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FRBSF WEEKLY LETTER Number 93-20, May 21, 1993 Western Metal Mining Mining has played an important historical role in attracting immigrants and establishing businesses in many of the states that make up the Twelfth Federal District. And this area continues to contribute the largest share of the nation's totals in a variety of different metals. For example, according to data reported for 1990 to the u.s. Bureau of Mines, nearly three-quarters of the nation's copper production is in Arizona and Utah; over 80 percent of u.s. gold production is in Nevada, Cal ifornia, and Utah; and over two-thirds of the nation's silver is produced in the District states. The District's metal mining industry has changed significantly in the last 20 years. This Letter focuses on activity in the intermountain states of the District: Arizona, Idaho, Nevada, and Utah. Aggregate metal mining employment in these states has declined by 17 percent since 1973, but this modest decline averages a sharp increase in Nevada's mining activity with an equally steep decline in Arizona's metal mining. Implications of these trends are discussed in this Letter. Mining's importance Metal mining provides one of the base industries for the intermountain states in the District. However, it accounts for a relatively small share of direct employment in most states. In February 1993, metal mining's share of total nonagricultural employment in the four states ranged from 0.3 percent in Idaho to 2.0 percent in Nevada. In levels, employment ranged from 1,300 in Idaho to 12,600 in Arizona. While not a major source of employment, the industries are important because of their multiplier effects on the rest of the economy. (Accounting for multiplier effects gives a more complete sense of the importance of metal mining.) An average industry has a total employment multiplier (which takes into account direct employment at the mine, induced effects on other industries that must process the material, and indirect effects on other industries resulting from higher income and spending from that sector) close to 2. Results from the U.S. Forestry Department's regional modeling system (IMPLAN) suggests that mining multipliers in these states are considerably higher. The model provides employment multipliers for several major minerals at the state level using data from 1990 and the 1987 U.s. input-output table. Results from this model suggest that copper mining has a relatively high multiplier in Utah (4.9) and Arizona (6.6), gold mining had total employment multipliers of around 3 in Arizona, Nevada, and Utah, while silver mining had employment multipliers of 2.5 to 2.8 in Arizona, Idaho, and Nevada. (Differences in multipliers across states for a given minerai reflect the relative presence in that state of processing facilities and industries that use the mineral as inputs to final production of goods and services.) Total metal mining had multipliers of 2.8 in Nevada, 3.2 in Idaho, 4.0 in Utah, and 5.2 in Arizona. These estimates of multiplier effects suggest that metal mining's total contribution to state employment would be 1.0 percent in Idaho, 1.6 percent in Utah, 4.1 percent in Arizona, and 5.0 percent in Nevada. Trends While remaining an important base industry in these states, metal mining employment has been falling in most areas. As shown in the Figure, metal mining employment has declined in Arizona, Idaho, and Utah, while rising in Nevada. As a share of total employment, metal mining employment fell from 2.3 percent of total employment in the four state region in 1973 to 0.8 percent in early 1993. The major changes have been in Nevada, where employment rose by 9,400 jobs, and Arizona, where employment fell by 10,400 jobs. Several factors have been important in determining these trends. First, labor productivity has THE WESTERn ECOnOmy The Western Economy is a quarterly review of economic conditions in the Twelfth Federal Reserve District. It is published in the Weekly Letter on the third Friday of February, May, August and November. FRBSF Metal Mining Employment Thousands 45 40 35 30 25 20 15 10 Price declines have been attributed to several factors. For copper, production has risen in Chile as well as in the US., while growth in consumption in the U.S. has slowed (in part reflecting the shift from copper wires to fiber optics for communications and electricity). Gold and silver prices have fallen for similar reasons, and in addition because world-wide inflation has subsided. Since gold and silver often are viewed as inflation hedges, decreased concern about inflation has lowered the demand for holding those assets. Moreover, opening trade opportunities with Russia is bringing that country's large stock of mineral wealth into the marketplace. 5 o 73 I 78 NV I 83 AZ I UT 88 93 III 10 risen in many metals industries. For example, copper production accounts for aver 90 percent of Arizona's metal mining employment. Between 1973 and 1990, employment in that sector declined by 46 percent. During that same time period, however, Arizona's copper output rose 16 percent. These increases in productivity can be traced to new mining processes that involve more automation and capital equipment. Second, large deposits of gold and silver have been discovered in Nevada. As shown in the Figure, Nevada's metal mining employment was relatively small in the 1973-1984 period, and the state's copper industry virtually disappeared in 1986. Gold and silver discoveries were recorded throughout the state, though, and according to the Bureau of Mines, exploration efforts were re~ ported in every county in Nevada during the mid- to late-1980s, with 10 to 15 new mines opening each year. By 1990, exploration efforts concentrated on the northern part of the state, but annual production of gold rose from 1 million troy ounces in 1984 to 5.8 million troy ounces in 1990, while silver production rose from 6.5 to over 25 million troy ounces. Prices In recent years, declines in metals prices also have affected mining employment in the four intermountain states in the District. For example, since reaching its most recent peak in 1988, nominal gold prices have fallen 29 percent, silver prices have declined 46 percent, and copper prices have fallen 18 percent. Price changes have some impact on employment and production trends in most of the states. To test for the effect of prices, simple lagged adjustment models of metal mining employment were run for each of the four states, with gold, silver, and copper prices (adjusted for inflation) used as explanatory variables. In general, the results suggest that a given 10 percent decrease in the inflation-adjusted price of gold, silver, or copper would lead to a decline in long-term employment of between 5 and 7 percent, with half of the effect of a given price change on employment taking between nine and fifteen months. Not surprisingly, copper prices were important in explaining metal mining employment in Arizona and Utah, while silver prices were important in explaining metal mining employment in Idaho and Utah. In Nevada, recent activity has been dominated by the gold and silver discoveries, and changes in employment have shown little statistical relationship to changes in gold and silver prices. Implications Increased international trade has boosted available supplies of minerals, which has put downward pressure on mineral prices. Low prices and further automation are expected to reduce employment further in metal mining as well as in industries that are linked to mining. While future discoveries may temporarily reverse this trend in some regions, the long-term adjustment to a less mining-intensive employment base in these states is likely to continue. Ronald H. Schmidt Senior Economist DISTRICT INDICATORS (Seasonally AdJusted) 9301 9204 9203 9202 9201 9104 9103 9102 AGRICULTURE U.S. crop prices, 1985=100 108.4 109.2 107.9 108.1 109.6 110.7 114.6 115.8 District crop prices, 1985=100 107.8 112.8 110.4 101.6 114.9 107.9 120.7 128.6 2,508.3 2,740.7 2,563.2 2,468.1 2,535.6 2,655.9 2,528.0 2,717.6 Callie-on-feed, 1985=100 90.1 91.1 91.3 86.8 86.0 81.1 84.3 91.9 Callie prices, CalWomla, $ICW!. 62.4 58.4 GO.l 58.4 59.1 52.1 62.5 56.4 Farm cash receipts, million $ FORESTRY Lumber production, millions board feet 1,300.0 1,409.6 1,369.2 1,282.3 1,413.7 1,370.5 1,418.8 1,466.3 Northwest lumber Inventory, milions board feet 2,020.9 2,086.1 2,196.6 2,278.6 2,197.7 2,310.9 2,393.9 2,305.4 245.1 162.9 147.9 153.1 156.8 137.9 131.6 137.6 U.S. lumber prices, 1986=100 ENERGY 19.8 20.6 21.7 21.1 18.9 21.8 21.6 20.8 862.2 854.7 860.9 871.9 867.3 906.8 926.1 939.8 District rig count 50.2 63.9 60.8 65.9 54.6 63.2 74.5 80.4 Fuel mining employment, 1985=100 60.3 67.6 68.3 70.3 70.3 70.2 72.6 73.4 U.S. seismic crew count n.5 73.7 71.7 80.7 80.2 89.9 98.9 109.4 99.5 99.2 105.3 107.0 105.9 104.1 104.5 108.8 176.4 In.5 178.9 180.1 182.6 180.6 184.1 186.1 Spot price of oil, $ibarrel U.S. rig count MINING Minerai prices, 1986=100 Metal mining employment, 1985=100 CONSTRUCTION Nonresidential awards, 1985=100 Residential permhs Western housing starts, thousands Construction employment, thousands 98.8 97.2 94.6 102.4 111.0 103.2 94.5 104.0 18,624 21,147 19,538 18,922 19,564 19,749 18,488 19,757 19.2 21.2 26.3 26.7 21.9 19.5 24.1 25.5 862.2 854.7 860.9 871.9 867.3 906.8 926.1 939.8 MANUFACTURING Wages, CalWornla, $Ihour Employment, thOUSands 12.2 12.3 12.3 12.2 12.1 12.1 11.9 11.8 2,804.4 2,798.5 2,835.8 2,872.6 2,894.4 2,954.9 2,980.3 3,007.6 Durables, 1985=100 86.8 89.3 90.5 92.1 93.4 94.0 95.2 96.4 Construction durables, 1985=100 90.4 91.8 91.1 93.7 94.8 93.5 95.0 95.6 Aerospace, 1985=100 89.4 93.3 96.8 100.0 103.7 106.1 107.4 109.5 Electronics, 1985=100 80.9 85.4 85.9 87.1 87.8 88.9 90.5 92.0 Semiconductor orders, mil. $, not s.a. 2,010.1 1,932.8 1,712.0 1,543.1 1,438.8 1,378.5 1,272.4 1,299:1 Whlslretall trade employment. thousands 4,685.2 4,652.2 4,665.1 4,686.1 4,680.2 4,694.2 4,705.9 4,721.7 Retail sales, PacWlc District, mil. $ N/A 26,119 25,774 25,675 25,997 25,044 25,411 25,304 Services employment, thousands 5,444.1 5,565.2 5,530.0 5,505.1 5,495.5 5,455.7 5,477.5 5,465.0 Health care, 1985=100 135.3 134.2 133.6 132.8 132.0 131.0 130.0 128,9 Business selVlces, 1985=100 115.4 113.5 112.7 113.0 112.9 112.1 112.4 113.0 Hotel, 1985=100 129.9 131.2 130.9 131.8 132.4 132.6 131.7 132.2 Recreation, 1985=100 142.2 141.2 140.9 139.4 139.0 139.7 139.0 140.1 1,226.3 1,222.0 1,223.4 1,227.4 1,224.7 1,241.9 1,244.1 1,246.7 Finance, Insurance, and real estate empl., thousands GOVERNMENTEMPLOYMENT,THOUSANDS Federal government State and local 603.1 612.2 610.8 608.1 615.7 612.6 614.5 611.3 2,928.6 2,929,5 2,945.6 2,920.3 2,914.4 2,889.5 2,888.8 2,869.0 Data are weighted aggregates of available 12th District data constructed by FRBSF staff from public and Industry sources. Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System. Editorial comments may be addressed to the editor or to the author.... Free copies of Federal Reserve publiciltions can be obtained from the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120. Phone (415) 974-2246, Fax (415) 974-3341. ~ '" 'S~UI ueaqAos ~IIM t:Z:\ ~ Jaded papAOaJ uo palulJd OUt6 ¥J 'o:>spue.l:l ueS lOLL x09 'O'd O)SI)UOJ::I UOS JO 'J!II') 'O:lSpUI'J:l UI'S ~U08 aAJaSat:J iOJapa:J l:SL 'ON .liW~Bd G1\'d r)\, ISOd 's· n 11\'W H\'M )I1na Twelfth District Business Sentiment" PERSONAL INCOME Annualized Percent Growth Rates GDP Percent 100 9204 Alaska Arizona Califomia Hawaii Idaho Nevada Oregon Uteh Washington 12th District U.S. 7.6 9203 9202 9201 9104 5.1 39.8 20.2 8.0 7.8 8.4 13.3 0.8 3.4 4.1 ·24.3 3.7 6.9 6.5 7.1 5.0 1.2 6.1 4.4 3.2 8.4 2.6 4.5 4.5 4.4 10.8 7.1 4.8 10.7 1.5 8.6 6.6 10.8 8.7 6.1 6.1 1.1 2.1 14.8 4.4 5.8 6.8 8.3 7.4 8.3 3.6 2.9 4.5 4.4 5.9 6.5 3.0 5.7 6.6 80 o Recession 60 lilllGrowthlessthan2.5% 1!il2.5%to3%growth 40 • 20 0 Ql Q2 1990 Q3 Q4 Ql Q2 1991 Q3 Q4 Q2 Ql Q3 Q4 1992 UNEMPLOYMENT RATES Average Ouarterly Data NON·AGRICULTURAL EMPLOYMENT Annualized Percent Growth Rates 9301 9204 9203 9202 Idaho Nevada Oregon Utah Washington 7.9 1.5 0.2 0.0 3.5 4.4 3.9 6.5 2.4 2.0 0.4 -3.0 -2.8 2.7 5.0 2.0 3.1 3.4 ·0.7 5.0 -2.3 -3.2 3.7 4.5 0.1 3.8 -0.2 ·2.7 4.3 -0.4 0.2 4.2 2.2 2.8 2.8 0.7 12th District U.S. 1.4 1.6 -1.1 -0.8 0.3 0.5 1.1 Alaska Arizona Calnomia Hawaii • Year-la-date 0.5 9201 9301 9204 5.9 0.1 -5.6 1.7 5.8 2.5 1.6 4.0 3.1 Alaska Arizona Calnomia Hawau Idaho Nevada Oregon Utah Washington 8.0 7.6 9.6 4.5 6.6 6.7 8.1 4.1 7.6 8.9 7.4 9.9 4.8 6.5 6.5 7.5 5.4 7.8 -2.7 -0.2 12th District U.S. 8.6 7.0 8.9 7.3 • Year-to-date 9203 Ql 1993 • Expectations for GOP growth dUring the next lour quarters based on a survey of approximately 75 business leaders in the 12th Federal Reserve District. 9202 9201 9.5 7.0 9.4 4.6 6.4 7.2 6.9 5.0 6.9 9.2 7.3 8.7 4.1 6.2 6.1 6.6 4.6 6.9 9.2 8.1 8.4 3.5 6.3 6.5 8.3 4.8 7.2 8.4 7.6 7.9 7.5 7.9 7.2 Q2 Growth above 3%
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