined by approximately one third. The Flathead Reserva-
tion and private harvest have also declined since the mid
1970s.
Table 3.5 reveals that employment has been slowly
increasing, the result of more plywood and particleboard
production. The 1973-74 period, however, was the high point
of both output and employment. The 1975 recession resulted
in the loss of several hundred jobs.
As mentioned earlier, most of the local production is
shipped east to the north central (Iowa, Minnesota,
Nebraska, North and South Dakota) region of the United
States. Table 3.6 shows these shipment patterns. The fact
that these receiving states are less influenced by business
cycles than most areas, "may" help dampen recessionary blows
to the local economy.
-------
77
TABLE 3.4
TIMBER VOLUME FOR FLATHEAD AND LAKE COUNTIES*
(MMBF)
Flathead
National Forest State Reservation Private Total
1970
145.9
21.2
42.2
66.1
275.4
1971
149.1
15.9
53.5
79.4
297.S
1972
156.4
12.9
70.4
90.8
330.5
1973
118.4
14.2
76.9
69.2
278.7
1974
132.6
5.5
59.5
112.6
310.2
1975
114.6
5.9
44.7
114.6
279.8
1976
154.7
4.8
38.2
97.7
295.4
1977
121.5
10.3
39.3
98.4
269.5
1978
80.1
6.8
41.3
100.0
228.2
1979
96.0
17.2
29.7
85.4
228.3
Source: U.S. Forest Service, Flathead NFS Management Plan
Bureau of Indian Affairs, unpublished data
Montana Department of State Lands, unpublished data
Note: Timber volume cut.
-------
1971
1972
1973
1974
1975
1976
1977
1978
1979
1990
2000
78
TABLE 3.5
WOOD PRODUCTS
PRODUCTIVITY CHANGE
(Lake & Flathead County)
Cut
Volume Volume Per
(MMBF) Employment Person
275 2104 130,703
298 2185 136,384
331 2364 140,017
278 2706 102,735
310 2572 120,529
280 2468 113,452
295 2454 120,212
270 2350 114,894
228 2516 90,620
228 2531 90,083
85,000 (trend value)
73,000 (trend value)
U.S. Forest Service, Flathead NFS Management Plan
Bureau of Indian Affairs, unpublished data
Montana Department of State Lands, unpublished data
U.S. Department of Commerce, Regional Economic
Information system.
-------
79
TABLE 3.6
SHIPMENTS OF LUMBER AND PLYWOOD
FROM MANUFACTURERS IN FLATHEAD, LAKE
LINCOLN, AND MISSOULA COUNTIES, 1976
Value of Lumber and Plywood
Market Area (Thousands of Dollars)
Montana $ 3,776
Rocky Mountain $ 3,485
Far West $ 1,743
North Central $12,779
South $ 2,614
Northeast $ 1,452
Export $ 871
Unknown $ 2,323
Total $29,043
Source: Bureau of Business and Economic Research,
University of Montana, Montana Forest Industries
Data Collection System.
3.4 WOOD PRODUCTS - PROJECTIONS
The author interviewed a variety of individuals
directly involved with the lumber business. There was no
consensus as to whether or not employment would increase or
decrease. There was overall agreement that national forest
output would not grow. Most individuals also expected that
timber volumes on private and Indian land will decline. The
total harvest is, therefore, expects to fall.
-------
80
Even though 1980-81 has been a very difficult period
for the industry, mortgage (and inflation) rates are coming
down. If the present recession follows the normal pattern,
housing starts and local jobs should soon begin to pickup.
There are, however, more important long-term growth issues
which will affect the future of the industry. Some of these
growth considerations are discussed in the following para-
graphs .
The wood products industry is accustomed to market
uncertaintly. Changes in national demand and the resulting
boom and bust cycles have been and will remain a fact of
life. However, the long-term future of the industry is much
more related to changes in the management of federal lands
than to national demand. The U.S. Congress and Forest
Service currently in the limelight, will be making decisions
which will significantly affect timber practices. The
Roadless Area Review and Evaluation Process (RARE II) and
the 1976 National Forest Management Act (which would result
in a harvest reduction) represent two major decision points.
RARE II and the Montana Wilderness Bill (SB-393) repre-
sent one of the most hotly debated topics in Montana in
recent years. It is an emotionally charged issue with
comments from both factions (pro-development and environ-
mental) often making equal sense but being totally diver-
gent. In addition to the problems associated with polar
-------
81
viewpoints, the issue is magnified by uncertainty due to
poor information. The industry is arguing that excessive or
poorly selected wilderness areas will result in future job
losses. They are right, but the quesion is —how many jobs
will be lost? Environmental concern for noncommodity values
is also important. But the argument goes much deeper than
simple wilderness and nonwilderness distinctions. There is
a pressing need for good management of both public and
private forest lands in the future. The RARE II process,
apparently the result of a frustrated Congress and growing
sentiment over the inability of the Forest Service to
manage, merely helped to make the issue more visible.
The demand for housing should remain strong for the
next decade. Specifically, demographic patterns—the large
number of new young adults born in the 1950s—should help
maintain a high level of new household formations. But, it
is likely most of the employment increase will continue to
be found in processed materials as opposed to actual logging
or the milling of dimension lumber. Also, the use of forest
residuals may become feasible within the next ten years,
adding to employment.
There is a little dispute by industry experts that
productivity on federal lands could be increased greatly
through intensive forestry management—artifical planting,
control of competing vegetation, fertilization, thining, and
-------
82
the breeding of new genetic strains. The U.S. Forest
Service admits that the land under its management produces
50 percent less wood fiber per acre than industry-owned land
and, with respect the best practice industry land, much less
than 50 percent. Environmental considerations, however, do
exist. Furthermore, rapid timber growth in the southern
states may result in Montana losing its share of the
national market.
Long-term monetary policy over the next decade is
expected to reduce both inflation and interest rates.
Inflation will also decline as a result of lower growth of
the labor force and expected increases in productivity.
More individuals in the future may be able to afford "homes"
as was the case in the 1960s and 1970s.
LONG-TERM OUTLOOK: In view of these considerations,
most projections for the wood products industry show few
changes in the level of the timber harvest, i.e., it is
expected to remain constant. Nevertheless, it is doubtful
that the present rate of harvest on private lands can be
maintained indefinitely; current rates of logging are well
above historical averages. This means that in future years,
there will be a greater reliance on public lands for timber
supply.
-------
83
Projections as to the harvest of timber are shown in
Table 3.7 These scenarios assume-
° Federal RPA goals on national forest land;
° a 25 percent supply reduction on Indian land;
° a 33 percent supply increase on state land; and
° a 30 percent supply reduction on private land.
Employment projections are shown in Table 3.8 and were
derived from the harvest forecasts found in Table 3.7, and
the productivity projections outlined in Table 3.5. The
medium outlook indicates an increase, of 467 total jobs (both
counties) by the year 2000; slightly over 20 jobs per year.
The low scenario depicts no growth and the high scenario
depicts a growth double the historical trend. The impacts
of these scenarios on population are discussed later in this
volume.
-------
TABLE 3.7
TIMBER VOLUME ASSUMPTIONS
FLATHEAD AND LAKE COUNTIES
(Average Volume 1980-2000)
1970-74 1975-79 HIGH* MEDIUM* LOW*
Five Year Average Five Year Average (RPA High) (RPA Average) (RPA Low)
MMBF Percent MHBF Percent MHBF Percent MMBF Percent MHPF Percent
Forest Service 140 47% 113 44% 120 46% 110 50% 98 54%
Bureau of
Indian Affairs
60
20%
39
15%
46
18%
30
14%
26
14%
State of Montana
14
5%
9
4%
14
5%
12
5%
8
5%
Private
84
28%
99
38%
80
31%
69
31%
50
27%
298
100%
260
100%
260
100%
221
100%
182
100%
Sources: Tables 3.4 and 3.5
Hedium Assumptions
Federal: 110 Average of RTA high and low
Indian: 25% Reduction on Indian land
State: 33% Increase in state lands
Private: 30% reduction on private lands
Productivity (Volume per man)
1979 89,117
1990 84,943
2000 72.958
* Note: The Forest Service no longer utilizes a range for RPA projections. Congress
the official planning target. However, at
still used.
recently adopted the high figure as
the time of the present analysis a range of targets was
-------
85
TABLE 3.8
EMPLOYMENT PROJECTIONS
(Flathead and Lake Counties)
High
Medium
Low
Trend
1979 = 2531
Source: Derived
1990
3063
2796
2529
2802
2000
3564
3029
2495
3026
Gain
(1980-2000)
1002
467
-67
464
-------
86
4 TOURISM AND TRAVEL
4.0 STATE OVERVIEW
The importance of travel and tourism to Montana's
economy has long been a controversial issue. The lack of
up-to-date statistics concerning income and employment
attributable to travel and tourism has added to the con-
fusion. For example, statewide employment estimates, from a
variety of sources, indicate that anywhere from 8,500 to
over 30,000 Montanans have jobs which are part of the
state's travel and tourism industry. Trying to assess the
industry's economic impact from such imprecise statistics is
indeed confusing. However, a recent study has made possible
more reliable estimates concerning the industry, and the
statistics presented here are the best currently available.*
The uncertainty concerning the economic impact of
travel and tourism in Montana and in other states within the
Old West Region (Nebraska, North Dakota, South Dakota, and
Wyoming along with Montana) led to the 1979-80 Nonresident
Travel, Tourism, and Recreation Survey (funded by the Old
West Regional Commission), which allows a more meaningful
and accurate definition of travel and tourism. This
analysis utilizes that survey base, Montana road use data.
Abridged from: Bruce Finnie, Travel and Tourism in Montana, Montana
Business Quarterly, Bureau of Business and Economic Research, University
of Montana, Winter 1980.
-------
87
and information from the 1977 Census of Transportation and
the U.S. Travel Data Center to arrive at an estimate of the
overall importance of the industry to Montana.
In evaluating the economic impact of travel and tourism
on Montana, the major concern is with out-of-state travelers
and tourists. Their spending represents new money to the
state just as does the sale of a carload of Montana cattle
or lumber to out-of-state purchasers. But although employ-
ment and earnings data are regularly gathered for industries
such as agriculture and wood products, the economic influ-
ence of the nonresident travel and tourism sector is diffi-
cult to determine. Employment and earnings data are
gathered by type of economic activity and not by the type of
customer served. For example, a restaurant serves both
in-state and out-of-state residents who may or may not be
travelers or tourists. It is difficult, if not impossible,
to identify which portion of the employment and earnings
generated by such a firm is attributable to each of these
segments.
Although attention often is centered on tourism, it is
part of the larger travel industry, which also includes
business-related trips and the activity generated by those
people passing through the state to other destinations.
Business trips and cross-state travelers do not constitute
tourism in the strictest sense, but they do generate income
and employment. Furthermore, it is difficult to assess the
-------
88
nature of travel expenditures for Montana residents. Since
no state level data are available, it becomes necessary to
make certain assumptions concerning what proportion of
Montanans' travel expenditure are recreational as opposed to
travel for commuting, shopping, etc. As a result, some
measure of estimation must be employed.
ECONOMIC IMPACT OF TRAVEL AND TOURISM
The information made available by the 1979-80 Non-
resident Travel, Tourism, and Recreation Survey shows that
in 1979 approximately 3.5 million nonresident visitors came
to Montana. They spent nearly $500 million. Resident travel
expenditures in 1979 generated another $400 million. Com-
bining the resident and nonresident components, travelers
and tourists spent almost $1 billion in Montana. That
spending supported about 20,000 jobs and led to $172 million
in earnings for Montana workers (Table 4.1). These figures
were equal to about 4 percent of total earnings in 1979.
The travel industry is comprised of a variety of eco-
nomic sectors including transportation; retail trade firms
such as gasoline service stations and eating and drinking
establishments; service industries such as hotels ana motels
and auto repair; and various recreation activities. The
travel industry, as noted above, is larger than the tourism
industry since it includes all forms of travel. Tourism,
more narrowly defined, consists of travel primarily for
-------
89
pleasure and is estimated to account for approximately 40
percent of the total travel industry. Tourism, both resi-
dent and nonresident, provided in 1979 over 8,000 full and
part-time jobs and about $71 million in earnings (Table
4.1). Unless otherwise noted, this discussion will refer to
the entire travel industry.
Table 4.2 provides an indication of the overall eco-
nomic significance of nonresident travel and tourism
TABLE 4.1
TRAVEL AND TOURISM EMPLOYMENT AND EARNINGS
MONTANA 1979
Earnings*
Employment (Millions of Dollars)
Travel** Tourism Travel** Tourism
Resident 10,143 3,043 $ 85.9 $25.8
Nonresident 10,185 5,334 86.2 45.1
Total 20,328 8,377 $172.1 $70.9
FTE adjusted*** 16,771 6,911
Source: Bruce Finnie, "Travel and Tourism in Montana"
Montana Business Quarterly, Vol. 18, No. 4, Winter
1980.
* Includes wages and salaries, other labor income, and
the income of self-employed persons.
** The travel industry includes the tourism segment (trips
made for pleasure) and travel due to business, transit
to out-of-state destinations, commuting, and other
nonpleasure trips.
*** FTE - Full Time Equivalent. Assumes a thirty-three hour
work week in the travel and tourism industry, which is
the average of retail trade and services.
-------
90
TABLE 4.2
EMPLOYMENT AND EARNINGS IN SELECTED INDUSTRIES
MONTANA, 1979
Employment Earnings
Thousands Percentage Millions Percentage
Sector of Workers of Total of Dollars of Total
isic industries, total
101.5
28.9
1,602.0
36.1
Agriculture
32.2
9.2
246.7
5.6
Mining
7.6
2.2
200.1
4.5
Heavy construction
3.9
1.1
94.6
2.1
Wood products
10.9
3.1
196.4
4.4
Other manufacturing
16.0
4.6
292.3
6.6
Railroads
7.4
2.1
168.6
3.8
Federal Government
13.3
3.8
316.8
7.1
Nonresidents travel
10.2
2.9
86.2
1.9
Tourism
5.3
1.5
45.1
1.0
Other travel
4.9
1.4
41.1
0.9
Derivative industries,
total 249.5 71.1 2,837.0 63.9
Retail, trade and
services, except
travel
114.1
32.5
1,355.7
30.5
Resident travel
10.1
2.9
85.9
1.9
Tourism
3.0
0.9
25.8
0.6
Other travel
7.1
2.0
60.1
1.4
Construction, except
heavy
11.4
3.2
261.5
5.9
State and local
government
56.8
16.2
605.5
13.6
All other industries
57.1
16.3
528.6
11.9
Total
351.0
100.0
4,439.0
100.0
Sources: U.S. Bureau of Economic Analysis, Regional Economic
Information System.
Montana Department of Labor and Industry, Bruce Finnie,
"Travel and Tourism in Montana," Helena, Montana.
Montana Employment and Labor Force, Feb. 1981.
Note: Detail may not add to totals due to rounding.
-------
91
relative to other economic sectors within Montana. Non-
resident travel accounts for about 3 percent of total
employment and approximately 2 percent of total earnings in
Montana. Among the industries which constitute the state's
economic base—the basic or export industries—nonresident
travel is responsible for 10.0 percent of employment and 5.4
percent of earnings. In each case, tourism alone provides
more than half of the the total nonresident travel contri-
bution.
A further comparison indicates that although businesses
serving nonresident travelers provide more jobs than mining
and railroads and about the same number as wood products,
total earnings of workers serving travelers and tourists are
the smallest of workers in any basic industry.
CHARACTERISTICS OF THE NONRESIDENT TRAVELER
As indicated earlier, approximately 3.5 million
visitors in total came to Montana in 1979, down somewhat
from previous years. Unfortunately, lack of data on travel
by bus, rail, and air makes it difficult to measure
accurately changes in nonautomobile traffic. Estimates of
the number of bus, rail, and air travelers were made for
1979, and one can assume that these were the same in 1977
and 1978.
-------
92
TABLE 4.3
CHARACTERISTICS OF NONRESIDENT VISITORS TO MONTANA*
1977-1979
Mode of Percentage change
Transportation 1977 1978 1979 1977-1979
Number of visitors 4,194,569 3,909,577 3,474,106 -17.2
Automobile 3,697,421 3,412,429 2,994,752 -10.0
Bus 109,608** 109,608** 109,608** 0.0
Rail 71,175** 71,175** 53,381 -25.0
Air 316,365** 316,365** 316,365** 0.0
Visitor days 20,008,094 18,648,682 16,571,486 -17.2
Expenditures*** $586,800,000 $546,500,000 $485,700,000 -17.2
Source: Bruce Finnie, Montana Business Quarterly, Winter 1980, "Travel
and Tourism in Montana."
* Includes all types of visitors: tourists (those traveling primarily
for pleasure), business travelers, and those traveling through
Montana to reach an out-of-state destination.
** Assumed constant.
*** Not adjusted for inflation.
-------
93
If the automobile count data are correct, and they
likely are correct, the number of nonresident visitors
declined about 17 percent between 1977 and 1979, the latter
being the year of the gas shortage. Although traffic data
at the external (border) counters indicate very little
change in overall activity, the percentage of nonresidents
compared to total traffic has been falling since 1977. In
that year about 29 percent of all travelers were nonresident
while in 1979 the figure had declined to 24 percent of the
total traffic (excluding commercial trucking and buses) at
the border stations. The estimates of nonresident visitors
and visitor days are shown in Table 4.3
Estimates of visitor days were based on an average
length of stay of 4.77 days and total expenditures were
determined based on an average expenditure of $67.70 per day
per respondent. Other pertinent data from the recent Old
West Regional Commission survey of nonresidents in Montana
are provided in Tables 4.4, 4.5 and 4.6.
CHARACTERISTICS OF TOURISM EMPLOYMENT
Travel and tourism employment in Montana is concen-
trated in the retail trade and service sectors, particularly
in hotels and motels. These jobs are predominately held by
women (64 percent), tend to be low paying (1979 average wage
of $4.70 per hour) and are often part-time. Although no
occupational data are available for the travel or tourism
-------
94
industry specifically, most of the travel-related jobs could
be classified as unskilled.
In addition, most travel-related jobs are very
seasonal. "Seasonality" is defined as the total percentage
deviation of high and low monthly employment figures from
the average yearly employment level. Using data from the
Montana Department of Labor and Industry for the years
1960-1975, hotels were determined to have the highest yearly
fluctuation, with a seasonality index of 55 percent (see
Table 2.11).
Large seasonal variations in hotel/motel employment
mean that substantial numbers of workers in that industry
will be unemployed during part of that year; this results in
a higher annual unemployment rate. Travel-related activi-
ties, although increasing in the winter season, still are
concentrated in the summer months as a result of both
climate and custom. The author estimates that two thirds of
all nonresident travel occur during the summer.
-------
95
TABLE 4.4
TRIP PURPOSE
CHARACTERISTICS OF NONRESIDENT
VISITORS TO MONTANA
1979
Purpose of Travel
All tourism
Visiting friends and relatives
Recreation or other pleasure
Business
Passing through to other destinations
Total
Percentage of Total
Nonresident Travel
52.4
22.6
29.8
20.4
27.3
100.0
Source: Old West Region Nonresident Travel, Tourism, and
Recreation Survey, prepared by Oblinger-McCaleb,
Denver, Colorado, for the Old West Regional Com-
mission, Rapid City, South Dakota, 1980.
Note: Detail may not add to total due to rounding.
TABLE 4.5
SIZE OF PARTY
CHARACTERISTICS OF NONRESIDENT
VISITORS TO MONTANA
1979
Mode of
Transportation
Automobile
Air
Bus
Rail
Average
Individuals
Per-Party
2.56
1.36
1.43
2 .21*
2.31
Percentage of Total
Nonresident Travel
86.2
9.1
3.2
1.5
Total 100.0
Source:
Old West Region Nonresident Travel, Tourism, and
Recreation Survey, prepared by Oblinger-McCaleb,
Denver, Colorado, for the Old West Regional Com-
mission, Rapid City, South Dakota, 1980.
* Not statistically significant.
-------
96
TABLE 4.6
EXPENDITURES
CHARACTERISTICS OF NONRESIDENT
VISITORS TO MONTANA
1979
Average Expenditure Percentage of Total
Service Used Per-Day Nonresident Travel Spending
Hotel/motel $
15.64
23.1%
Campgrounds
1.13
1.7%
Eating/drinking
16.72
24.7%
Groceries
3 .58
5.3%
Sporting goods
1.17
1.7%
Gas/service stations
18.72
27 .7%
Amusement/recreation
3.62
5.4%
Other
7.12
10.5%
Total $
67.70
100.0%
Source: Old West Region Nonresident Travel, Tourism, and
Recreation Survey, prepared by Oblinger-McCaleb,
Denver, Colorado, for the Old West Regional
Commission, Rapid City, South Dakota, 1980.
Note: Percentage detail may not add to total due to
rounding.
4.1 LOCAL OVERVIEW
The importance of travel and tourism is far greater in
the Flathead area than it is for the state as a whole.
Approximately one third of all local employment and popu-
lation growth can be traced to expansion in this sector.
Travel and tourism is currently estimated to employ nearly
2,200 people, up 1,300 from a decade ago. Employment growth
in this sector exceeded all other basic industries. The
author estimates that over two thirds of the local expansion
was related to tourism as opposed to business travel.
-------
97
Table 4.7 illustrates the dramatic increase in tourism
at the area's prime destination, Glacier National Park.
Between 1960 and 1980 the number of cars counted at Glacier
Park more than doubled. The other factors shown in Table
4.7 are also important to the overall increase in travel.
These factors include the number of households, real income,
and the inflation adjusted price of gasoline. As the number
of households and real income rises, travel will also
increase. Conversely, as gas prices increase, travel will
decline. The reader should note that real gasoline prices
were very stable until 1979, the same year that travel
dropped. Lately, gas prices have again stabilized, but
clearly another round of price increases would again result
in less travel.
Figure 4.1 shows the impact of various events on
traffic in the park and also provides the author's "best
guess" as to what the future will bring.
In order to make the projections (see Figure 4.1) the
author developed a simple model which forecasts the number
of cars counted as a function of two independent variables—
the number of households and the real price of gasoline.
Between 1960 and 1980, these two variables accounted for
over ninety percent of the variation in the number of cars
counted at the gates. By 1990, the number of households is
expected to rise by 22 percent, contributing to more travel
-------
98
TABLE 4.7
CARS COUNTED AT GLACIER NATIONAL PARK
U.S.
Real
Real Gaso-
Cars
Households
Income
line Price
(thousands)
(millions)
(Sbillions)
(C/qal.)
1960
215.7
52.8
446.4
23.7
1961
217.9
53 .6
459.0
22.9
1963
231.8
55 .3
500.7
21.9
1965
216.5
57.4
563 . 0
22 .0
1966
245.9
58.4
595.9
22.2
1967
220.8
59.2
620.0
22.6
1968
263.0
60.8
650.5
22.1
1969
275.8
62 .2
672.3
21.8
1970
359.1
63 .4
682.3
21.2
1971
335.4
64.4
702.4
20.8
1972
397.1
67.1
746.6
19.5
1973
410.4
68.7
785.3
20.2
1974
413 .7
69.9
776.8
27.4
1975
462.2
71.1
774.6
28.2
1976
536.3
72.9
806.0
27.8
1977
534.3
74.1
838.6
27.9
1978
516.5
76.0
876.7
27.2
1979
466.5
77.3
885.2
40.3
1980
476.0
79.1
874.6
49.3
Source: Park Service, unpublished, data, Glacier National Park
Department of Commerce, Survey of Current Business
-------
600000
500000
400000
o
CJ
< 300000
200000
100000
FIGURE 4.1
GLACIER PARK CARS COUNTED
(actual and projected)
rising
energy prices
recession
recession
fl ood
(716,000)
/
(596,000)
Source: Park Service, Glacier National Park
Projections are derived, see text.
—I—
1980
—I—
1990
f—
2000
1965
j
1970
1975
-------
100
(U.S. Bureau of Census). Given federal standards for fleet
efficiency, and long-term projections of gasoline cost ($4
in 1990 dollars) by Chase Econometrics, Inc., the real cost
of fuel is expected to increase 220 percent by 1990,
resulting in less travel.
These factors imply that there will continue to be
tourism growth in the area, but thai: this rate of growth
will be less than half the growth experienced during the
past decade. This outlook is consistent with the opinions
of a variety of individuals who are involved with the
industry, both locally and throughout the state. Again, it
is important to keep in mind that long-term projections of
this nature cannot be precise. Past experience has
revealed, however, that increases in travel were related to
gasoline prices. With little doubt real gasoline prices
will rise.
4.2 THE LOCAL MARKET
Increasing gasoline prices and unpredictable levels of
gasoline supplies have changed attitudes towards vacation
travel, particularly lengthy automobile trips outside one's
home state. These factors are changing the tourism
industry in states which are located at a distance from
major population centers and dependent on either "pass-
through" traffic, or tourists driving to destination attrac-
-------
101
tions. When inflation hits and credit is tight, many con-
sumers elect to cut traveling from their budgets. That has
a negative impact on the tourism industry as diminished
expenditures can't cover rising costs.
Montana's remoteness (see Table 4.8) is in some
respects a blessing—in other respects, it is a curse.
Montana is ranked 43 with regard to access to the national
population (market) and dead last with regard to regional
population access. As a result, Montana's tourism industry
is very sensitive to gasoline prices.
In an attempt to analyze the importance of distance on
the local market, the author investigated travel patterns
between states within Glacier Park's market area (all states
exceeding one percent of the total cars counted). As
expected travel to Glacier Park is:
° Directly related to population;
° Inversely related to distance between the home
state and the park; and
° Inversely related to recreational opportunities
found in other states. That is, people from
states with a high percentage of public land are
less likely to come to Montana.
-------
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
21
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
102
TABLE 4.8
RANKING OF STATES BY ACCESS TO U.S. NATIONAL MARKETS
State Market Access Index
Kentucky
47
Indiana
47
Tennesssee
48
Ohio
48
Illinois
49
West Viginia
49
Michigan
49
Alabama
51
Georgia
51
Wisconsin
51
Missouri
52
South Carolina
52
North Carolina
53
Mississippi
53
Arkansas
54
Virginia
54
Iowa
55
Pennsylvania
55
Maryland
56
Louisiana
57
Delaware
58
Minnesota
59
Kansas
60
Oklahoma
61
New Jersey
62
New York
62
Florida
62
Nebraska
63
Texas
66
Connecticut
67
South Dakota
68
Vermont
69
Rhode Island
72
Massachusetts
72
New Hampshire
72
North Dakota
73
Colorado
80
Maine
80
-------
103
39 New Mexico 83
40 Wyoming 86
41 Utah 99
42 Arizona 99
43 MONTANA 100
44 Idaho 109
45 Nevada 112
46 California 122
47 Washington 133
48 Oregon 134
Source: Transportation Access, Working Paper #1 Governor's
Office of Commerce and Small Business Development
1978.
In simple terms, this means that large states such as Cali-
fornia will constitute a large share of Montana's non-
resident market. States that are far removed from the park
will be relatively unimportant as a market influence.
Similarly, states with ample recreational opportunities will
be less likely to find Montana attractive—given local
possibilities. These factor's explain approximately two
thirds of Glacier's present market. The data used to derive
the results are provided in Table 4.9.
Analysis of the Glacier Park area suggests that the
probability of traveling to Montana from a given state
varies significantly after adjustments for distance are
made. For example, all else being equal, Montana is not
doing as well as it probably should in the northwest and
Canadian markets. Similarly, Montana does better than
expected in Minnesota, Michigan, and other states. More
careful evaluation of such data should help to increase the
success of current state and local advertising efforts.
-------
104
TABLE 4.9
GLACIER
PARK MARKET
Percent of
Percent of
Area
total Market
Access*
Public Land
Montana
18.6
12 .6
30
California
9.4
6.5
45
Alberta
9.4
15.0
60
Minnesota
6.4
2 .2
7
Washington
4.7
10.9
30
Illinois
4.7
3.9
2
Michigan
3.6
2.5
9
Wisconsin
3.5
1.8
5
Oregon
2.4
3.6
53
Ohio
2.4
2.5
1
Colorado
2.4
2.8
36
New York
2.3
2.6
1
Iowa
2.1
1.3
1
Texas
1.9
3.0
2
North Dakota
1.7
1.2
5
Idaho
1.6
8.1
64
Utah
1.5
1.6
5
Arizona
1.4
.6
43
Florida
1.4
1.2
10
British Columbia 1.4
4.2
94
Mississippi
1.3
1.8
5
Saskatchwean
1.2
2.3
61
Indiana
1.1
1.7
2
Pennsylvania
1.1
1.7
2
Nebraska
1.0
1.1
1
Sources: Park Service, unpublished data, Glacier National Park
Statistical Abstract, Department of Commerce
2
* Defined as population/distance m millions.
-------
105
4.3 LOCAL PROJECTIONS
Table 4.10 provides employment scenarios which are
based on the traffic projections for Glacier Park (see
Figure 4.1). The trend (high) projection is simply an
extrapolation of past data (1967-79). In all probability,
the historical rate of growth will not be duplicated in the
future. The medium scenario is based on 716,000 cars (in
2000) and assumes an increase in stay from the present 3.4
days to 4 days. That is, people may travel less, but stay
longer.
TABLE 4.10
TRAVEL AND TOURISM EMPLOYMENT PROJECTIONS
(Flathead and Lake Counties)
(Trend)
High Medium Low
1980 2158 2158 2158
1990 3529 2823 2542
2000 4759 3426 2923
increase 1980-2000 2601 1326 765
Assumptions:
High: Long-term trend (1967-79)
Medium: See narrative
Low: Without increase in stay
Source: Derived.
Table 4.11 provides the author's best guess as to the
composition of travel, i.e, car, bus, and train.
-------
106
TABLE 4.11
VISITOR DAYS
GLACIER NATIONAL PARK
1970
1980
1990
2000
1,241,603
1,475,538
1,698,600
1,969,055
Car
15,516
35,797
56,0 73
76,359
Bus
Train
2,074*
2,493**
3, 905
5,317
1,259,193
1,513,828
1,758,583
2,050,731
Total
* Assumes same as 1980 proportions ** 1979 boardings at Glacier
Assumptions:
1) 2.85 persons per car in 1990 and 2.75 in 2000
2) Amtrack. is continued
3) 3.36 days average stay
4) Bus traffic increase (1980-2000) same as 1970-80
increase
5) Train increase similar to bus
4.4 SUMMARY
According to the U.S. Travel Data Center in Washington,
D.C., travel costs in the United States increased approxi-
mately 30 percent between 1977 and 1979. The figures for
1980 are not available yet, but they are expected to show a
percentage increase nearly twice the inflation rate for the
year, as gasoline prices rose by nearly 50 percent.
Increasing costs and the concern over fuel availability
in 1979 resulted in a substantial downturn in out-of-state
as well as in-state travel to Montana's primary recreational
sites. For example, yearly traffic at West Yellowstone
declined by 11 percent in 1979. The current national
-------
107
picture, while better, nevertheless reflects a growing
concern about the costs of long-distance vacation travel.
Because of this, the future of Montana's travel and tourist
industry is uncertain. "Drive-through" tourists, who tend
to be less affluent than the "fly-in" traveler, will
probably travel less often, and drive shorter distances when
they do. Because of Montana's remoteness from the nation's
population centers, the state will probably continue to
experience relatively slow growth in this type of travel.
On the other hand, convention and destination type
travel seems to be holding up well, and may even increase.
Convention and destination resort travelers tend to be more
affluent, and may be traveling on expense accounts. In
general, they appear to be less affected by high fuel costs
than the "drive-through" tourist traveling across country by
automobile. Montana has several destination resorts, and
numerous cities in the state have convention facilities.
Increased emphasis on marketing the state to this type of
traveler could help offset the effects of slow growth in
automobile travel.
Most travel, however, will continue to be by auto-
mobile. There is considerable doubt that AMTRAK will remain
in service. Closure of AMTRAK would adversely impact the
industry in the Basin, in particular the Big Mountain area
-------
108
where approximately 10,000 skiers annually have relied on
rail transportation. Bus travel should increase, however,
it is interesting to note that bus travel in the late 1960s
exceeded the current level.
-------
109
5 OTHER BASIC INDUSTRIES
5.0 PRIMARY METALS
In 1970 the Anaconda primary aluminum facility at
Columbia Falls reports that employment totaled 1100. By
1980 the overall level had increased to 1334 as a result of
plant modernization, i.e., the installation of a more energy
efficient process. As of Spring 1981, the number of jobs at
the plant had declined to 1228 and is expected to remain at
that level indefinitely. Although no employment expansion
is anticipated the operation will continue to represent the
second largest income producer (next to wood products) in
the area. Recently the company announced plans to build a
$30 million casting facility which will produce larger
ingots for use at the Kentucky mill. This expansion will
provide some additional short-term construction jobs but is
not expected to influence the number of full time workers.
The plant's impact on the long-term growth in the area will
be limited to increases in relative wages as opposed to more
jobs.
Figure 5.1 helps to show the local importance of alumi-
num production. During 1978, average employment was 1,336
workers with total earnings of a little more than $20
million (1972) dollars). These earnings represent almost 30
percent of total export earnings during 1978.
Earnings in primary metals refining almost doubled
between 1975 and 1978, from just under $11 million (1972
-------
I 10
FIGURE 5.1
EARNINGS IN BASIC INDUSTRIES, FLATHEAD COUNTY IN 1972 DOLLARS
(MILLIONS)
60
50
40
30
20
10
(Millions $)
9.7
$51.1
3.3 Agriculture
1.3 Retail Trade
1.1 Lodfl.no
6.9 Federal
Government
i 6ther Marv"
10.9 Primary
Metals
Refining
20.0 Wood
Products
1970
1975
1973
Source: Paul Polzin, Kalispell and Che Flathead County
Economy, Montana Business Quarterly, University
of Montana, Autum l980.
-------
Ill
dollars) to $20 million (1972 dollars). This industry was
the largest single contributor to the growth in the economic
base during this period. This increase reflects the modi-
fications at the Anaconda plant in Columbia Falls. These
modifications were designed to bring this facility into
compliance with emission standards and also to reduce the
need for electricity. Work, on these modifications began in
1977 and was completed during April of 1980. The 1978
figures correspond to the middle of the construction period.
Therefore, the 1980 figures may slightly overstate the
long-range importance of this industry to the local economy.
It should also be pointed out that the plant recently cur-
tailed production in response to a depressed aluminum
market. Approximately 100 workers were temporarily laid off
in December 1981. Full production will resume after the
effects of the national recession end, sometime in late
1982.
AN OVERVIEW OF THE ALUMINUM INDUSTRY
Aluminum plants employ approximately 13,000 workers in
the Pacific Northwest. They also utilize a tremendous
amount of electrical power. Industrial end-use of elec-
tricity in the Pacific Northwest (PNW) currently totals 60
billion kwhrs with over 40 percent of this power used in the
production of aluminum. This high concentration in aluminum
reduction was not by accident, but a natural reaction to
market forces—cheap power. The days of inexpensive elec-
tricity are numbered as progressivly more expensive thermo
and nuclear units are added to the existing hydro base. The
-------
FIGURE 5.2
STATE ELECTRICAL USE AND PRICE
(1979 Residential)
• . ~
Montana
Source: Edison Institute, Annual Databook 1980.
—I—
5000
loofto
15000
ANNUAL CONSUMPTION IN KWHR5
-------
113
PNW still enjoys a substantial edge in low cost power, but
this advantage is rapidly eroding. Figure 5.2 shows the
current advantage for residential users—industrial price
differences are comparable. Note that low cost states use
considerably more electricity, a clear quantity—price
effect.
Map 5.1, below shows the national location pattern for
the aluminum industry. The Columbia Falls operation used
power from the Hungry Horse hydro unit constructed several
years before the aluminum plant. The Anaconda facility
would not have been built in the absence of the dam. This
is equally true for nearly all other primary aluminum opera-
tions. Note that the further processing (secondary) of most
aluminum production takes place in the industrialized region
of the nation. Most final consumption also takes place in
the more populated areas in the Midwest and East. As both
electricial rates and transportation costs (on raw material
and ingots) increase, this "may" place PNW plants at a
slight disadvantage. No reduction in regional output,
however, is expected. But, it is very unlikely that further
plants (beyond the proposed Alumax plant) will ever be
developed.
A Brief History*
For more than three decades, the aluminum industry in this
country has experienced sustained growth. Beginning with
military-related uses in World War II, the industry has
subsequently expanded into a variety of domestic markets.
* Note: This section is edited from "A Regional Analysis:
Economic and Fiscal Impact of the Aluminum Industry in the
Pacific Northwest, A.D. Little, Inc., 1978.
-------
MAP 5.1
PRIMARY AND SECONDARY ALUMINUM MANUFACTURING
Source: Aluminum Outlook 1977, U.S. Bureau of Mines,
Department of Interior.
-------
115
Due to the availability of low-cost electric power, the
Pacific Northwest has been an important location for much of
this industry expansion. However, with growing concern
about energy costs and the availability of energy resources,
the Pacific Northwest aluminum industry is continually
recognizing the need to be responsive to changing market
forces and public concerns.
An historical overview will provide a background to the
present setting of the aluminum industry in the Pacific
Northwest.
1. World War II — Initial Development of the Aluminum
Industry in the Northwest Under the Impetus of a
Defense Economy.
In the first part of this century, before World War II,
aluminum production focused in the eastern part of the
country. Hydroelectric power sites were used in New York in
the Niagara Falls and the St. Lawrence River areas and then
subsequently in the Tennessee River Valley. With the advent
of World War II, the limited power availability nationwide
made the Pacific Northwest especially attractive to aluminum
production. The newly constructed Bonneville and Grand
Coulee dams were especially important in attracting the
aluminum industry to the power sources of the area. The
Northwest has had the advantage that power costs had held
relatively stable for more than three decades, averaging
around 0.2 cents per kilowatt-hour since the upsurge in
aluminum demand at the beginning of World War II. This has
meant a significant regional rate advantage to the Northwest
of at least 1.5 mills and often 3-4 mills per kilowatt-hour
when compared with other parts of the country.
2. Korean Conflcit — The Next Major Growth Stage for
Aluminum Producers in the Northwest.
1950 marked the beginning of a second major phase in the
growth of the aluminum industry in the Northwest. Between
1950 and 1954, nationwide ingot capacity nearly doubled to
1.388 million tons. As with the earlier major growth in the
industry this expansion was largely tied to defense-related
activity, this time involving the Korean War. A second
major factor at this time, however, was the desire of the
federal government to stockpile the aluminum in the future.
In addition to guaranteeing a market for aluminum, the
federal government offered financial incentives on expanded
plant capacities through accelerated tax amortization. To
meet the demands of the industry, the Pacific Northwest had
the energy requirements necessary to take care of about
one-third of the expansion between 1950 and 1954. In
addition to enlargement of existing facilities, two new
Northwest plants were added at Wenatehee, Washington, and
Columbia Falls, Montana.
-------
116
3. Late 1950s and Early 1960s — Continued Nationwide
Aluminum Expansion But a Reduced Role for the Pacific
Northwest.
With 1955 another expansion phase occurred with the aluminum
market developing for civilian uses as well as expanding
foreign markets. In the period of 1955 through 1962 the
aluminum industry expanded at a 5% average annual growth
rate, a much higher rate than that achieved by other metals.
This was due especially to the increased aluminum usage in
such areas as construction, transportation, electrical
equipment and packaging. While this period showed steady
gains in aluminum consumption, the involvement of Pacific
Northwest manufacturers was not as dramatic. A large reduc-
tion plant construction at The Dalles, Oregon, in 1958 was
the only completely new expansion of primary aluminum
capacity in the Northwest during this period.
The increased importance of transportation costs in the late
1950s reflected an important competitive factor affecting
aluminum production in the Northwest. While the region has
always enjoyed a power cost advantage through low-cost
hydroelectric power, this advantage has been offset in part
by higher transportation costs. Freight rate increases
during the 1950s accentuated the importance of this fact.
The source of higher transportation costs for the Pacific
Northwest is twofold:
° Transport of alumina from refining plants to aluminum
reduction works in the Northwest.
° Transport of aluminum ingot from the reduction plants
to fabrication points near key markets.
Refining of alumina through the Bayer process originally
focused in the Gulf Coast and Arkansas areas because of
proximity to bauxite sources. In recent years aluminum
refineries have increasingly been built overseas near the
bauxite mines in countries like Jamaica. In either case,
transportation of finished alumina to Northwest reduction
plants was required. Recently transport of alumina by ship
has been emphasized because of lower ocean transportation
costs. Even with more attractive rates for ocean transport
of alumina, this transportation cost is a vital factor for
the Pacific Northwest aluminum industry's competitive
position. This is especially important because about two
pounds of alumina are required for the production of one
pound of aluminum.
-------
117
4. Mid- and late 1960s — Increasing Expansion of Pacific
Northwest Aluminum Production
In the mid-1960s aluminum capacity in the Pacific Northwest
increased markedly as the U.S. industry entered a new phase
in which excess capacity had been utilized and expansion was
again taking place. As the industry once more looked to
expansion, the Northwest was in a good position because of
the availability of additional power to electroprocess
industries through the Bonneville Power Administration.
Additional blocks of power became available as the result of
new federal generating capacity; the signing of the Canadian
Agreement providing for storage reservoirs in Canada; and
approval of the California Intertie which provided for the
exchange of surplus energy beween the Northwest and South-
west. These developments meant that hydroelectric power was
available to the electroprocess industries at a rate of
0.206 cents per kilowatt-hour, which was comparable with
that charged some 30 years earlier.
5. 1970s — Continued Strong Demand in the Face of Supply
Shortages
With the 1970s, the aluminum industry in the Northwest
continued to experience increased demand as available
capacity was fully utilized. While production facilities
have expanded in the Northwest aluminum demand has expanded
even more rapidly. The strain on capacity has been ampli-
fied by price controls — which held aluminum prices at low
levels in the face of this demand increase. In recent
years, the industry has not been able to sustain returns
high enough to attract the capital required to more fully
expand facilities. In the Pacific Northwest, the supply
situation has been especially tight because 1973 production
was reduced by hydroelectric power shortages due to weather
conditions. These production shortages amounted to about 7%
of total national annual capacity. The Northwest is also
the site of one new reduction plant proposed in the next
five years. This is the Amax facility scheduled for con-
struction in Oregon.
CURRENT OUTLOOK - National
Table 5.1 shows the Bureau of Mines (1978) long-range
projections of national consumption through the year 2000.
U.S. demand for aluminum in metal and nonmetal forms in 2000
is expected to be between 12 and 26 million short tons.
Principal factors contributing to the high forecast include
-------
118
increased use of aluminum in the transportation sector of
the economy and in a wide variety of both consumer and
capital goods. The availability and anticipated low cost of
aluminum relative to competing materials such as copper and
plastics in the long term also could contribute to attain-
ment of high forecast demand and are expected to result in
sustained growth in demand well beyond 2000.
The main contingency factors that could result in a
lower forecast are a possible low growth in electric energy
use or changes in the means of transmitting electic energy
and substitution of other materials for aluminum in
machinery, construction, and containers.
Recent developments in aluminum technology and
increases in energy costs foreshadow increased use of
aluminum in transportation and machinery. Moreover, the
price differential between aluminum and copper for elec-
trical applications is expected to continue to favor the use
of aluminum as an electrical conductor in the long term. A
judgmental evaluation of the effect of these and other
contingencies on the statistical projections of aluminum
demand in various end-use sectors indicates that the
probable U.S. demand for aluminum (metal and nonmetal) in
1985 will be 9.9 million tons, representing an average
annual growth rate of 7.1 percent from 1976. After 1985 the
growth rate is expected to slow to about 4.3 percent per
year for the remainder of the century, averaging 5.3 percent
-------
119
TABLE 5.1
COMPARISON OF DOMESTIC ALUMINUM DEMAND,
1957-77, AND PROJECTED DEMAND IN
1985 AND 2000
(Thousand short tons)
Year U.S. Primary Demand
1957 1,822
1958 1,737
1959 2,101
1960 2,060
1961 2,079
1962 2,369
1963 2,702
1964 2,888
1965 3,275
1966 3,903
1967 3,756
1968 4,194
1969 4,328
1970 4,071
1971 4,576
1972 5,290
1973 6,284
1974 5,897
1975 4,160
1976 5,348
1977 5,581
1985 9,850
2000 18,000
Source: Department of Interior, Aluminum Outlook, 1977.
-------
120
per year for 1976 to 2000 and reaching a demand of 18
million tons in 2000.
REGIONAL ELECTRICAL OUTLOOK
Electrical rates will be, to a great extent, contingent
on the Pacific Northwest Electric Power Planning and Conser-
vation Act. The major provisions of the act follow:
A regional planning Council is formed with
representation from each of the states. The
Council will draw up a plan for meeting the elec-
trical needs of the region, taking into account
the social and economic effects of alternative
courses of action. The plan must give highest
priority to cost-effective conservation, treating
it as a resource preferable to all other means of
responding to demand for electricity. Renewable
sources of energy must be given next highest
priority in the region's power planning, to the
extent that they are cost-effective ranking ahead
of conventional thermal generating resources.
Among thermal options, fuel-efficient methods of
producing energy must be given priority.
Bonneville Power Administration becomes
responsible for meeting the loads of customers and
managing the regional electrical system to achieve
the purposes of the Act relating to fish, system
efficiency, and experimental projects. BPA must
give priority to cost-effective conservation and
renewable resources in meeting the region's needs.
BPA may also purchase the generating capabilities
of new thermal projects, but only after determi-
nation that they are required in addition to all
cost-effective conservation and renewables that
can be achieved or developed in time. Such pro-
jects must also be found reliable and compatible
with the regional electric system. BPA will
spread the benefits and the costs of resources
among all of its customers through its rates.
— Direct service industries receive new 20-year
contracts for power from BPA, but at a higher
-------
121
price than they are paying under existing con-
tracts. They will, in effect, pay the cost of
rate relief to the residential and farm customers
of investor-owned utilities during the first 4
years, and a substantial portion thereafter, which
they agreed to do in exchange for assurances of
long-term supplies.
— BPA sells electricity at a rate that reflects
the melded cost of Federal hydropower and more
expensive thermal resources, conservation, and
renewable sources of energy. The Act contains
incentives, as well, to encourage conservation and
renewables. BPA may credit utilities for their
individual actions to implement conservation and
renewables.
LOCAL OUTLOOK
No change in either output or employment is likely at
the Columbia Falls plant. The facility will continue to
provide jobs at the current level and, although no employ-
ment expansion is expected this sector will remain the
second largest economic (income) force in the area.
5.1 AGRICULTURE
Agriculture is important to the local area, although
not a dominant economic influence. In 1979, Flathead County
ranked 38th among Montana's counties (56) in cash receipts.
Lake County was ranked 20th. Even though agriculture
employes nearly 21 percent of the basic work force in the
area, employment is declining and income is relatively minor
(See Figure 5.1) when compared to other industrial groups.
MAP 5.2 shows the relative importance of agriculture
within Montana. Primary agricultural products within the
region are shown in Table 5.2.
-------
122
MAP 5.2
CASH RECEIPTS FROM FARM MARKETINGS — 1979
Excluding Government Payments
Jnder 10 Trillion dollars
10 - 19 mil 1 ion dollars
20 - 29 million aoliars
ilurroers show rankirtn fcoo >0
30 - 39 ml I ion collars
-j 40-49 mi 11 ion aol1jrs
_
"J 50 - 59 .nillion dollars
<5^ ¦•ill fon sonars or Tore
Source: Montana Agricultural
ment of Agriculture.
Statistics,
Montana
Depart
-------
123
TABLE 5.2
IMPORTANT AGRICULTURAL PRODUCTS
FLATHEAD AND LAKE COUNTIES
(Cash Receipts 1979)
Percent
Flathead
Lake
Total
of Total
Wheat
$1,971,100
$1,314,200
$3,285,300
6.7%
Barley
3,179,400
1,545,900
4,725,300
9.7%
Oats
94,200
158,700
252,900
0-5%
Hay
3,427,900
6,470,100
9,898,000
20.3%
Livestock
8,951,300
19,602,500
28,553,800
58.6%
Cherries
n/a
n/a
n/a
n/a
All Other
n/a
n/a
n/a
n/a
Total
$15,877,300*
$28,385,900*
$48,727,300
100.0%
Source: Montana Agricultural Statistics, Montana Department of
Agriculture.
* Note: Statistical Discrepancy
Farm proprietors' income (income of self-employed
farmers) data are notoriously bad. The data represent
estimates based on a series of assumptions that do not
always reflect reality. Adjustments are made for inven-
tories, the value of homes and gardens, etc. In addition,
farm income is estimated from total farm receipts which in
turn requires estimates of farm expenses. It also should be
pointed out that many farmers and ranchers have second jobs;
about 50 percent of the income of farmers is now from non-
farm sources. That additional income is not shown in Table
5.3. What the table does indicate is that average farm
proprietors' income is very low; $4,423 in Flathead County
-------
124
and only $1,311 in Lake County. Both figures are below the
reasonable standards suggesting that farming is either very
unprofitable or that the data are incorrect. The author
contends that the latter conclusion is more realistic. This
data uncertainty presents major forecasting problems which
is why the present forecasting system is geared to changes
in employment rather than income.
TABLE 5.3
FARM PROPRIETORS INCOME AND EMPLOYMENT
FLATHEAD AND LAKE COUNTIES
Flathead
Lake
1974
1975
1976
1977
1978
1979
Income
$6,806,000
3,898,000
3,246,000
1,084,000
4,138,000
2,536,000
Employment
841
872
815
843
774
763
Income
$5,090,000
1,183,000
785,000
-1,125,000
1,265,000
1,036,000
Employment
1, 077
1,117
1,043
1,079
990
975
1974-79
Average
3,618,000
818
1,372,333
1047
1974-79
Average Farm
Income per
Proprietor $4,423 $1,311
1974-79
Percent of
Total Income 1.8% 3.3%
1974-79
Percent of
Total Employment 4.1% 17.6%
Source: U. S. Department of Commerce, Regional Economic
Information System.
-------
125
GROWTH CONSIDERATIONS - STATE*
Montana's agriculture has undergone substantial change.
It now is characterized by larger and fewer farms, a smaller
work force, greater capital inputs, and growing commerciali-
zation. Improved procedures and management have resulted in
higher yields. Montana farmers and ranchers are working
larger acreages—up 29 percent since 1960—with a corres-
ponding decline in the number of farms, primarily as a
result of improved technology. The continuing migration of
farm labor has affected not only rural areas but urban
centers as well. And, to this day, many agricultural areas
are still experiencing outmigration.
This rapid change, largely a product of technology, has
had good and bad effects. Clearly, the ability to produce
more and more each year has been good for a hungry world,
but bad for individual farmers and ranchers as a result of
unacceptable prices—mirrored by a host of federal subsidies
in the 1950s, 1960s and early 1970s. Agriculture, more so
than any other industry, is subject to boom and bust cycles
through climatic whim and changes in demand on a world-wide
basis, changes which affect not only the agricultural com-
munities but also the overall economy of Montana.
Output trends in agriculture are somewhat difficult to
interpret as a result of climatic and market variations.
For example, cattle and calf production is very sensitive to
* Abridged from Economic Conditions In Montana, Report of the
Governor, 1980, Office of the Governor, 1980.
-------
126
prices. Although the state's herds are now building
production is still less than that in the early 1970s.
Also, a substantial amount of the increase in grain produc-
tion (1975-76) was the result of unusually high moisture.
Another reason for the long-term increase in grain output is
that the amount of land under cultivation has risen approxi-
mately 10 percent.
Transportation is basic to all economic development and
is of primary importance to agriculture. All sectors of the
economy need reasonable rates, good services, and efficient
and integrated transportation systems. Rising energy costs
and rail abandonment will strain agriculture's potential for
growth.
In addition to potential transportation problems, the
overall energy input to the food system has grown nearly
eight times as fast as the food energy produced. Rapid
increases in fertilizer and fuel prices can be anticipated.
This also could slow output increases.
Although the number of irrigated farms has increased
seven percent over the last decade, the proportion of output
from irrigated land to the total crop has remained un-
changed. Furthermore, within the last few years the irri-
gated acreage has declined somewhat, possibly a reaction to
lower grain prices. This slow growth is not encouraging.
In addition, only small improvements in irrigation
efficiency associated wit.h current practices are expected to
-------
127
occur in the future. Widespread application of new tech-
nology to achieve significantly increased irrigation
efficiency will be stifled without changes in water rights
distribution or major public program incentives.
In all probability, the single most important factor
influencing future agricultural output will be the overall
level of world demand, including the ability to pay. Rising
populations particularly in developing countries, may more
than double export demand within the next decade. Further,
long-term declines in food reserves and the more current
downturn in worldwide grain output per hectare will continue
to place a greater emphasis on the nation's ability to
produce.
Another potential technical change which may affect
Montana is the increasing feasibility of ethanol from grain.
Opinions surrounding the viability of synthetic fuel from
grain (or other inputs) are extremely divergent. However, a
major increase in the real price of gasoline may quickly
move this process into the realm of practicality.
OUTLOOK - LOCAL AREA
Total farm related employment (proprietors, laborers
and service workers) is expected to continue to decline in
Flathead County but at a rate slower than the historical
trend. Employment is also projected to decline in Lake
County at the same rate. Both projections call for a 20
percent decline by the year 2000.
-------
128
TABLE 5.4
TOTAL AGRICULTURAL EMPLOYMENT
FLATHEAD AND LAKE COUNTIES
Flathead
Lake
Forecast
Trend
Forecast
Trend
1978
1990
2000
976
854
771
976
749
552
1286
1197
.1123
1286
1295
1245
Source: Montana Department of Administration, MASS II Model.
5.2 TRADE CENTER INCOME AND EMPLOYMENT
Chapter Two discussed the importance of retail trade to
the area. Approximately 11 percent of local basic employ-
ment is derived from people outside the area, shopping in
the area. Roughly the same proportion of growth throughout
the last decade can be associated with such trade flows.
The present analysis does not forecast future economic
activity in the surrounding region (including Canada) which
largely determine the flows. This influence is assumed to
be constant. This section, however, discusses the nature of
external flows and their source.
Map 5.3 shows trade centers within Montana. This map
indicates the trading area for principal cities and an
estimate of how much is "lost or gained" between counties;
for example, Billings gets 12 percent of its trade from
other counties. Negative values indicate trade losses to
other areas. In the case of Flathead County, approximately
-------
129
MAP 5.7
MONTANA'S PRIMARY RETAIL TRADE AREAS
(Percent of Trade Gained or Lost)
Source: Governor's Office of Commerce and Small Business
Development, Economic Conditions in Montana,
Report to the Governor, 1980.
-------
130
4 percent of the trade is from outside. Lake County, losses
trade to both Flathead and Missoula Counties resulting in an
outflow of 7 percent of local trade.
The estimates were statistically derived from shopping
patterns across the state where distance and population were
the major variables. In other words, large cities attract
trade from smaller cities and as distance increases the
effect is proportionately smaller.
5.3 GOVERNMENT
The Federal government presently employs 720 people in
Flathead County and 272 in Lake. In 1969, ten years
earlier, employment levels were 519 and 275 respectively.
Although growth occurred in the local area, the overall rate
of growth was less than the state norm. And, only part
(perhaps fifty percent) of the total level, can be con-
sidered "basic" to the region—that part being associated
with forest management and the Park Service.
The federal government category includes the workers
employed by the U.S. Forest Service, the Post office, the
National Park Service (which administers Glacier National
Park), the Department of the Interior (which administers the
Hungry Horse Dam), and other federal agencies which maintain
an office in Flathead County. Even though there has been
some growth in the number of federal employees, the varia-
tions in real earnings primarily reflect changes in the
-------
131
federal pay scale. During the early 1970s the pay increases
of federal workers usually exceeded the inflation rate. On
the other hand, the recent changes have been less than the
inflation rate.
In a relative sense, the local importance of the
federal government has been declining since growth has been
more rapid in other areas of Montana. Over the past decade,
government has not represented a significant contribution to
local growth, and when compared to other basic industries
(see Table 2.4) is not a major influence on the area's
economy. No increases or decreases are expected in the
future. A constant level is assumed.
5.4 OIL AND GAS
The recent discovery of major hydrocarbon accumulations
in southwestern Wyoming and northeastern Utah has stimulated
disturbed belt exploration in western North America. These
discoveries combined with the past exploration success in
the Canadian portion of the disturbed belt has created
renewed interest in the oil and gas potential of north-
western Montana. The significant fields in Alberta total 6
Tcf (trillion cubic feet) of gas. The gas-in-place reserves
for the Waterton, Alberta field alone, which is the closest
field to the international border, are 3.6 Tcf. These
fields in Canada are important to note because the struc-
ture, stratigraphy, and geologic history are similar to the
-------
132
disturbed belt of northwestern Montana. Encouraging gas
shows were encountered in the Montana disturbed belt in the
1950s when as much as 6.3 billion cubic feet of gas per day
was tested from several wells in "the Blackfeet Creek and
East Glacier Park areas. These wells, however, were shut-
down because the region was too remote and the price of gas
was too low for profitable production.
Increasing energy prices have accelerated the explora-
tion. Table 5.5 shows the present level of interest in the
Flathead National Forest.
TABLE 5.5
GAS AND OIL LEASE APPLICATIONS
FLATHEAD NATIONAL FOREST
April, 9, 1980
Name of Applicant.
Acres
No. of
Applications
Berklund
Tanner
Kohlman
Chorney
Gulf
Amick
Crest
Snyder
Texas Pacific
Texaco
David
Karr, et. al
Keating
Phillips Petroleum
Georgakis
Tesoro Petroleum Corp.
Connelly
Hatch
Anderson, Ida L.
Anderson, John R.
Emerald Oil Co.
Rutter
Grover
Western Interstate Energy, Inc.
156,908
604
207,786
17,402
35,839
2,404
71,737
14,148
18,003
24,993
2,437
1,200
23,033
18,498
76,999
20,182
88,960
3,989
41,848
15,306
53,786
10,121
1,280
54,077
14
11
33
9
36
2
19
6
84
25
4
2
25
80
1
7
19
1
31
6
8
12
1
1
Total
961,576
43 7
Source: U.S. Forest Service, Flathead National Forest.
-------
133
A more general summary of current, activity follows:
Wilderness Seismic Exploration - An applica-
tion to conduct helicopter portable, surface
explosive, seismic exploration work in the Bob
Marshall and Great Bear Wildernesses, was received
from a Denver based geophysical exploration firm.
After an indepth environmental analysis by a team
of Forest Service specialists, Regional Forester
Tom Coston denied their application for explora-
tion within the Wilderness.
Wilderness Leasing - The Flathead Forest has
received 141 applicatxons for oil and gas leases,
on 280,000 acreas in the Bob Marshall and Great
Bear Wildernesses. We have been informed that
more lease applications are imminent. Some of
these lease applications have been pending since
1974.
Lease Applications Outside of Wilderness -
During April 1980, the Flathead National Forest
initiated an Environmental Analysis (EA) of 296
lease applications, covering 680,000 acres of
National Forest land outside of wilderness.
Additional lease applications are expected. This
EA will include a "process" which will be used as
a base to recommend new oil and gas lease applica-
tions, as well as specific recommendations for the
existing applications.
LOCAL OUTLOOK
Dr. Sid Groff, State Geologist, with the Montana School
of Mines at Butte, has indicated that the local potential
for major finds is small.* Local exploration will continue,
but due to the local geological formation, oil and gas wells
would very likely be extremely deep and not as profitable as
parts of the disturbed belt east of the continental divide.
Discoveries, if any, would be gas which is not currently in
short supply. Major activity from Browning to the south is
almost a certainty.
* Personal communication with Dr. Groff, April 1981.
-------
134
Oil and gas, like gold, is where you find it. Until an
actual discovery is made—nobody really knows where it is.
Therefore, all projections must be by scenario or assumption
only. Some exploration is expected and some discoveries are
possible. Three scenarios are shown in Table 5.6. In the
medium scenario, a workforce of 100 employees consists of 20
production workers, an exploration crew of 10, and a develop-
ment drilling crew of 70 per oil and gas field. The high
scenario assumes significant finds.
TABLE 5.6
OIL AND GAS EXPLORATION
EMPLOYMENT SCENARIOS
FLATHEAD AND LAKE COUNTIES
Flathead Lake
1985-2000 1985-2000
Low 0 0
Medium 100 100
High 500 500
Source: Assumed
5.5 OTHER DEVELOPMENTS
Proposed open-pit coal mines in British Columbia could
have a damaging impact on Glacier National Park. Economic
impacts are however, expected to be minimal due to access
problems to Kalispell. Economic and social impacts will be
felt, for the most part in Canada, due to transportation
access to Columbia Falls and Kalispell. Economic impacts
will be to the north; environmental impacts will follow the
natural flow in the basin (i.e. downstream) or wind patterns.
-------
135
The most immediate proposal being put forward by Sage Creek
Coal Company Ltd., a joint venture being Rio Algom Ltd. and
Pan Ocean Oil Ltd., calls for an open-pit mine 1,000 feet
deep and one mile across, that would produce approximately
two million tons of a high-grade metallurgical grade coal a
year. The Sage Creek Coal Company Ltd., expected to submit
its final design plan and environmental assessment to the
British Columbia government for approval sometime during
1982. The firm has tentatively secured port space in Van-
couver for transhipment of the remote mine's anticipated
production of two million tons of thermal coal.
The development was postponed about two years ago
because the market for metallurgical coal—used primarily in
steel mills—slumped. Now the company plans to mine thermal
coal for use in power plants, a market which is improving.
Since thermal coal has less stringent quality control
requirements, handling of the coal is reduced considerably,
bringing the value of thermal coal much closer to metallur-
gical coal.
The firm hopes to sign tentative contracts with com-
panies in Pacific Rim countries, sometime in early 1982.
Final contracts will hinge on approval of the project by the
British Columbia government.
In addition to the Cabin Creek Coal deposits held by
Sage Creek Coal Company, a number of other deposits exist in
the British Columbian portion of the basin. Crownsnest
Resources, a subsidiary of Shell Canada Ltd., owns coal
-------
136
leases at the headwaters of Cabin Creek and in the vacinity
of the Flathead townsite. The Cabin Creek deposits would
likely be developed in conjunction with the development of a
mine by Sage Creek Coal Company. The Flathead townsite
deposits have undergone some preliminary investigations, but
the company has no plans to develop this coal in the near
future, although these deposits are relatively close to rail
transportation.
The sale of coal within the United States has signifi-
cantly slowed within the last few years since less elec-
tricity is being used (per household) as a result of rapidly
rising prices. The annual growth rate has dropped from
seven percent to less than three percent annually. The
foreign effect on environmental impact is not known,
however, it is the author's opinion that coal development
may be unfeasible in the North Fork Flathead River Valley at
this time. The higher BTU coal and better transportation
from Alaska, the opening of a major new metallurgical coal
field in the northeastern British Columbia, and the existing
coal capacity in the Elk Valley, coupled with the transpor-
tation and labor problems associated with the proposal to
mine coal just north of the border, all contribute to this
opinion. The recent take-over of Marathon Oil Co., by U.S.
Steel could further complicate the situation, since Pan
Ocean Oil Co., Ltd., a partner in the Sage Creek venture, is
a wholely owned subsidiary of Marathon Oil. The Japanese,
in particular, have nevertheless attempted to secure coal
-------
137
from diversified sources (economical and political), meaning
that the proposed project could result. The Japanese are
not just interested in price, but also in secure contracts.
The local economic impact of Canadian mining activity
is assumed to be insignificant.
-------
138
6 EMPLOYMENT AND POPULATION PROJECTIONS
6.0 INTRODUCTION
The purpose of the previous chapters was to develop
employment scenarios (high, medium, low) for each of the
basic sectors within the Flathead Basin. As was discussed
in Chapter 2, all of the population growth and nearly all of
the nonbasic employment growth over the past decade can be
traced directly back to changes in the area's underlying
economic base. Future growth within the region will be
linked to corresponding employment levels in wood products,
tourism, primary metals, etc. The present chapter utilizes
an economic/demographic model called MASS II (MASS being
short for Montana Alternative Simulation System) which
projects growth based on our best guesses concerning future
employment levels in the essential basic sectors.
The MASS model was designed specifically to provide
the best posible mechanism for forecasting growth in the
Flathead Basin as well as in other Montana counties. As
with all long-term projections, the projections are subject
to considerable uncertainty. The future cannot be predicted
with refined accuracy. However, projections are an impor-
tant part of planning for the future. The following long-
range growth scenarios represent the author's "best idea" as
to what the next two decades will bring for the Flathead
Basin.
-------
139
6.1 MODEL DESIGN
The MASS II Model is conceptually straightforward and
can be described in a series of steps.
I. The first step is to project employment in the
study area. The basic industries (wood products,
tourism, primary metals, agriculture, etc.) are
particularly important since these industries
determine the level of nonbasic (or secondary)
employment and also the overall population.
Projections (time and judgmental) are made for
each basic sector separately and the individual
projections are added to produce a projection of
total basic activity.
II. Once the basic employment projection total is
determined, the next step is to calculate the
level of secondary activity that would be
supported by basic employment. Secondary or
nonbasic employment includes most of retail trade,
services, local government, etc.
III. The nonbasic and basic employment levels are added
to yield total projected employment. A population
projection is then derived from the employment
level.
IV. The population level that is consistent with
expected employment is compared to the population
level that would have occurred based simply on
state/county trends in births and deaths. The
second projection often is called the "natural"
population level. If the natural level is greater
than the population level which would be supported
by expected employment, it means that people are
leaving the area in search of jobs outside the
region. On the other hand, if the natural level
is less than the employment based population
level, it implies that people are migrating into
the area.
-------
140
6.2 INPUTS AND OUTPUTS
Inputs to the model include projected basic employment
in:
0 wood products
° tourism
0 primary metals
° agriculture
0 construction
° mining
° federal government
° and other basic sectors
All essential inputs are contained in the preceeding
chapters.
Outputs from the model include:
° total employment
° total population
° natural population growth
° migration; i.e., the difference between employment
based population and population based on births
and deaths.
Figure 6.1 shows the model structure in a more detailed
format. The technically inclined reader is advised to
review the technical Appendix (under separate cover) for a
full explanation of the projection methodology. The
Appendix is available, on request, from the Research and
-------
141
FIGURE 6.1
MASS II MODEL
Datt.Baaa _ _ _ _ _
_ _eljsc1 i™^_A»v\lysis_
Cotoct-Sur-
vival Sab-
'"natural
¦l>opulJfci.on"
Outgoes _
County
Specific
Kiflopiuit
Multipliers
1tot.il llty.
uasic and
Mcnlxmc and
Oovunniwne
DiX)loyrcr>t
Relatal
ropulacian
Projection!
lire Modi'
ficatiaru
nutod by
|Ui\iact to
rriniry.ftrri
Migratim
lYjpuidtion
OascliiM
OnJioyrcnt
fcsport
Qcpectcd clrp.
t Peculation
levels iron
Intact
Secondary ESp
Pop. Levels
CXitsiiia Pri-
rary Aae^——'
Source: Montana Department of Administration,
Research and Statistical Services Bureau
-------
142
Statistical Services Bureau, Montana Department of Admini-
stration. Working papers containing other operational
assumptions are also available from the same agency.
6.3 PROJECTION FORMAT
The projections are provided in a high, medium, and low
format, which are consistent with the basic industry employ-
ment assumptions contained in Chapters 3-5. The "medium"
scenario is in all cases considered the most likely future.
The low and high scenarios, while plausible are not
probable. The high and low projections, however, establish
a band of economic events which very likely cover all
reasonable contingencies. Tables 6.1-6.6 provide this
spectrum. (The planning focus within the area should,
however, concentrate on the "best guess" or medium outlook.)
Figures 6.2 and 6.3 graphically depict the range of possi-
bilities for each county. Region wide projections of popu-
lation are shown in Table 6.7 (medium scenario). City and
county disaggregations are provided in the following
section.
IN ALL CASES, THE PROJECTIONS INDICATE THAT BOTH
EMPLOYMENT AND POPULATION GROWTH WILL SLOW FROM THE LAST
DECADE. NEVERTHELESS, THE MEDIUM SCENARIO DEPICTS A HEALTHY
ECONOMY FOR BOTH COUNTIES. GROWTH WILL CONTINUE, BUT AT A
SLOWER RATE THAN EXPERIENCED IN THE 1970S. FUTURE JOB
GROWTH WILL OUTPACE THE NATURAL POPULATION GROWTH RESULTING
-------
143
IN CONTINUED IN-MIGRATION, WHICH IS A HEALTHY SIGN FOR THE
AREA. IN TERMS OF TOTAL POPULATION INCREASE, BOTH COUNTIES
ARE EXPECTED TO INCREASE SLIGHTLY OVER 15,000 THROUGH THE
YEAR 2,000 VERSUS 17,000 BETWEEN 1970 AND 1980. THE FORE-
CASTED GROWTH IS APPROXIMATELY ONE-THIRD OF THE 1970-80 RATE.
The reader should note that the projected changes in
basic employment shown in the following tables also include
numerous residual basic categories which were not discussed
in the preceeding chapters. These sectors (construction, non-
farm proprietors, other manufacturing, etc.) were forecasted
based on trend or judgment. As a result, the sum of projected
total basic employment shown below is higher than the summed
growth for timber, tourism, agriculture, government and
primary metals. Individually, no one specific residual basic
sector has a significant growth impact, however, collectively,
they significantly contribute to growth. For example, the
residual manufacturing category is expected to grow by nearly
300 jobs (through 2000) , eating and drinking is expected to
increase by approximately 5 0 jobs, and the basic component of
services is forecast to rise by a similar amount. The reader
should also be aware of a 300 job increase in heavy construction
and a projected 600 job rise in nonfarm proprietors (self-
employed persons). The author assumes that at least half of
the increase in construction is associated with the expansion
of wood products, and that up to one-half of the increase in
proprietors is linked directly to the tourism industry.
-------
TABLE 6.1
1970
1980
MEDIUM SCENARIO
(Flathead)
Annual
Growth Rate
1970-80 1990
2000
Annual Percent of
Growth Rate 1970-80
1980-2000 Growth Rate
Basic Employment 6,692
Total Employment 14,453
Population 39,460
Natural Growth
Population Level** n/a
Migration**
n/a
(1979)*
8,460
(1979)*
21,893
51,966
51,966
(1970-80)
9,400
2.64%
4.72%
2.79%
n/a
n/a
9,567
26,573
57,128
56,427
10,775
31,478
62,451
59,024
(1980-90) (1980-2000)
701
3,427
1.16%
1-74%
-92%
n/a
n/a
44%
37%
33%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series XI—
U.S. Bureau of the Census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
TABLE 6.2
MEDIUM SCENARIO
(Lake)
Category
1970
1980
Annual
Growth Rate
1970-80 1990
Annual Percent of
Growth Rate 1970-80
2000 1980-2000 Growth Rate
Basic Employment 2,186
Natural Growth
Population Level** n/a
Migration**
(1979)*
2,590
(1979)*
6,388
Total Employment 4,450
Population 14,445 19,056
n/a
19,056
(1970-80)
3,400
1.9%
4-1%
3.1%
n/a
n/a
2,914
7,737
21,853
20,301
(1980-90)
1,552
3,165
1.0%
8,842 1.6%
23,761 1.1%
21,161
n/a
(1980-2000)
2,600 n/a
53%
39%
35%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series XI—
U.S. Bureau of the Census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
TABLE 6.3
1970
1980
LOW SCENARIO
(Flathead)
Annual
Growth Rate
1970-80 1990
Annual
Growth Rate
2000 1980-2000
Percent of
1970-80
Growth Rate
Basic Employment 6,692
Total Employment 14,453
Population 39,460
Natural Growth
Population Level** n/a
Migration**
n/a
(1979)*
8,460
(1979)*
21,893
51,966
51,966
(1970-80)
9,400
2.64%
n/a
n/a
8,988
4.72% 24,964
2.79% 53,888
56,427
(1980-90)
-2,539
9,712
0.66%
59,024
n/a
(1980-2000)
-2,257 n/a
25%
28,373 1.24% 26%
56,767 0.45% 16%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series II—
U.S. Bureau of the Census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
TABLE 6.4
LOW SCENARIO
(Lake)
Category
1970
1980
Annual
Growth Bate
1970-80 1990
Annual Percent of
Growth Rate 1970-80
2000 1980-2000 Growth Rate
Basic Employment 2,186
Total Employment 4,450
Population 14,445
Natural Growth
Population Level** n/a
Migration**
n/a
(1979)*
2,590
(1979)*
6,388
19,056
19,056
(1970-80)
3,400
1.9%
4.1%
3.1%
n/a
n/a
2,750
7,302
20,349
20,301
(1980-90)
48
2,938 0.6%
8,208 1.2%
21,772 0.7%
21,161
(1980-2000)
611
n/a
n/a
32%
29%
23%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series II—
U.S. Bureau of the Census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
TABLE 6.5
HIGH SCENARIO
(Flathead)
Category
1970
1980
Annual
Growth Rate
1970-80 1990
Annual Percent of
Growth Rate 1970-80
2000 1980-2000 Growth Rate
Basic Employment 6,692
Total Employment 14,453
Population 39,460
Natural Growth
Population Level** n/a
Migration**
n/a
(1979)*
8,460
(1979)*
21,893
51,966
51,966
(1970-80)
9,400
2.64% 10,859
4.72% 30,162
2.79% 64,185
n/a
n/a
56,427
(1980-90)
7,758
12,820 2.0%
37,454 2.6%
72,779 1.7%
59,024
(1980-2000)
13,755
n/a
n/a
76%
55%
61%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series II—
U.S. Bureau of the Census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
TABLE 6.6
HIGH SCENARIO
(Lake)
Category
1970
1980
Annual
Growth Rate
1970-80 1990
Annual Percent of
Growth Rate 1970-80
2000 1980-2000 Growth Rate
Basic Employment
Total Employment 4,450
Population 14,445
Natural Growth
Population Level** n/a
Migration**
n/a
(1979)*
2,590
(1979)*
6,388
19,056
19,056
(1970-80)
3,400
1.9%
4.1%
3.1%
n/a
n/a
3,395
9,014
26,441
20,301
(1980-90)
6,140
3,730 1.8%
10,420 2.4%
28,916 2.1%
21,161
n/a
(1980-2000)
7,755 n/a
95%
59%
68%
n/a
n/a
* 1979: Employment estimates by Montana Department of Administration
** Note: Population level based on expected births and deaths; Series II—
U.S. Bureau of the census. Migration levels are estimated from state
vital rates.
Sources: Research and Statistical Services Bureau, Montana Department of Administation,
MASS II Model; U.S. Bureau of the Census, 1980 Census of Population, Vol. 1,
Characteristics of the Population, Chapter A, Number of Inhabitants Montana,
October 1981.
-------
FIGURE 6.2
FLATHEAD COUNTY
POPULATION TRENDS
70,000 J
60,000 J
50,000 J
40,000 J
30,000 J
1 1 1 r-
1940 1950 1960 1970
Source: Derived from Tables 6.1, 6.3, and 6.5
(72,779) HIGH
(62,451) MEDIUM
/
/
/
/ ^ ^
/ • (56,767) LOW
—I 1 I
1980 1990 2000
-------
FIGURE 6.3
LAKE COUNTY
POPULATION TRENDS
23,000 -
21,000 "
19,000 ""
HIGH
(23,761) MEDIUM
(21,772) LOW
O-
o
D_
17,000 "
15,000 "
Source: Derived from Tables 6.2, 6.4, and 6.6
—, , 1 1 , 1 r—
1940 1950 1960 1970 1980 1990 2000
-------
152
TABLE 6.7
FLATHEAD RIVER BASIN TOTAL POPULATION
Low
Medium
High
1980
72,857
72,857
72,857
1900
75,338
81,082
92,727
2000
80,890
88,563
104,046
Increase
1980-2000
n.o%
21.5%
42.8%
1970
1980
1990
2000
Missoula
651
1091
1347
1597
Sanders
1243
754
754
754
1894
1845
2101
2352
Missoula and Sanders Assumptions:
1. No further decline in Sanders County
2. River basin portion of Missoula County increases
at Missoula County's total growth rate.
-------
153
6.4 SUBCOUNTY ALLOCATION
Whenever greater spatial detail (smaller areas) is
needed, forecast error increases. National and state fore-
casts are generally fairly accurate. County estimates are
less precise and city estimates even more uncertain. The
same is true when population projections are disaggregated
into age, sex or race classes.
City and county projections were made in the following
manner:
1. Population data from 1950 through 1980 were
collected and plotted for selected Flathead, Lake
and Sanders County cities and towns.
2. Three estimates were made of 1990 and 2000
population for each locality:
a) A "best fit" linear extension for the
population plot to 1990 for each jurisdiction,
b) A numerical extension of the 1980 popu-
lation of each jurisdiction to 1990 (i.e., the
absolute population difference between 1970 and
1980 was extended to 1990); and
c) An average of a) and b) was determined.
3. A projected 1990 population was selected from
one of the three alternatives. Selection was
influenced by county and local economic condi-
tions, the likelihood of annexation in each
locality and information derived from interviews
of local and county government officials. Working
papers, plots, and explanations are available for
the interested reader (contact the Research and
Statistical Services Bureau, Informaton Systems
Division, Department of Administration.)
Tables 6.8 through 6.10 provide the most likely spatial dis-
tribution of population through the year 2000 along with
actual levels 1950-1980.
-------
154
TABLE 6.8
ACTUAL AND PROJECTED POPULATION (MEDIUM SCENARIO)
FOR SELECTED COMMUNITIES IN FLATHEAD, LAKE AND
SANDERS COUNTIES.
Jurisdiction
1950
1960
1970
1980
1990
2000
Flathead Co.
31,495
32
,965
39,460
51,966
57,128
62,451
Col. Falls
1,232
2
, 132
2,652
3,112
3,450
3, 690
Kalispeii
9,737
10
,151
10,526
10,648
10,770
10,850
Whitefish
3,268
2
,965
3,349
3,695
3 , 880
3,970
Residual
17,258
17
,717
22,933
34,511
39,028
43,941
Lake Co.
13,835
13
,104
14,445
19,046
21,853
23,761
Poison
2,280
2
,314
2,464
2,798
3,130
3,500
Ronan
1,251
1
,334
1,347
1,530
1, 640
1,770
St. Ignatius
781
940
925
877
830
800
Residual
9,523
8
,516
9,709
13,851
16,253
17,691
Sanders Co.
6,983
6
,880
7,093
8,675
10,444
12,328
Hot Springs
733
585
664
601
590
595
Residual
6,250
6
,295
6,429
8,074
9,854
11,733
Source: U.S. Bureau of the Census, 1980 Census of Popula-
tion, Vol. 1, Characteristics of the Population,
Chapter A, Number of Inhabitants, Montana, October
1981; U.S. Bureau of the Census, Census of Popula-
tion, 1950, Vol. II, Characteristics of the Popu-
lation, Part 26, Montana, 1952; projections derived.
-------
155
TABLE 6.9
ACTUAL AND PROJECTED POPULATION (MEDIUM SCENARIO)
FOR SELECTED COMMUNITIES IN FLATHEAD, LAKE AND SANDERS
COUNTIES EXPRESSED AS A PERCENT OF COUNTY POPULATION
Population as a Percent of County Population
Jurisdiction
1950
1960
1970
1980
1990
2000
Flathead Co.
100
.0
100
.0
100
.0
100
.0
100
.0
100
.0
Col. Falls
3
.9
6
.5
6
.7
6
.0
6
.0
5
.9
Kalispell
30
.9
30
.8
26
.7
20
.5
18
.9
17
.7
Whitefish
10
.4
9
.0
8
.5
7
.1
6
.8
6
.4
Residual
54
.8
53
.7
58
.1
66
.4
68
.3
70
.3
Lake Co.
100
.0
100
.0
100
.0
100
.0
100
.0
100
.0
Poison
16
.5
17
.7
17
.1
14
.7
14
.3
14
.7
Ronan
9
.0
10
.2
9
.3
8
.0
7
.5
7
.5
St. Ignatius
5
.7
7
.2
6
.4
4
.6
3
.8
3
.4
Residual
68
.8
64
.9
67
.2
72
.7
74
.4
74
.4
Sanders Co.
100
.0
100
.0
100
.0
100
.0
100
.0
100
.0
Hot Springs
10
.5
8
.5
9
.4
6
.9
5
.7
4
.8
Residual
89
.5
91
.5
90
.6
93
.1
94
.3
95
.2
Source: Derived from Table 6.8
-------
156
TABLE 6.10
LOW AND HIGH SCENARIO POPULATION PROJECTIONS
FOR SELECTED COMMUNITIES IN FLATHEAD, LAKE AND
SANDERS COUNTIES.
Low Scenario High Scenario
Jurisdiction
1980
1990
2000
1990
2000
Flathead Co.
51,966
53,888
56,767
64,185
72,779
Col. Falls
3,112
3,233
3,349
3,851
4,294
Kalispell
10,648
10,184
10,048
12,131
12,882
Whitefish
3,695
3,664
3,633
4,365
4,658
Residual
34,511
36,806
39,907
43,838
51,164
Lake Co.
19,046
20,349
21,722
26,441
28,916
Poison
2,798
2,910
3,200
3,781
4,251
Ronan
1,530
1,580
1,633
1, 983
2,169
St. Ignatius
877
773
740
1,005
1,005
Residual
13,851
15,140
16,198
19,672
21,514
Source: Derived.
Note: Totals may not add due to rounding.
-------
157
6.5 AGE DETAIL
Projections of age are based on the number of males and
females in each five year age group. Fertility rates are
applied to the female cohorts to derive expected births—
based on national and state norms. Death rates are applied
to each age and sex class, again based on national and state
life expectancies. The natural growth in population (i.e.,
births less deaths) within the area is forcast to rise
approximately 9,200 by the year 2000, or about .6% per year
compounding. Some continued migration is anticipated into
the region--on the order of 6,000 people by the of the
century. As discussed in section 2.7 (Table 2.15) most
migration flows involve younger individuals. Table 6.11
combines the natural growth and migration levels by age.
These projections are, however, based on old 1970 data and
are subject to significant revision as current (1980) infor-
mation becomes available. Required 1980 vital rate data
and the more detailed age, sex and race distribution were
not available for this analysis. (By 1983, all necessary
data to make "sound" age projections will be obtainable.)
As a result, the author suggests that discretion be
exercised in the "planning use" of the age detail provided
in Table 6.11. The 1980 data on Table 6.11 are from the
1980 Census of Population by broad age groups.
-------
TABLE 6.11
AGE DISTRIBUTION
(Medium Scenario)
0-4 yrs 5-lOyrs 10-14yrs 15-19yrs .20-29yrs 30-44yrs 45-59yrs >60yrs Total
4,261 4,105 4,365 4,573 8,990 10,653 7,327 7,69Z 51,966
1980
Flathead
1990
Flathead
2000
Flathead
5,092
5,147
4,759 4,694
4,398
5,114
3,717
5,218
10,035 12,617
8, 690
7,434 57,130
8,856 15,476 10,549 7,736 62,402
1980
Lake
1990
Lake
2000
Lake
1,715
1,544 1,620
1,982 2,020
1,819 1,711
1,801
1,791
1,571
1,969 2,045
2,821
3,354
3,892 4,914
3,661 5,867
2,630 3,583 19,058
2,846 2,832 21,858
4,026 2,693 23,791
Sources: MASS II Model, Research and Statistical Services Bureau, Montana Department of Administration
-------
159
7 OTHER FUTURES
7.0 INTRQUDUCTION
"Best guess" outlooks for the area suggest that growth
will slow. New manufacturing is often portrayed as the
growth source of the future. This chapter reviews the
prospects*
7.1 NEW BUSINESS - OUTSIDE BUSINESS?
No one can deny that there are benefits for a state or
area in capturing industries that operate elsewhere or might
open branch plants in another area. Industries do create
jobs, with spin-off effects in subsidiary employment for
suppliers and service firms. For small towns, rural com-
munities and one-industry areas, the arrival or exit of a
major plant can have a dramatic impact on the citizens'
economic well-being. Aware of these benefits, many develop-
ment agencies invest immense amounts of time, money and
energy in industrial recruiting, to the point where "smoke-
stack chasing" activities overshadow all other economic
development efforts. A strong argument has been made,
however, that this approach involves excessive costs, leads
*Note: Governor's Office of Commerce and Small Business
Development, Edited Abridgment of Economic Conditions in
Montana, Chapter 4 and 5, prepared by Bruce Finnie.
-------
160
to abuses and generates fierce and counterproductive rival-
ries among states and regions. Most serious of all, this
approach may miss the mark of where the greatest potential
lies for increased employment and economic growth in the
United States today.
Pioneering research by David L. Birch (Joint Center for
Urban Studies at the Massachusetts Institute for Technology
and Harvard University) produced the following results:
Smokestack chasing--pirating firms from out-of-state or
region—produces negligible over-all employment
effects. The average net shift (what a state might
gain over what it might lose in a given three-year
period due to firm migrations between the states) was
only 0.1 percent of employment change in the state.
The principal source of differences in growth rates
among states lies in the rate of births of new enter-
prises and the expansion of existing ones. Expansions
have the most impact, followed by births and con-
tractions ,
The majority of new jobs in an economy come from the
birth and expansion of independent corporations, not
from branch plants, headquarters or the relocation of
multiplant operations.
Most importantly, in Montana and the nation, it is the small
firms which contribute crucially to new job creation.
According to the Birch report, all parts of the country
are losing jobs at about the same rate--eight percent per
year. Replacement of these lost jobs with new ones, through
either the birth of new establishments or the expansion of
existing ones, is the principal factor in the determination
of an area's growth or decline. Between 1969 and 1976 inde-
pendent (single-establishment) firms played the dominant
role in providing new jobs due to expansion, when compared
-------
161
with branch plants. Of all new jobs (national) generated
between 1974 and 1976, at least 75 percent were created by
firms less than 4 years old. Finally, small companies,
those with less than twenty employees, contributed 66 per-
cent of net new jobs in the U.S. between 1969-1976. Over
half of the new jobs were in small, independent businesses.
The form of traditional state economic development
programs ironically has been one of attracting large-out-of-
state manufacturing firms. This is surprising in view of
the fact that very little growth in either Montana or the
nation has occurred in manufacturing.
Although the manufacturing oriented effort of many
state programs (i.e., advertising, tax breaks, etc.) "may be
justified" in the sense that manufacturing brings new money
into the area, the battle is very definitely an uphill
fight. First, only about seven percent of all national
manufacturing firms have "tentative" plans to expand
existing facilities or establish plants at a new location
each year. Less than 15 percent of these plans actually
materialize. Further, it is likely that development will
occur at an existing site, not at a new location. Less than
10 percent of these firms ever relocate or grow to the point
of having branch plants. (Of course, firms that do are some
of the largest and, hence most likely to relocate.) Second,
many firms don't move very far in relocation. Even though
the shift has been toward the "small town," the new site is
often within the vicinity of the original metropolitan area.
-------
162
Remoteness often has been cited as one of Montana's
most precious assets. This asset also works to Montana's
disadvantage since national markets are distant and trans-
portation costs are high. In addition, Montana's labor
supplies are relatively sparse when compared with national
norms. Simply put, with the exceptions of extractive indus-
tries, Montana is ac a competitive disadvantage with other
regions when trying to "attract" the one percent of national
manufacturing firms which expand existing operations or
establish new plants each year. Fostering internal expan-
sion of existing firms, many of them resource based, is a
much more practical consideration.
7.2 INDUSTRIAL LOCATION DETERMINANTS
It is difficult to determine with precision the reasons
that a particular business develops at one location as
opposed to another. Economic theory focuses attention on
major cost components including labor, transportation,
utility rates, taxes, and the like. Although such factors
are important, there are many considerations which cannot be
quantified. For example, nearly all industries, including
the major national corporations, were at one time the result
of one individual's efforts. The industries grew where the
entrepreneur was, regardless of comparative costs. Another
important but often overlooked fact is that the nation did
not develop in a uniform manner. Early settlement and manu-
-------
163
facturing patterns still play a major role in determining
the present shifts in manufacturing activity. That is, many
industries which are seeking new locations are constrained
to locate in areas which are already developed. These
industries frequently are linked to an already developed
existing industrial complex through technology, input
requirements, financial institutions, and so on.
LABOR COSTS
Average manufacturing wages in Montana (see Table 7.1)
are much higher than the national norm and substantially
higher than the prime manufacturing growth area, the
southern states. Manufacturing employment in Montana is
heavily concentrated in capital intense industries such as
smelting, refining, lumber and paper mills, etc. These
industries are highly productive industries and are also
relatively high paying, thus driving the average manu-
facturing wage up. Although some may contend that union
strength results in Montana's high manufacturing wages,
comparisons of national wage rates in the same industries
refute this claim. In fact, Montana is slightly less union-
ized than the national norm.
High manufacturing wages also result from the relative
absence of light (labor intensive) industry in Montana,
which generally pays somewhat lower wages. Again, this
inflates the state's average. As a result, comparisons of
average wages with other states are made with some risk.
-------
164
TABLE 7.1
STATE MANUFACTURING COST
COMPARISON INDEX VALUES
(1979)
Manufacturing
Wage Rate Electricity Gas Taxes Transportation
Alabama
88
94
79
81
74
Arkansas
81
102
73
73
78
California
102
130
113
100
177
Colorado
98
89
67
101
116
Georgia
87
106
79
91
74
Idaho
110
52
113
99
158
Illinois
105
109
103
94
71
MONTANA
135
30
87
107
145
Nevada
105
100
101
105
162
New Jersey
101
157
134
99
90
New York
101
126
128
146
90
North Dakota
89
114
104
102
106
Oklahoma
91
94
89
95
88
Oregon
126
41
117
98
194
Pennsylvania
97
125
117
92
80
South Dakota
87
98
68
88
98
Texas
91
95
116
92
96
Utah
91
91
66
101
143
Washington
117
20
119
97
193
Wyoming
92
55
65
124
125
Source: Bruce Finnie, Montana Screening Matrix, Montana Department of Labor
and Industry, 1979-
-------
165
Wage rates vary significantly among manufacturing industries
and the industry mix varies among states. Specifically, it
is questionable to assert that Monana's labor index of 135
is applicable to light industry which could be expected to
develop in Montana. The labor-intensive index value was
estimated to be 88; labor-intensive firms in Montana pay 12%
less than the national norm for those specific industry
groups. Dividing the labor cost analysis into two groups
with distinctly different values more closely reflects the
labor conditions of Montana's atypical industrial compo-
sition.
UTILITIES
Electrical and natural gas rates exhibit far more
variation than labor costs. Montana presently is a low
utility rate area, particularly for electricty. As more
thermal (high cost) electric generating plants are added to
the less expensive hydroelectric generation base, however,
the rates will rise. In addition. Bonneville Power rates
for western Montana will increase within the next few years
as revised pricing policies are adopted. It is still likely
that Montana will have a slight cost advantage in this area
in the longer term, but the advantage will not be as sig-
nificant as it is today. Although utility rates are usually
not a major cost item for most manufacturing companies, they
are very important for a number of Montana industries:
aluminum, phosphorus, paper, and cement. A number of
-------
166
Montana plants have changed or are changing the fuel and
technology used in an effort to lower costs.
TAXES
The effect of taxation on manufacturing growth remains
a hotly debated consideration, even though overall business
taxes usually constitute less than two percent of total
production cost at the national level. Although taxes paid
per $100 of profits vary substantially from state to state,
the relative cost of taxes remains relatively low, probably
less than a one percent variation between states. A recent
study by the Academy for Contemporary Problems, Columbus,
Ohio, indicates that total business taxes are generally
about 30 percent lower than the national average in the
southern states and that Montana is slightly higher than the
national norm. However, these figures are based on esti-
mates and do not reflect differences in the relative profit-
abilty of businesses from state to state. The overall tax
burden (total federal, state, and local taxes as a percent
of state income) in Montana is shown in Table 7.1.
Tax breaks and other inducements that states offer to
attract industry are losing their appeal. A growing number
of economists condemn them as wasteful and self-defeating.
State officials who defend them confess to feeling trapped
in an escalating race to attract and keep corporations. The
giving is generous. States offer a cornucopia of tax
-------
167
credits, exemptions, rollbacks, reductions and deferrals.
Many also tout industrial revenue bonds and municipally
owned industrial parks. Lately, New York has led the sweep-
stakes with 27 inducement programs.
But a 1980 North Dakota study found that a major exemp-
tion that the state has offered for more than a decade has
had negligible influence. And a study for the Economic
Development Administration concludes there isn't any
relationship between the level of state taxes and the
creation of jobs and investments.
TRANSPORTATION
Transportation costs generally account for about two
percent of total manufacturing cost although the variation
between industries is significant, ranging from a low of
less than H percent to over seven percent, depending upon
the product. Estimates of overall access to national
markets suggests that Montana's relative transportation
costs may be as much as 50 percent higher than the average
state and nearly 100 percent higher than most states in the
"manufacturing belt."
Figure 7.1 illustrates the relationship between market
access for landlocked states and manufacturing intensity.
Market access is defined as an approximation of the relative
transportation costs of serving the entire nation from one
state. Manufacturing intensity is defined as the percent of
state income that is related to manufacturing income.
-------
168
FIGURE 7.1
MANUFACTURING INTENSITY AND MARKET ACCESS
II
5 Q
u 2
Oio 9
Souin Ottota^
N*v*oa +
GOOD
iC'osa to MarKet)
MEDIUM
NATIONAL MARKET ACCESS
POOR
;Far From Market)
Source: Working Paper Seri<»<; ^ „
and Small Susiness Developments
-------
169
STATE OVERVIEW OF COSTS
In order to present the data in a more meaningful way,
the four cost components (labor, utility, taxes, transporta-
tion) were averaged based on the relative costs of manufac-
turing by using the national input/output tables. For
example, labor costs represent 81 percent of the overall
index, utilities 6.0 percent, and taxes and transportation
6.5 percent each. This composite index, computed by Census
region, is shown in Figure 7.2, along with manufacturing
growth. As can be seen, the southern and mountain states
have experienced more rapid growth and have relatively lower
costs. Conversely, the old maufacturing belt states and the
Pacific region have experienced slower growth and have
relatively higher costs. Montana's costs are also quite
high and growth has been rather slow. But, as was mentioned
earlier, there are far more determinants of manufacturing
activity than simply labor, energy, transportation costs,
etc. Several such factors are discussed below.
-------
170
FIGURE 7.2
INDUSTRIAL GROWTH AND COMPARATIVE COST
*0 X -to
.OWl hiGhi
«eL*nv£ cost inocx
Source: Bruce Finnie, Montana Department of Labor and
Industry, 1979.
OTHER GROWTH DETERMINANTS
Manufacturing firms most often locate in areas where
they have both an immediate market and an immediate source
of inputs including specialised labor, technical assistance,
large financial institutions, and the availability of
related manufacturing firms and shops. Generally, such
advantages are found in large urban areas.
-------
171
There are very few significant linkages within the
Montana economy. With the exception of the mining, wood
products, and, to a limited degree, the agricultural
complex, manufacturing firms in the state are virtually
independent. They are not functionally tied through
internal sales and technology.*
Relatively few national manufacturing firms are tied to
the natural resource base. However, in Montana, a raw
material orientation has been the rule rather than the
exception. Nearly 75 percent of manufacturing activity in
the state is directly linked to the resource base, a pro-
portion which is probably higher than nearly any other
state.
The transportation cost of raw materials is the domi-
nant location factor in many Montana industries, since
it is not feasible to transport raw ore, uncut timber, etc.,
for any great distance. It becomes necessary to at least
partially process the material to reduce cost.
After a firm has determined a suitable area (region or
state) for relocation, based on comparative costs and inter-
* These conclusions are based on the 1975 Montana Input/
Output Tables developed by Bruce Finnie and Jerry Flemming
of the Montana Department of Community Affairs, Research and
Information Systems Division.
-------
172
industry linkages, it will begin to search out individual
communities which meet its needs. Nationally, manufacturing
firms consider the following community attributes most
important when relocating, listed in order of importance:
(1) fire protection
(2 ) contract trucking
(3) police protection
(4) trained worker availability
(5) unskilled worker availability
(6) air service (passenger)
(7) tax incentives (local)
(8) industrial zoning
National firms also regard the following plants site
features as most important:
(1
(2
(3
(5
(6
(7
(8
(9
interstate highway access
natural gas service
rail service
sewage processing
solid waste disposal
soil load-bearing capabilities
air freight service
industrial parks
Sources: Bruce Finnie, Montana Screening Matrix, Montana
Department of Labor and Industry, 1979.
MANUFACTURING POTENTIAL
Three hundred potential industries were ranked in terms
of development feasibility in Montana. The ranking was
based on a variety of characteristics including labor
requirements and costs, transportation costs, utility costs
and external market considerations. Although the procedure,
called a "screening matrix," allows for a systematic com-
parison of development potential by industry, it is by no
-------
173
means a precise measure. It is capable only of revealing
general patterns or trends.
Many of the firms which already exist in Montana scored
the highest, which is expected. The following comparison of
selected firms (short list) illustrates the general degree
of feasibility as defined by the matrix. (See Table 7.2)
Group I
Best Meat Processing
Animal Fat Oils
Cardboard
Building Paper
Furniture
Pulp
Copper/Lead/Zinc
Group II
Good Plywood
Prefab Buildings
Paper Mills
Aluminum Castings
Farm Machinery
Grain Products
Paper Containers
Group III
Fair Clothing
Greeting Cards
Hardware
Hand Tools
Electronic Components
Surgical Supplies
Rolling and Drawing
Group IV
Poor Tires
Iron Foundries
Power Transmission equipment
Construction Machinery
Railroad Cars
Motor Vehicles
Engines
-------
174
Goups V
Bad Turbines
Aircraft
Textile Machinery
Refrigerators
Machine Tools
Steel Works
Ship Building
It should be noted that a higher score does not
necessarily mean that the industry will succeed in Montana
but only that it may have an advantage relative to other
industries. For example, meat processing was rated high in
the matrix but many such firms have failed in Montana even
with good management. The type of beef slaughtered in
Montana is very different in nature than that processed in
Nebraska, Iowa, etc., where larger markets also exist. Pulp
mills scored high, but future development of this industry
is possibly constrained by limited inputs (i.e., wood
residue inputs) and environmental considerations. In other
words, processing facilities would probably have to expand
before further pulp development could occur.
In addition, many industries which scored high in the
matrix (long list) have limited markets. For example, lime,
petroleum coal products, dairy, and concrete products were
rated high but are obviously not products with a national
market orientation. As a result, further screening will be
necessary to eliminate those sectors which require sub-
stantial local markets if it is the desire of a community to
promote regional or national manufacturing firms.
-------
175
TABLE 7.2
DEVELOPMENT POTENTIAL BY INDUSTRIAL GROUP
COMMON CHARACTERISTICS BY SCORE
Employ- Trans- Urban
mem Value portation Energy Growth Raw Material Orion-
Group Level Wages Added Costa Use Rate Market Orientation tation Linkage* Other
1
Best
Medium
High
Low
High
Medium
Low
Regional
Dominate
Low
Backward
only
Natural Resource
Orientation
II
Good
Low
Medium
Medium
Medium
Low
Medium
Regional
Not
Important
Low
Usually
Backward
Generally
Footloose
III
Fair
Low
Low
High
Low
Low
High
National
Not
Important
Medium
Not
Important
Footloose
IV
Poor
High
High
High
Low
Medium
Low
National
Not
Important
High
Forward &
Backward
Market
Orientation
V
Bad
Very
High
High
High
Medium
High
Very
Low
National
Not
Important
High
Forward 8>
Backward
Market
Orientation
DEFINITIONS:
Forward linkage: a firm that tends to locate near the consumer of Its product has a forward linkage.
Backward linkage: a firm that tends to locate near its materials supplier has a supply or backward linkage.
Concentration dependence: a firm that tends to locate near other firms within its own maior industrial category, through sharing facilities and
services, has a concentration dependence.
Urban orientation: a firm that tends to locate near metropolitan and urban areas because of the large available labor force, financial institutions,
etc., is said to havs urban orientation.
Raw material orientation: a firm that tends to locate near the source of its primary natural resource input has a raw material orientation.
Source: Montana Screening Matrix, Montana Department of
Labor and Industry, 1979.
-------
176
Table 7.2 shows general industrial characteristics or
tendencies which result from the industry specific ranking
of all 300 manufacturing possibilities. The following
conclusions were drawn from these general tendencies. The
order is of no importance.
1) Montana's test development potential is probably in the
resource based industries, even though the overall
growth rate is low and transportation cost high with
respect to the value of the product.
II) Value added is much higher in those sectors which have
a strong market orientation. Montana may find it
necessary to focus development efforts on medium value
added products. High value added products generally
have high employment levels, national markets and a
strong urban orientation which may preclude such
development here.
Ill) With the exception of the resource based industries,
manufacturing firms which appear to have a realistic
chance of development in Montana typically will pay
somewhat lower wage rates than large scale firms.
IV) The high employment requirements of industries in the
fourth and fifth categories will probably preclude such
development in Montana. These firms also are slow
growth industries and have a high urban orientation.
Montana should focus on industries employing relatively
few workers.
V) The fastest growth industries are generally footloose,
that is, not tied to a natural resource base or market
orientation. Wages and employment requirements
generally are lower than average. Transportation costs
also are relatively low. These industries appear to be
realistic growth candidates for Montana.
VI) Montana should focus on industries which have a rela-
tively low degree of urban orientation. The linkage
and market structure of these industries present fewer
constraints for development.
-------
177
VII)Industries with agglomeration economies (i.e., linkages
and scale effects are important) are not likely growth
candidates in Montana.
VIII)The industries with the highest potential for develop-
ment generally appear to have regional markets.
IX)Even though the highest two development categories have
relatively high transportation costs, weight is lost
during manufacture which tends to compensate for
Montana's transportation disadvantage. However, in
some cases developers may wish to focus on industries
which have relatively low transportation cost, i.e, the
footloose industries.
X)With the exception of the resource based industries,
the development potential for Montana appears to be in
industries which are relatively low energy users.
XI)National manufacturing growth within the past two
decades has been found in "footloose" industries, which
usually have relatively low employment requirements,
lower than average wages, high value-added charac-
teristics, a national market, and relatively low trans-
portation costs. Examples of such industries include
electronic components, hardware, surgical instruments,
truck trailers, fabricated metal products, clothing,
etc.
XII)A1though there is no specific information available, it
appears that about 40 percent of the manufacturing
employment expansion in Montana since 1960 has been in
this light-industry group, i.e, the footloose firms.
DEVELOPMENT OPTIONS: A SUMMARY
Economic development is not an optional activity for
state and local governments. By action or inaction,
interest or indifference, governments make daily decisions
that have profound effects on the lives of their citizens
and the health of their communities.
Despite its central importance, economic development
has long been a source of confusion in state capitals. No
-------
178
accepted textbook of its administration exists; the litera-
ture is sparse. The relationship between the public and
private sectors is clearly intertwined but poorly under-
stood.
Most economic development officials believe their
primary function is to help private industry make and imple-
ment investment decisions. To that end, they have pushed
their legislatures to adopt measures, like tax incentives,
which demonstrate to business the state's "positive atti-
tude" and enhance its comptetitive position vis-a-vis other
states. A growing number of people from all walks of public
and private life is beginning to challenge seriously this
prevailing view.
In their desire to impress business and grab the com-
petitive edge in the fierce struggle for new and footloose
firms, many states have adopted what the Wall Street Journal
calls a "candy store of incentive programs." These promise
industries special tax and financial treatment—from outright
exemptions on property taxes to special loan and bond pro-
grams. Increasingly, however, these incentives, like their
sister philosophy "smokestack chasing," are coming under
strong criticism from many fronts: from liberals who oppose
special breaks for business; from conservatives who, in a
Proposition 13 environment, are demanding fair and more
equal tax systems; from public officials who see the trend
spiralling out of control; and, from a growing number of
-------
179
economists who believe, simply, that the incentives don't
work.
7.3 THE CAPITAL ISSUE
Is Montana capital short? a mini-survey was conducted
to assess the perceptions of private businesses concerning
capital access. Thirty-five small manufacturing firms
selected by the Govenor's Office of Commerce and Small
Business Development were asked to rank their business
related problems in order of importance. The response was
also low; only 16 firms returned the form. As a result the
findings should be viewed with considerable caution.
However, the majority of the Montana firms who responded
tended to rank capital availability as one of their more
important business problems. Inflation was ranked highest
and management problems lowest; a pattern which has been
consistent with a variety of national surveys.
National survey results, however, are dependent on
current economic conditions. The National Federation of
Independent Business prepares a quarterly survey asking its
members to rank their problems by order of importance. The
results of the survey have varied over time, with taxes and
inflation normally dominating the list. During the 1974 oil
embargo, for example, fuel and material shortages ranked
very high. By contrast, interest rate and financing tend to
become more important during cyclical credit crunches. Even
-------
180
during the depths of recession, an inadequate demand for
product was not ranked as an important problem by most
firms. Government regulation seemed to take on greater
importance during the last recession, becomming even more
important than inadequate demand.
Returning to the Montana business survey, all firms
indicated that they had required conventional financing
within the last year. Most of them (about 70%) were
successful in their attempts to obtain the loan amount that
they sought; however, only half received the desired terms.
Like the bankers (next section), nearly all the firms cited
lack of equity as a major bottleneck to business expansion.
It is important to note that these firms were not "new"
businesses and all seem to have an established business
track record, i.e, they have survived the first few critical
years when approximately 50 percent of all businesses fail.
THE BANKERS' VIEW
A second questionnaire shown below was mailed to 158
Montana banks to determine how bankers perceive the capital
shortage issue. Their responses (125 banks responding) are
shown below:
BANKERS' QUESTIONNAIRE
1. Is procuring financing a major problem for existing
(expansion) or prospective businesses in your community?
24% YES 16°/
-------
181
2. Are you satisfied with you bank's ability to make loans
to qualified businesses?
83% YES 17% NO
If not, why
3. In your opinion, is there a capital shortage in you
community?
38% YES 62% NO
Would your answer in this question have been different 18
months ago?
17% YES 83% NO
4. Have you had any business loan requests that you have
had to turn down because of the nature of the loan (size and
duration) and/or lack of your ability to find a buyer on the
secondary market?
43% YES 57% NO
If so, how often does his happen?
5. Have you had any business loan requests that you have
had to turn down solely because the borrower did not have
sufficient equity?
93% YES 7% NO
If so, how often does this happen? (frequently).
The vast majority of bankers do not believe that there are
any major problems in securing financing. On the basis of
the open-ended questions (number 2, 4, and 5), if difficul-
ties arise they are most likely the result of lack of
experience (i.e., a new business), a perceived lack of
competence or insufficient equity.
-------
182
CAPITAL MARKET IMPERFECTIONS
How do capital shortages affect economic development?
Many young firms have a difficult time in finding financial
assistance. Higher risk ventures go unfunded because of the
absence of market mechanisms that could minimize risk, to
potential capital suppliers. Financial intermediaries do
not have accurate or sufficient information about certain
kinds of firms. Steeper transaction costs for making and
following some loans keep certain businesses out of the
credit queue altogether. Some financial institutions with
monopoly power raise funding barriers higher than they would
be under competitive conditions. Borrowers can be discrimi-
nated against on the basis of sex, race or politics. And
government regulations in capital markets create unintended
distortions.
There has been a number of studies examining the costs
and availability of capital to small firms. The most recent
empirical study, by Kieschnick and Daniels, reviewed pre-
vious studies and reported on new research based on the FTC
Quarterly Financial Reports. The conclusion of the study
was straightforward: for manufacturing firms below $1
million in assets, there exists a major discrepancy between
profitability and the existence of barriers to obtaining
long-tem debt and equity. This result is consistent with
most previous studies of small business finance, which found
that barriers exist for quite small manufacturing firms
-------
183
seeking long-term debt and equity. No acceptable evidence
has been produced showing undeserved barriers for service or
commercial firms, or for medium-sized firms.
Clearly, sufficient venture capital is necessary before
any business can borrow money from conventional lending
institutions. A sound equity position or borrowing base
(value in excess of claims or liens against property) is one
of the more important prerequisites for obtaining commercial
bank financing. For big loans this is probably every bit as
important as an established business record.
-------
184
8 SUMMARY
The projections (medium scenario) suggest a positive
future for the area. The analysis indicates that timber and
tourism will continue to generate jobs, contributing equally
to growth. More tourism jobs will be created than timber
but, the income impact of timber will be comparable to
tourism. In contrast, primary metals which was the greatest
single source of growth over the past decade, is not
expected to grow very much in the future. Total employment
growth is expected to exceed natural population expansion,
resulting in continued in-migration. Overall growth rates in
both employment and population will, however, be less than
the dramatic surge experienced in the 1970s. Basic employ-
ment levels are expected to rise slightly, a favorable
comparative change in view of the national trend. Even
though nonbasic employment growth probably will slow some-
what when compared to the "boom" during the 1970s, overall
employment growth is likely to be strong.
Although the area's specialization in natural resource
industries may give the region the illusion of being under-
developed, it is not—it just has developed in a different
way than the manufacturing areas of the nation. This does
not imply that increased industrial diversification, when
possible, would not benefit the area particularly in
certain cases—but it does imply that the overall economy of
the region is doing well and should prosper in the future.
-------
185
To be sure, industrial diversification will occur.
This metamorphosis, however, will be as slow as it was
elsewhere and will be determined by economic feasibility
rather than wish. But, most importantly, if any of the
major natural resource or supporting sectors falter, the
economic gains of the 1970s may quickly be lost.
Flathead Valley is fortunate to be endowed with timber,
and extensive agricultural lands. The future of the Valley
will rest on these riches and upon the decisions which
affect their use. Many crucial trade-offs will exist in the
future. For example, a national policy of tight money would
benefit the nation through reduced inflation. However, such
a policy makes it more difficult to borrow money—directly
impacting the housing and wood products industries.
Timber cutting and mining policies are even more com-
plex when environmental costs are weighed. No simple
solutions exist in such complex situations, but Valley
residents should insure that their input is made known to
national and state decision makers, private and public, when
the vitality of the economy and the quality of the environ-
ment are at stake.
DEVELOPMENT EFFORTS
Almost all of the growth since 1970 resulted from the
expansion of existing primary or basic industries. This
suggests that existing firms and industries should not be
-------
186
forgotten in any local development efforts. State experience
has shown conclusively, that efforts to attract outside
industry are not successful. Local development agencies,
the Chamber of Commerce, and banks, working hand-in-hand
with existing firms can help stimulate sound, clean and
acceptable growth. Successful efforts will be targeted on
the area's true resource base—timber, tourism and agricul-
ture. The author hopes that the information provided in
Chapter 7 will assist developers in targeting such efforts.
Development is a long-run goal requiring the devoted
attention of business leaders over an extended period of
time; often years before success is actually seen. Long-
term efforts do work when the focus is on expanding existing
operations and assisting new local firms to grow and mature.
Montana, the Flathead Valley, and the nation need capital to
grow and prosper. Local venture capital efforts by business
and the financial community present one good option within
the area to help maintain balanced economic growth. The
future will be determined by today's investments.
------- |