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Economic Snapshots:Economic Snapshots:Our Region Today and TomorrowOur Region Today and TomorrowSeptember 10, 1998

Bureau of Business and Economic ResearchBureau of Business and Economic Research

Center for Economic DevelopmentCenter for Economic Development

University of Minnesota DuluthUniversity of Minnesota Duluth

Dr. Richard Lichty, Ph.D.

Professor, Economics

School of Business and Economics

University of Minnesota

Dr. Kjell Knudsen, Ph.D.

Dean, School of Business and Economics

University of Minnesota

Presenters:Presenters:

Warning:

These men are not real people.

They are ACADEMICS!!!!!

Warning:

These men are not real people.

They are ACADEMICS!!!!!

• What are the economic impacts What are the economic impacts

by the industries represented by this group?

• What is the export picture What is the export picture for the industries represented by this group?

• What are the economic impacts What are the economic impacts by the individual industries represented in

this group?

• Industry trends - opportunities and Industry trends - opportunities and concernsconcerns

IN THIS PRESENTATION:

Key Customer Area:Key Customer Area:

CARLTON CARLTON CASS CASS CROW WING CROW WING DOUGLAS DOUGLAS HUBBARD HUBBARD ITASCA ITASCA KOOCHOCHINGKOOCHOCHING

LAKE LAKE MORRISON MORRISON PINE PINE ST. LOUIS ST. LOUIS TODD TODD WADENAWADENA

DOUGLAS

Key Customer Key Customer

Industry groups:Industry groups:

• Iron Mining

• Food Processing

• Wood Products

• Paper Mills, Printing, Inorganic Chemicals

• Metal Products

• Transportation and Utilities

• Pipelines, Gas Production and Distribution & Petroleum Refining

• Hospitals

• State And Local Government

THE BIG PICTURETHE BIG PICTURE: :

Key Customer Group Key Customer Group Industries’ Impact Industries’ Impact on Northeast Minnesotaon Northeast Minnesota

Regional Output

Regional Employment

Employee Compensation

Value Added

Indirect Tax Revenue

KEY CUSTOMER INDUSTRY REGIONAL IMPACT

55%

45% 45%

39%35%

0%

10%

20%

30%

40%

50%

60%%

of

Reg

ion

Regional Output

Regional Employment

Employee Compensation

Value Added

Indirect Tax Revenue

Source: IMPLAN WOW!

• One body of theory argues that One body of theory argues that exports are the driving force of a exports are the driving force of a regional economy. regional economy.

• To the extent that you export, you To the extent that you export, you represent the basis for economic represent the basis for economic growth in the region.growth in the region.

The export picture, why is it important?

The notion of export The notion of export base:base:• Basic industriesBasic industries

• Non-basic industriesNon-basic industries

Which are you?

What do the data show?What do the data show?• Only 14% of the region’s exports are to Only 14% of the region’s exports are to

other countries other countries

• 43% of foreign exports are accounted for by 43% of foreign exports are accounted for by the industries represented here.the industries represented here.

• 43% of domestic exports are accounted for 43% of domestic exports are accounted for by the MP Key Customer industries. by the MP Key Customer industries.

THAT MEANS 43% OF THE REGION’S TOTAL EXPORTS ARE REPRESENTED

IN THIS ROOM.

THAT MEANS 43% OF THE REGION’S TOTAL EXPORTS ARE REPRESENTED

IN THIS ROOM.

What are we talking about What are we talking about in terms of dollars of in terms of dollars of production?production?

• The region exports slightly over $1 The region exports slightly over $1 billion to other countries. billion to other countries.

• Industries represented by you folks Industries represented by you folks account for $485 million of that account for $485 million of that total.total.

More dollar figuresMore dollar figures

• The region exports slightly over $7 The region exports slightly over $7 billion to other region’s in the United billion to other region’s in the United States. States.

• Industries that you represent accountIndustries that you represent account for slightly over $3 billion of this totalfor slightly over $3 billion of this total

0

2468

10121416

% Exports

6 Leading Exporters in the Region

Iron OrePaper MillWood ProductsRailElectricMedical

Source: IMPLAN

Another view of industry Another view of industry importance: importance:

Location quotientLocation quotient• ...looks at how important an industry is to ...looks at how important an industry is to

this region relative to the same industry in this region relative to the same industry in the nation. the nation.

• ... over the value of 1 indicates that the ... over the value of 1 indicates that the industry is “basic” to the regional economy--industry is “basic” to the regional economy--one of the drivers of the local economy.one of the drivers of the local economy.

Key Key Customer Customer industries industries LOCATION LOCATION QUOTIENTSQUOTIENTS::

Source: UMD Bureau of Business and

Economic Research

OUTPUT: Sorted by '95 Descending

(Aggregated, Weighted) 1995IRON ORES 48.38

PAPER MILLS & PRINTING 14.96WOOD PRODUCTS 14.42STATE AND LOCAL GOVERNMENT 1.88PIPELINES, GAS PRODUCTION AND DISTRIBUTION & PETROLEUM REFINING 1.46FOOD PROCESSING 1.46HOSPITALS 1.27METAL PRODUCTS 1.12TRANSPORTATION 0.86

Wow!!!

• Remember, basic Remember, basic industries drive the industries drive the economy. economy.

• All of you in this All of you in this room are identified room are identified as being basic, both as being basic, both from an absolute from an absolute export level and export level and from a location from a location quotient point of quotient point of view.view.

Why is this important to you?Why is this important to you?

How great is your industry’s How great is your industry’s influence on the regional influence on the regional economy?economy?• A discussion of multiplier values A discussion of multiplier values

by industry and of economic by industry and of economic impacts by industryimpacts by industry

TOTAL IMPACTS $ in Millions

Industry 1995Regional Output

Regional Employ-

ment

Employee Compen-

sationValue Added

Indirect Business

Taxes

Iron Mining $2,147 16715 $557 $817 $99Paper Products $2,041 14725 $473 $892 $61Food Products $894 10550 $204 $360 $28

Wood Products $794 6685 $164 $351 $21Metal Products $132 436 $42 $65 $4

Transportation+Util $1,542 8897 $380 $1,652 $96Hospitals $743 14504 $315 $443 $23Pipeline $396 1476 $45 $128 $18

Sate & Local Gov $1,971 51174 NA NA NA

Total $10,660 125162 $2,180 $4,708 $350

% of Total 55.33% 44.95% 35.25% 45.00% 39.41%

Source: IMPLAN

Category Of Impact Direct*Indirect* Induced* Total*Regional Output $1,300 $491 $356 $2,147Regional Employment 6166 4202 6347 16715Employee Compensation $328 $120 $109 $557Value Added $333 $267 $217 $817Indirect Business Taxes Multiplers $44 $29 $27 $99* = All Monetary Figures Are In Millions Of Dollars

Iron Mining - SIC 1010

EVTAC MiningHibbing Taconite Co.Inland Steel Mining Co.LTV Steel Mining Co.National Steel Pellet Co.Northshore MiningUSS-Minntac

Source: IMPLAN

Category Of Impact Direct* Indirect* Induced* Total*

Regional Output $1,257 $477 $307 $2,041Regional Employment 4582 4667 5476 14725Employee Compensation $262 $116 $94 $473Value Added $467 $238 $187 $892Indirect Business Taxes Multiplers $13 $25 $23 $61* = All Monetary Figures Are In Millions Of Dollars

Paper Products - SIC 2620, 2790, 2810 & 2690

Blandin Paper Co.Boise Cascade Corp.Hennepin Paper Co.Lake Superior Paper Industries

Superior Recycled Fiber IndustriesPotlatch - CloquetPotlatch - BrainerdSpecialty Minerals IncBanta Publications Group

Source: IMPLAN


Regional Output $498 $247 $149 $894Regional Employment 4435 3456 2658 10550Employee Compensation $104 $54 $46 $204Value Added $162 $107 $91 $360Indirect Business Taxes Multiplers $5 $12 $11 $28* = All Monetary Figures Are In Millions Of Dollars

Food Processing - SIC 2010, 2037, 2077 & 4221

Long Prairie Packing Co.Tyson Seafood GroupLamb Weston/RDO FrozenCentral Bi ProductsCargill Source: IMPLAN



Wood Products - SIC 2490, 2493, 2653, 2483,

Georgia PacificInternational BildriteUSG Interiors IncTrus Joist MacMillanDiamond Brands, Inc.Potlatch - Grand Rapids Source: IMPLAN



Metal Products - SIC 3320, 3390 & 3460

Northern Castings ME InternationalNorth Star Steel

Source: IMPLAN

Category Of Impact Direct* Indirect*Induced* Total*

Regional Output $1,106 $185 $251 $1,542

Regional Employment 4206 2219 2572 8997

Employee Compensation $246 $57 $77 $380

Value Added $748 $99 $805 $1,652

Indirect Business Taxes Multiplers $71 $6 $19 $96

* = All Monetary Figures Are In Millions Of Dollars

Transportation and Utilities - SIC 4512,4010, 4911 & 4923

Northwest AirlinesBurlington Northern/Santa FeDuluth Missabe & Iron Range RailwayMidwest Energy Resources CompanyMinnesota Power

Source: IMPLAN



Hospitals SIC - 8062

Miller-Dwan HospitalSt. Luke’s HospitalSt. Mary's/Duluth Clinic

Source: IMPLAN



Pipelines, Gas Production and Distribution & Petroleum Refining SIC - 4610, 4923, 2911

Lakehead Pipe LineMinnesota Pipe Line/KochCentral Minnesota Ethanol Cooperative (CMEC)Northern Natural GasDome PetroleumMurphy Oil

Source: IMPLAN


Regional Output $1,320 $80 $572 $1,971Regional Employment 40605 364 10205 51174Employee Compensation $1,290 -$553 $175 $911Value Added $1,813 -$595 $352 $1,570Indirect Business Taxes Multiplers $59 $3 $43 $105* = All Monetary Figures Are In Millions Of Dollars

State and Local Government SIC - 8211, 9121, 4911, 4953

Independent School District #709Western Lake Superior Sanitary District (WLSSD)Brainerd Public UtilitiesCity of DuluthGrand Rapids Public UtilitiesHibbing Public UtilitiesVirginia Public UtilitiesDahlberg Light & Power

Source: IMPLAN

No meaningful data available here.

No meaningful data available here.

Shift/shareShift/share• Shift/share describes regional activity Shift/share describes regional activity

in relation to national activity. in relation to national activity.

• It explains trends in terms of three It explains trends in terms of three effects: effects: – The share, – The mix, and – The competitive effects.

• Basis for Basis for projectionsprojections

• Helps provide Helps provide reasons for trend reasons for trend resultsresults

Why is this important to you?Why is this important to you?

Following the matrix will be Following the matrix will be additional information on additional information on each of your industries taken each of your industries taken from other sources.from other sources.

Industry Share MixCompet-

itiveTotal

Change%

ChangeIron Mining 116.7 -68.9 -85.9 -38.0 -4.2%Food Processing 14.8 -4.0 -3.5 7.3 2.4%Wood Products 167.0 2.6 -69.5 100.1 6.1%Paper Mills 183.3 2.4 -77.0 108.7 7.3%Metal Products 5.1 -4.5 -0.2 0.3 0.5%Transportation+Util 9.4 -3.0 -2.4 4.0 2.2%Pipelines 14.8 -2.6 0.0 12.1 4.1%Hospitals 62.2 -5.2 -19.0 38.0 7.9%State&Local Gov 63.4 -7.5 -12.2 43.7 6.9%

Key Customer Industry Groups

Shift/Share 1995-2000In Millions of $Source: Minnesota

Power REMI dataProvided by Pete Oppel

IRON MINING:IRON MINING:

• Workforce: retirees and hiringWorkforce: retirees and hiring

• ‘‘98 expected production: 88.7 (millions 98 expected production: 88.7 (millions of LTP/yr)for North Americaof LTP/yr)for North America

• ‘‘99 dip to 84.5 reason: 99 dip to 84.5 reason: – cyclical trends in steel demand, – and newly added steel production capacity in

new U.S. mini-mills

• 2000 forecast rebound to 87.32000 forecast rebound to 87.3source:

Peter Kakela Michigan State University

(5/12/98)

IRON MINING:IRON MINING:

• Ore prices are stable but scrap is volatile, Ore prices are stable but scrap is volatile, =advantage to pellet ore=advantage to pellet ore

• Foreign prices are volatile and higher than Foreign prices are volatile and higher than domestic pellets in Lower Lakes marketsdomestic pellets in Lower Lakes markets

• Reduction of imported steel will occur over Reduction of imported steel will occur over time, especially semi-finished steel and pig time, especially semi-finished steel and pig ironiron

• Contingent on the value of the dollar and Contingent on the value of the dollar and status of the “Asian Crisis”status of the “Asian Crisis”

source: Peter Kakela

FOOD PROCESSING:FOOD PROCESSING:• Prepared food are the growth sector in the Prepared food are the growth sector in the

U.S. marketU.S. market

• also contributingalso contributing– product innovation – increasing purchasing power

• most analysts consider this sector mature and most analysts consider this sector mature and developeddeveloped

• employment projected to be steady through employment projected to be steady through 2005 (BLS)2005 (BLS)

Source: Industrial Forecasts 1998-2000,

Prentice Hall, Richard K. Miller & Associates, 1997

FOOD PROCESSING:FOOD PROCESSING:• Major trendsMajor trends

– out-sourcing, down-sizing, automation, simplifying product lines, cutting prices and using computers

• Slow growth, 1% rise/yearSlow growth, 1% rise/year• Helped by NAFTA and GATTHelped by NAFTA and GATT• Possible beer and wine health-care sponsored tax Possible beer and wine health-care sponsored tax

concerns concerns • Increased foreign demand Increased foreign demand Source: Industrial

Forecasts 1998-2000, Prentice Hall, Richard K. Miller & Associates, 1997

WOOD PRODUCTS:WOOD PRODUCTS:

• Domestic shipments (solid wood Domestic shipments (solid wood products), stable through 2000products), stable through 2000

• Exports: dependent on forest land Exports: dependent on forest land restrictions and health of trading restrictions and health of trading partner economiespartner economies



WOOD PRODUCTS:WOOD PRODUCTS:• Outlook: Outlook:

– strong growth in furniture sector

– moderate growth in housing starts

– increased capacity in panel products, tight timber supplies

– timber supply problems of the Pacific Northwest

– exports follow Pacific Rim market growth

– NAFTA


Prentice Hall, Richard K. Miller & Associates,

1997

PAPER MILLS, PRINTING, INORGANIC PAPER MILLS, PRINTING, INORGANIC CHEMICALSCHEMICALS

• Contingent on status of the “Asian Contingent on status of the “Asian Crisis”Crisis”– Probable impact from:

• new EU market• more aggressive foreign companies • growing Pacific Rim markets

• Shipments expected to grow more than Shipments expected to grow more than 2% in ‘982% in ‘98



PAPER MILLS, PRINTING, INORGANIC PAPER MILLS, PRINTING, INORGANIC CHEMICALSCHEMICALS

• Paper Mill outlook:Paper Mill outlook:– consumption of printing/writing papers to grow – U.S. demand expected to reach 11.1 million in 2001

• China’s demand for paper expected to reach greater China’s demand for paper expected to reach greater than whole world than whole world

• Publishing outlook:“paperless office” not an Publishing outlook:“paperless office” not an immediate threat immediate threat

• Growth in demand for inorganic chemicals will keep Growth in demand for inorganic chemicals will keep pace with the GDPpace with the GDP

Source: Industrial Forecasts 1998-2000, Prentice Hall, Richard

K. Miller & Associates, 1997

METAL PRODUCTS:METAL PRODUCTS:

• Industry plagued by low-cost producersIndustry plagued by low-cost producers• Growth of mini-mill capacity a concernGrowth of mini-mill capacity a concern• Trade suits against foreign competitionTrade suits against foreign competition• Automotive parts: new product demands Automotive parts: new product demands

from design enhancements (QS9000)from design enhancements (QS9000)• Grinding media and ball mill liner Grinding media and ball mill liner

production follows fortunes of the mining production follows fortunes of the mining industryindustry Source: Industrial

Forecasts 1998-2000, Prentice Hall, Richard K. Miller & Associates, 1997

TRANSPORTATION & TRANSPORTATION & UTILITIES:UTILITIES:

• Airline Airline – Possible impact of prolonged strike– Passenger transportation receipts expected to

increase 5% annually– Impacts of electronic communication on industry:

• video conferencing• Internet ticketing sites

Source: Industrial Forecasts 1998-2000, Prentice Hall, Richard K. Miller

& Associates, 1997


• Airline growth expectedAirline growth expected• 5% annually

• FAA forecasts domestic revenue passenger miles to increase 3.9% through 2004, international to increase 6.6% annually

• Concerns: fuel prices, cost of competing modes of transportation


Prentice Hall, Richard K. Miller & Associates,

1997


• Great Lakes shipping is expected to improve with Great Lakes shipping is expected to improve with settlement of trade disputes, if the steel industry remains settlement of trade disputes, if the steel industry remains globally competitiveglobally competitive

• Port activity, Port activity, 19981998 statistics: statistics:

• Duluth-Superior Port handled 6% more commerce than in ‘97

• domestic iron ore and coal shipments were both up slightly

• Midwest Energy Resources Co. moved a record- breaking 12.24 million metric tons of coal (source Seaway Port Authority of Duluth)

Source: Industrial Forecasts 1998-2000, Prentice Hall, Richard K. Miller & Associates, 1997


• Utilities:Utilities:

– Proposed EPA regulations will increase cost of electricity production, particularly coal-fired generators

– Possibility of deregulations



PIPELINES, GAS PRODUCTION AND PIPELINES, GAS PRODUCTION AND DISTRIBUTION & PETROLEUM REFINING:DISTRIBUTION & PETROLEUM REFINING:

• Refineries:Refineries:– demand expected to increase by ‘99 but

smaller increase than of the U.S. Economy

– petroleum products price increase due to rise in raw material prices, additional refining costs of environmental regulations, and other new regulations

Source: Industrial Forecasts 1998-2000, Prentice Hall,

Richard K. Miller & Associates, 1997

PIPELINES, GAS PRODUCTION AND PIPELINES, GAS PRODUCTION AND DISTRIBUTION & PETROLEUM REFINING:DISTRIBUTION & PETROLEUM REFINING:

• Pipelines:Pipelines:– No major revenue changes through

2000, oscillating between $1.8 and $2.5 billion annually

– Trend in total deliveries will continue to increase

– number of employees will continue 10 year decreasing trend

Source: Industrial Forecasts 1998-2000, Prentice Hall,

Richard K. Miller & Associates, 1997

HOSPITALS:HOSPITALS:

• Trends Trends – consolidations, mergers and profit gains– average of 60% beds filled, capital productivity

falling– over-capacity will intensify as more Medicare

recipients turn to managed care which has reduced hospitalization of older patients.

Source: Industrial Forecasts 1998-2000, Prentice Hall, Richard K. Miller

& Associates, 1997

HOSPITALS:HOSPITALS:

• Trends (continued) Trends (continued)

– Competition for foreign patients (Canadians are the largest foreign consumers of American medicine)• According to Toronto Financial Post,

Canadians spend more than $1billion on health care in U.S.



STATE AND LOCAL STATE AND LOCAL GOVERNMENT:GOVERNMENT:

• Cigarette settlement money as Cigarette settlement money as stabilizerstabilizer

• Governor’s report projection as Governor’s report projection as ratcheted down to region?ratcheted down to region?

• Possible labor difficulties may Possible labor difficulties may emerge as state and local employees emerge as state and local employees try to share in what amounts to try to share in what amounts to positive revenue conditions.positive revenue conditions.

Conclusions:Conclusions:

• Your industries as a group and Your industries as a group and individually have a huge impact on the individually have a huge impact on the region’s economy.region’s economy.

• Your industries are export and basic Your industries are export and basic industries and represent the basis for industries and represent the basis for economic growth in the regioneconomic growth in the region

• The industries you represent are stable. The industries you represent are stable. No significant growth or decline is No significant growth or decline is expected any time soon.expected any time soon.

University of Minnesota Duluth University of Minnesota Duluth Center for Economic DevelopmentCenter for Economic DevelopmentBureau of Business and Economic ResearchBureau of Business and Economic ResearchandandMinnesota Department of Economic SecurityMinnesota Department of Economic SecurityResearch and Statistics OfficeResearch and Statistics Office

Research Project:Research Project:

Northeast Northeast Minnesota Skills Minnesota Skills AssessmentAssessment

Analysis:Analysis:

– Skills For Firms With Job Openings

– Concerns about maintaining the workforce (skilled and unskilled) in the next 2-3 years

For further information: For further information: Bureau of Business and Economic ResearchBureau of Business and Economic Research

Center for Economic DevelopmentCenter for Economic Development

University of Minnesota DuluthUniversity of Minnesota Duluth

10 University Drive10 University Drive

Duluth, MN 55812-2496Duluth, MN 55812-2496

Fax: 218 726-6338Fax: 218 726-6338

Phone: 218 726-7298Phone: 218 726-7298

Email: [email protected]: [email protected]

Internet: http://www.sbe.d.umn.edu/cedInternet: http://www.sbe.d.umn.edu/ced

presents economic snapshots: our region today and tomorrow presents economic snapshots: our region...

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