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OCTOBER1965 IN THIS ISSUE Manufacturing Activity in Metropolitan Areas .... 2 Consumption of Coal In O h i o .................... 13 FEDERAL RESERVE B A N K OF C L E V E L A N D E C O N O M IC R EV IEW MANUFACTURING ACTIVITY IN METROPOLITAN AREAS (Fourth District) A recent article in the Review discussed nation, although the gap apparently has nar the use of electric power as an indicator of rowed somewhat since early 1963. manufacturing activity in the Fourth District.1 Two significant characteristics of the Dis to develop patterns of manufacturing activ trict's manufacturing activity were identified ity in seven metropolitan areas of the Fourth in that article: (1) short-run fluctuations in District. In conjunction with other economic manufacturing activity are more pronounced times series, such as bank debits, employ in the District than in the nation because of ment, payrolls, retail sales, and construction In this article, electric power data are used the preponderance of durable goods indus activity, the weighted electric power indexes tries in the District; and (2) since the 1957-59 are useful in taking the pulse of local busi period, activity of the manufacturing sector ness conditions.2 has grown less in the District than in the 2 To correct for differences between an industry's electric power consumption and its contribution to final output, the electric power indexes have been weighted by a measure of value added per kilowatt hour of electricity used in each major industry. 1 See "Electric Power — An Indicator of Manufactur ing Activity/' Economic Review, Federal Reserve Bank of Cleveland, August 1965. 2 1. M A N U FA C T U R IN G ACTIVITY in SELECTED M ETROPOLITAN AREAS F O U R T H DISTRICT IN D E X 1 9 5 7 -5 9 = 1 0 0 * H o r i z o n t a l li ne r e p r e s e n t s a n n u a l a v e r a g e S o u r c e of d a t a : see a p p e n d i x * * E x c e p t To t a l M a n u f a c t u r i n g , 4 D pl ot t ed mon t h l y ECONOMIC REVIEW For the most part, cyclical fluctuations in tive growth patterns. It should be remem local m a n u fa ctu rin g activity can be ex bered, however, that the major job of the plained by the composition of an area's in indexes is to indicate, direction and m agni dustrial activity, that is, by the distribution of tude of short-run changes in manufacturing durable and nondurable manufactures and activity. 3 by the relative roles and performance of in dividual industries. As a general matter, OVERALL PERSPECTIVE areas with large shares of durable goods As illustrated in Chart 1, the Fourth Dis production undergo w ider fluctuations in trict index of manufacturing activity provides manufacturing activity than areas with large a frame of reference for examining differ shares of nondurable goods production. ences in cyclical patterns a n d in grow th O n the other hand, growth rates of m anu trends among the seven metropolitan areas.4 facturing output in the metropolitan areas, as It is obvious that the individual areas exper implied by the electric power indexes, are more difficult to explain. If the use of electric power per unit of output within each indus ience changes in manufacturing activity of unequal magnitude and duration. Differ ences in levels of m anufactu rin g activity, try has remained unchanged since the base both among the metropolitan areas and with period, the electric power indexes w ould respect to the entire Fourth District, also in measure an area's growth rate. Growth of dicate dissimilar growth rates. Pittsburgh, the manufacturing sector then could be ex Cleveland, and Toledo are areas that have plained by market demands for the area's been most vulnerable to business recessions products. But constant ratios of electric and to slowdowns in general economic activ power consumption to output for individual ity. The Lexington, Columbus, and Dayton industries cannot be assumed. Consequent areas have expanded at a pace above the ly, the accuracy of the electric power indexes average for the Fourth District. in measuring growth rates of metropolitan areas cannot be established, at least at this 3 All subsequent references to cyclical fluctuations and growth trends are in terms of the changes asso point. Nevertheless, employment trends in ciated with the use of electric power. the metropolitan areas discussed in this ar ticle suggest that the electric power indexes do provide a rough guide in assessing rela 4 4 Because a ratio scale is used for the chart, equal vertical distances measure equal percentage changes. O CTOBER 1 96 5 PITTSBURGH M AN UFACTURIN G ACTIVITY in PITTSBURGH B y Ind ustrial G r o u p i n g s a n d M a j o r In d u s tr ie s IN D E X 1 9 5 7 -5 9 = 1 0 0 Among the District's metropolitan areas, Pittsburgh has the highest concentration of total manufacturing employment in durable goods industries (84 percent in 1964). Pitts burgh has also experienced the widest fluc tuations in manufacturing activity. The vola tile primary metals industry, which accounts for approximately 45 percent of Pitsburgh's manufacturing employment, is largely re sponsible for the magnitude of the swings in the area's m a nu fa cturin g output (see Chart 2).5 The relatively slow growth of Pittsburgh, w hile attrib u ta b le in part to the prim ary metals industry, can be ascribed mainly to "a ll other" m anu factu rin g industries. A l though manufacturing activity excluding pri mary metals has undergone considerable im provement since the end of 1962, the index shows little overall growth since the base period of 1957-59. Pittsburgh's second, third, and fourth larg est durable goods industries — fabricated metals, electrical machinery, and nonelectri cal machinery — account for one-fourth of the area's value added by manufacture. The improvement in Pittsburgh's index for m anu facturing activity excluding primary metals during the past two-and one-half years stems largely from the dramatic gains registered by the nonelectrical machinery industry. The other two major industries have not shown comparable records, as indicated in Chart 2. Pittsburgh's major nondurable goods indus try, manufactured foods, has contributed lit tle to the growth of the area's manufacturing sector. S o u r c e of d a t a : s ee a p p e n d i x 5 See appendix for a chart on ingot production and electric power consumption of the steel industry in Pittsburgh. E C O N O M IC REVIEW ^3.______________________________________________________ M ANUFACTURING ACTIVITY in CLEVELAND B y I nd ustrial G r o u p i n g s a n d M a j o r I n d u s t r i e s IN D E X 1 9 5 7 - 5 9 = 1 0 0 CLEVELAND Cleveland also has a large concentration of m anufacturing em ploym ent in d u rab le goods production (about 75 percent). How ever, manufacturing activity in Cleveland is not dominated by the primary metals indus try, as is the case in Pittsburgh. Short-term swings in Cleveland's manufacturing activity are therefore less extreme in magnitude (al though not necessarily in duration) than those in Pittsburgh. Declines in Cleveland's manufacturing activity during the 1957-58 and 1960-61 recessions, and during the first half of 1962, were attributable almost totally to the behavior of durable manufactures. On the other hand, production in the area's non durable goods industries is more stable over the business cycle and, as Chart 3 shows, has exceeded the long-term growth of the dur able goods industries. The direction and pace of activity in Cleve land's six major industries are also shown in Chart 3. Collectively, these industries contrib ute about three-fourths of the value added by manufacture in the Cleveland metropoli tan area. The five largest industries, all of which are metalworking activities, belong to the durable goods group. The index for trans portation equipment has close cyclical con formity to the national counterpart, that is, the FRB production index for transportation equipment, although the trend in Cleveland activity is well below that in the nation.6 As S o u r c e of d a t a : see a p p e n d i x 6 6 Bureau of Census data on production worker manhours suggest that electric power data may be under stating the growth of output in Cleveland's transpor tation equipment industry. On the other hand, electric power data may be overstating output in the area's primary metals industry — partly due to greater re liance on electric furnaces for steel processes. In both cases, further analysis is obviously necessary. O CTOBER 1 96 5 4.___________________________________________ shown in Chart 3, the primary metals industry M ANUFACTURING ACTIVITY in CINCINNATI has displayed wide and erratic swings in B y I n d us t r i a l G r o u p i n g s a n d M a j o r I n d u s t r i e s activity rates.7 Activity in Cleveland's metal fabricating and machinery industries has IN D E X 1 9 5 7 -5 9 = 1 0 0 moved steadily upward since the latter part of 1962, when the climate for capital spend ing generally turned more favorable. C hem icals a n d allie d products, Cleve land's major nondurable goods industry, ac counts for roughly one-fourth of nondurable m a n u fa c tu r e s . M ost of the short-term changes in the area's nondurables sector are attributable to fluctuations in the chemicals industry. CINCINNATI In the Cincinnati area the durable-nondur able shares of manufacturing are more even ly distributed than either in Pittsburgh or in Cleveland (58 percent of Cincinnati's m anu facturing employment in 1964 was in durable m anufactures). The greater stability of manufacturing activity in Cincinnati thus re flects the behavior of the more stable nondur able goods industries in the area. The two major durable goods industries, transportation equipment and nonelectrical machinery, account for 17 percent and 8 percent, respectively, of the area's value added by manufacture. The transportation equipment industry, almost half of which consists of firms producing aircraft and air craft components, has contributed little to the growth of manufacturing activity in Cincin nati. By contrast, the area's nonelectrical m a chinery industry, much of which is machine 7 See appendix for a note on seasonal patterns in the primary metals industry. * D a t a not a v a i l a b l e S o u r c e of d a t a : s e e a p p e n d i x 7 E C O N O M IC REVIEW M AN U FA C TU RIN G ACTIVITY in DAYTON B y I n d ustrial G r o u p i n g s a n d M a j o r In d u s t r ie s tool production, has enjoyed vigorous expan sion during recent years. Chemicals, m anu factured foods, and paper — the three larg est nondurable goods industries — contrib ute about one-third of the area's manufactur ing output. It should be noted that activity in the paper industry tends to precede turning points of the general business cycle. DAYTON Manufacturing activity in Dayton has tend ed to be relatively stable, despite a fairly large share (68 percent) of durable goods in dustries. In addition, the index for Dayton indicates a faster growth rate than those of the three areas already discussed. Roughly half of Dayton's manufacturing activity is in the nonelectrical and electrical machinery industries. The nonelectrical m a chinery industry — largely office machinery production — has displayed a more favor able growth trend. At times, the divergent patterns of behavior in the two machinery in dustries have helped to smooth the index for durable manufactures. Patterns of activity in the area's two major nondurable goods industries stand in sharp contrast to each other. The printing and pub lishing group has shown virtually continuous expansion, while the rubber and plastics group has experienced cyclical fluctuations S o u r c e of d a t a : s ee a p p e n d i x 8 of considerable magnitude. OCTOBER 1 96 5 M AN U FAC TU RIN G ACTIVITY in COLU M BUS B y Ind ustrial G r o u p i n g s a n d M a j o r Industries IN D E X 1 9 5 7 -5 9 = 1 0 0 COLUMBUS Both the cyclical swings and rate of growth of manufacturing activity in Columbus close ly resemble patterns for Dayton. The durable goods share of total manufacturing employ ment in Columbus (71 percent in 1964) is also similar to the proportion for Dayton. In Co lumbus much of the short-term variation in durable goods manufacturing activity is at tributable to the area's major industry, trans portation eguipment. The favorable growth of manufacturing activity in Columbus stems largely from the area's second major indus try, electrical machinery, where both em ployment and electric power consumption have more than doubled since 1958. Also in cluded in Chart 6 are indexes for the other important durable goods industries in Co lumbus, fabricated metal products and non electrical machinery. 9 E C O N O M IC R EVIEW tained heavy losses in late 1959 and during M A N U FA C T U R IN G ACTIVITY in TOLEDO By Industrial G r o u p i n g s a n d M a j o r Industries IN D E X 1 9 5 7 - 5 9 = 1 0 0 the early 1960's, has recovered considerable ground during recent years. LEXINGTON The growth of manufacturing activity in Lexington stands in sharp contrast to all other Fourth District metropolitan areas (see Chart 8). Roughly half of manufacturing em ployment in Lexington is in the two machin ery industries, nonelectrical and electrical. It is clearly the activity of those industries that is largely responsible for the area's rapid growth. Production in the nonelectrical m a chinery industry, which is the larger of the two, consists mainly of office machinery and equipment. Most of Lexington's nondurable manufactures is in the tobacco processing, apparel, and manufactured foods industries. _8__________________________________________________________ MANUFACTURING ACTIVITY in LEXINGTON 57 ’58 ’59 ’60 ’61 ’62 63 ’64 '65 ’66 S o u r c e of d a t a : s ee a p p e n d i x TOLEDO Short-term fluctuations in Toledo's m anu facturing activity, which is heavily concen trated in durable manufactures, are virtually all due to the durable goods industries. The three major industries in Toledo account for roughly half of the value added by m anu facture (see Chart 7). The transportation equipment industry, which accounts for al most one-fourth of the area's manufacturing sector, has scored large gains in employment and in electric power consumption since 1957-59. Activity in Toledo's stone, clay, and glass products industry has been approxi mately in step with the pace set by the na tional counterpart. Activity in Toledo's non electrical machinery industry, which sus10 B y I nd ustrial G r o u p i n g s a n d M a j o r I n d u s t r i e s IN D E X 1 9 5 8 -5 9 = 1 0 0 O CTOBER 1 96 5 A PPEN D IX The geographical areas of the Fourth Dis trict centers discussed in this article are not coterminous with the definitions established by the U.S. Bureau of the Census for stand ard metropolitan statistical areas. The ac companying map shows the geographical coverage of each metropolitan area's index. The electric power data used to construct the indexes are supplied to the Federal Re serve Bank of Cleveland by the investorowned utilities serving each area and by manufacturing establishments that generate electric power for their own use. It should be noted that there are special problems in determining appropriate sea sonal adjustments for electric power con sum ption (or production) in the prim ary metals industry. Wide fluctuations of activity in the steel industry, which in large part re flect periods of steel inventory accumulation and liquidation associated with the uncer tainties of labor negotiations, tend to distort the "true" seasonal pattern. Therefore, the seasonally adjusted indexes for the primary metals industry, particularly in Pittsburgh but also in Cleveland, should be interpreted with discretion. Fortunately, the steel industry is one of the few major industries for which output data, in physical units, are available. For that rea- AREAS INCLUDED in ELECTRIC P OWE R INDEXES 11 E C O N O M IC REVIEW INGOT PRODUCTION and ELECTRIC POWER CONSUM PTION by the STEEL INDUSTRY PITTSBURGH son and because steel is so important to Pitts burgh's economy, a special chart is shown for steel ingot production and electric power consumption in Pittsburgh's steel industry, that is, SIC 331, blast furnaces and steel mills. The monthly production indexes are com puted from the American Iron and Steel In stitute's weekly indexes for the Pittsburgh district; the electric power data correspond essentially to that area (somewhat broader than the Pittsburgh area shown on the ac companying map). The month-to-month movements in electric power consumption generally conform to 12 IN D E X 1 9 5 7 -5 9 = 1 0 0 changes in steel ingot production; some dis crepancies occur because the electric power data are not adjusted for differences in monthly working days and because the weekly production indexes often are allocat ed arbitrarily between two months. It should be noted, however, that electric power con sumption does not rise or fall in equal pro portion to steel ingot production. That is due to certain overhead components associated with the use of electric power. Since the base period of 1957-59, electric power consump tion has increased roughly 10 percent more than steel ingot production in the Pittsburgh district. O CTOBER 1 96 5 CONSUMPTION OF COAL IN OHIO Consumption of bituminous coal in the most one-half in 1940. During the same pe United States, on balance, has barely held riod, use of natural gas as a proportion of its own during the past 25 years. A sharp rise total mineral fuel consumption nearly tripled in coal consumption during World War II while crude petroleum, the largest source of was offset by a gradual decline in the next energy, registered a modest relative increase. ten years which then tapered off into a pe Two major developments appear largely riod of relative stability at a level around responsible for the downtrend in coal con that of 1940 (see Chart 1). Recent stability of sumption following World War II. For one coal consumption has occurred even though thing, railroads converted from steam to die coal deposits in the nation are relatively ac sel locomotives, thereby virtually eliminating cessible, advantageously located, and more a market for coal which, at its peak in 1944, abundant than any other mineral fuel, being accounted for more than one-fifth of total coal in fact sufficient to last an estimated 1,500 consumption. In addition, introduction of the years at present rates of consumption. welded pipeline and subsequent installation In contrast to the lack of growth in the of transcontinental oil and gas pipelines re amount of annual coal consumption, the sulted in a decline in the volume of coal con economy as a whole has expanded consider sumed in homes and industries. ably since 1940. At the same time, and more The downward trend of the U. S. coal in germane to the subject of this article, total dustry since World War II has been inter consumption of all mineral fuels doubled rupted repeatedly by cyclical fluctuations, as during the 1940-63 period. As a result, coal suggested by Chart 2. The cyclical sensitivity accounted for only one-fifth of mineral fuel of coal can be traced in large part to its role consumption in 1963 as compared with all. in coke manufacturing, which in turn closely reflects the fortunes of the iron and steel in C ON SUMP TION of B IT U M IN O U S COAL and OTHER M IN E R A L FUELS - 1940 to 1963 dustry, itself an industry characterized by Un ited St at es wide swings. The amount of coal consumed T r i l l i o n s o f B . T. U .' s by other industrial users also fluctuates in accordance with general economic condi tions, but to a lesser degree. AN IMPORTANT COAL STATE The coal industry in Ohio is an important part of the U. S. coal industry. As a coal pro ducer, Ohio ranks fifth following West Vir ginia, Kentucky, Pennsylvania, and Illinois in descending order. O n the consumption side, Ohio was the leading coal-using state ’65 S o u r c e o f d a t a: U.S. D e p a r t m e n t o f the I n t e r i o r in the nation from 1959 to 1962 and since that 13 E C O N O M IC REVIEW 2PRODUCTION of B IT U M IN O U S COAL - 1940 to 1963 Un ited St at es and O hio INDEX 1940=100 The time period is chosen because of avail ability and comparability of data on coal consumption by state. The discussion is di rected to four major coal markets or groups of consumers — electric utilities, coke pro ducers, other industrial users, and retail con sumers. A future article will discuss coal pro duction in Ohio and the movement of coal between Ohio and surrounding states. A LEADING INDUSTRIAL STATE Prominence as a coal consumer stems from Ohio's importance as an industrial state. Using value added by manufacture as a time has ranked slightly behind Pennsyl vania; from 1959 through 1963, more than 10 percent of U. S. coal consumption was ac counted for by Ohio. Coal production in Ohio has closely re sembled production in the U. S. in both fre quency and amplitude of cyclical fluctua tions during the postwar period, as Chart 2 indicates. However, the Ohio industry has differed considerably from that of the U. S. inasmuch as a general decline in production did not occur. This appears to be due mainly measure of industrial activity, Ohio is third largest in the U. S., exceeded only by New York and California. Moreover, the industrial structure of Ohio shows a heavier concentra tion of industries using large amounts of fuel and electric energy than other states. In Ohio, 74 percent of value added by manufac ture is accounted for by the ten largest fuel and electric energy-using industries, com pared with 70 percent in Pennsylvania (the next largest), 67 percent in Illinois, and 68 percent in the U. S. as a whole.1 to the greater relative importance of the elec Total coal consumption in Ohio amounted tric utility coal market in Ohio than in the to 49.2 million tons in 1963, or 11 percent U. S., to the extent that increased coal con more than in 1958.2 Over the 1958-63 period, sumption by the utilities has cushioned the 1The ten largest fuel and electric power-consuming industries are, in order of importance: primary metals; chemicals and allied products; petroleum and coal products; stone, clay, and glass products; paper and allied products; food and kindred prod ucts; transportation equipment; textile mill products; nonelectrical machinery; and fabricated metal products. loss of the railroad and other coal markets. Another aspect in which the coal industry in Ohio differs from the national pattern is the greater relative importance of coal as a source of energy. In 1963, coal accounted for 60 percent of the mineral fuel energy con sumed in Ohio, as compared with 20 percent in the nation; these relationships have changed little in recent years. The present article is concerned with coal consumption in Ohio between 1958 and 1963. 14FRASER Digitized for 2 The 1958 to 1963 period under discussion has the disadvantage of beginning with a year that includes a cyclical trough and ending with an expansion year. Part of the increase in coal consumption thus merely reflects recovery to prerecession levels, which should be borne in mind throughout the following discussion. OCTO BER 1965 increased sales to the large electric utility were less than growth of electric power pro market and to industrial consumers com duction as the amount of coal required per bined to more than offset a sharp decline in kilowatt hour of electricity generated in Ohio retail coal sales; coke manufacturers con declined somewhat. sumed about the same volume of coal in both The decline in per-unit coal requirements 1958 and 1963, although there were marked reflected an increase in the average size of fluctuations during the interim. Ohio generating plants between 1958 and ELECTRIC UTILITIES LARGEST COAL CONSUMER erating efficiencies and economies of scale. 1963, which in turn resulted in increased op It further reflected the more efficient use of coal due to improved methods of burning Electric utilities represent the largest coal market in Ohio, accounting for nearly one- coal in the process of generating electric power. half of all coal currently consumed in the state. Practically all electric power produced The electric utility market is crucial for the in Ohio is generated by coal and since the Ohio coal industry, not only because it is ex state is the nation's largest producer of fuel- panding but because it is relatively stable in electric power, the electric utilities in Ohio periods of recession, thereby helping to miti consume more coal than those in any other gate sharp declines in more volatile coal state.3 Almost exclusive use of coal by Ohio markets, especially coke production. For ex electric utilities is dictated by the low cost of ample, while coal consumption by Ohio elec coal in Ohio compared with other fuels. tric utilities did decline from 1957 to 1958 and Since nearly one-half of production expenses from 1960 to 1961, these changes were more of an electric utility are accounted for by fuel moderate than those in other coal markets cost, use of the lowest cost fuel is more im (see Table I). portant for electric utilities than for most other industries. In 1963, the cost of coal for all Ohio electric utilities averaged 22.0 cents COKE A LARGE BUT VOLATILE MARKET per million British thermal units (Btu's) com pared with 26.3 cents per million Btu's for gas and 69.4 cents for oil. The second largest single market for coal in Ohio is coke manufacturing, accounting Electric utilities in Ohio, like those in the for about one-fifth of the state's total coal nation, substantially increased the volume of consumption. (In coke manufacturing, coal is coal consumed from 1958 to 1963. By 1963, carbonized mainly for use in combination the 26 electric power companies in Ohio, with limestone and iron ore for pig iron pro which operate 44 generating plants, were duction.) The magnitude of the coke market consuming 23.0 million tons of coal annually, reflects Ohio's position as the second largest or 22 percent more than in 1958. Gains in coal pig iron producer in the nation, following consumption by electric utilities, however, Pennsylvania. The volume of coal consumed 3 California is a larger producer of electric power than Ohio, but a large amount of that state's produc tion is generated by waterpower rather than fuel. by coke manufacturers in Ohio totaled 9.1 million tons in 1963, or slightly less than in 1958. 15 E C O N O M IC R EV IEW TABLE I A n n u a l C oal Consum ption in O hio, by M a jo r M arkets, 1958-63 T on n age (thous. tons) a n d Percent C h a n g e from Preceding Y e ar Total All Markets Volume C h an ge 1958 1959 1960 1961 1962 1963 ..44,390 ..50,071 .. 49,624 .. 44,998 .. 48,324 .. 49,157 — + — — + + 20% 13 1 9 7 2 Electric Utilities Volume C h an ge 18,776 20,450 21,375 20,243 21,918 22,991 — + + — + + 7% 9 5 5 8 5 Coke Plants Volume C h an g e 9,119 12,570 11,880 9,129 9,482 9,061 — + — — + — 42% 38 6 23 4 4 Other Industrial Users Volum e C h an ge 12,100 13,043 12,898 12,713 13,822 14,482 — + — — + + 18% 8 1 1 9 5 Retail Sales Volum e C h an g e 4,395 4,008 3,471 2,913 3,102 2,623 — — — + — 13% 9 13 16 7 16 Source: U.S. Department of the Interior The coke rate (the amount of coke con By 1963, "other” industrial consumers had sumed per ton of pig iron produced) declined increased their coal consumption to 14.5 mil from 1958 to 1963, as evidenced by a 34-per- lion tons, or 20 percent more than in 1958. The cent increase in pig iron production accom ten largest coal-using industries in Ohio, panied by a gain of only 8 percent in coke consumption.4 The major reason for the lower listed in Table II, account for approximately coke rate was more widespread use of ag other than electric utilities and coke m anu glomerates in pig iron production by a facturers. two-thirds of the coal consumed by industries method utilizing fine ores and low iron con Changes in coal consumption of the ten tent ores in blast furnaces while requiring a smaller volume of coke per unit of pig iron individual industries between 1958 and 1962 5 ranged from an increase of 164 percent for produced. In contrast to the relative stability of the the nonelectrical machinery industry to a de cline of 28 percent for food and kindred electric utility coal market, the coke market products. Of the eight industries registering is highly volatile, reflecting the fact that de gains, the stone, clay, and glass products, mand for coke is derived largely from pig and chemicals and allied products groups iron (and steel) production. The latter, of had the largest increases in absolute volume course, tends to fluctuate widely over the (see Table II). path of business activity. A REAL GAIN? GAINS IN OTHER INDUSTRIES Industries other than electric utilities and coke plants directly account for nearly onethird of coal consumption in Ohio and, in directly, further contribute to total coal con sumption as an important user of electricity, which is generated entirely by coal in Ohio. 4 The seeming inconsistency of the decline in coke production and the gain in coke consumption is due to the fact that some coke is produced in other states before shipment to Ohio. This will be discussed in a forthcoming article. 16 It is almost impossible to separate the "real" gain in coal consumption by indus tries other than electric utilities and coke plants between 1958 and 1962 from increases that represented recovery from recession losses. (A recession trough occurred in April 1958.) At the least, a portion of the 20-percent gain in coal consumption by "other" indus tries can be assumed to represent a real in5 Due to the limited availability of data on coal consumption by industry, discussion is confined to changes between 1958 and 1962. OCTOBER 1965 TABLE II C o a l Consum ption a n d V a lu e A d d e d b y M a n u fac tu rin g Ten Largest Coal-U sing Industries in O h io a Co al Consum ed C h an g e from 1958 to 1962 Chem icals and A llied Products . . Stone, Clay, and G lass Products . Paper and A llied Products . . . Rubber and P l a s t i c s .................. Transportation Equipment . . Food and Kindred Products . . . Machinery, except Electrical . . Electrical M a c h i n e r y .................. Fabricated M etal Products . . . Petroleum and C o a l Products . 1962 (thous. tons) Actual (thous. tons) 2,442 1,674 1,507 1,289 677 595 343 320 262 73 +597 +613 + 154 — 97 + 67 — 228 + 213 + 115 + 5 + 21 V alu e A d d e d C h an g e from 1958 to 1962 Percent + + 32% 58 + — 11 7 + 11 — 28 + 164 + 56 + 2 + 40 Percent + 29% + 9 + 25 + 25 +43 +21 + 37 + 29 +22 + 14 a Other than electric utilities and coke plants. Source: U.S. Department of Commerce crease, reflecting a number of factors operat chemicals and allied products industry, for ing to expand coal consumption. example, declined 16 percent from 1958 to O n a priori grounds, industrial growth 1962 while consumption increased 32 per probably helped to increase coal consump cent. Two industries — rubber and plastics, tion by these industries. Increases in the out and food and kindred products — showed put of the ten largest coal-using industries in higher prices p a id for coal but declines Ohio between 1958 and 1962, measured in terms of value added, are shown in Table II. in volume consumed.6 A shift in the type of fuel used by an in As the volume of production increased, it dustry may result from special considerations w ou ld be expected (other things being that influence some industries more than they equal) that inputs, including fuel, would also have increased, a ltho u g h perhaps at a do electric utilities and coke producers, who slower rate. 6 Differences in coal prices among industries, which can be seen in Table III, reflect in part variations in the quality of coal required by individual industries. High quality coal, which commands a higher price, is necessary for some heating processes in the stone, clay, and glass industry. Prices of coal are also in creased by washing and sorting, in relation to the degree of these services required or desired by a specific industry. In addition, prices vary because of differences in the bargaining power of individual consumers, which in turn may reflect volume of purchases. An industry such as chemicals and allied products, composed of relatively few large firms each using a large volume of coal, would generally be expected to have a stronger bargaining position than an industry with many small establishments such as the food and kindred products industry, all other things being equal. Prices or other considerations causing some industries to shift to coal may have con tributed to the gain in coal consumption. While perhaps not as important as for electric utilities, coal prices are important to indus trial consumers; they cannot be ruled out as a possible stimulant to larger use of coal from 1958 to 1962, despite the lack of definitive data. Changes in coal prices paid by the ten largest coal-using industries in Ohio between 1958 and 1962 were inverse and disproportional to consumption changes, as shown in Table III. The average coal price paid by the 17 E C O N O M IC REVIEW TABLE III Price C h a n g e s a n d Consum ption C h a n g e s in C oal Ten Largest C oal-Using Industries in O hio a 1958 to 1962 ________________Price b_______________ Per Ton % C h an ge 1962 from 1958 Chemicals and Allied P r o d u c t s ........................... Stone, Clay, and G lass P r o d u c t s ........................... Paper and Allied P r o d u c t s .................................... Rubber and P l a s t i c s ............................................. Transportation E q u ip m e n t .................................... Food and Kindred P r o d u c t s ............................... Machinery, except e l e c t r i c a l ............................... Electrical M a c h i n e r y ............................................. Fabricated Metal P r o d u c t s .................................... Petroleum and Coal P r o d u c t s ............................... $5.45 6.87 6.66 5.62 6.73 7.55 7.01 7.15 6.08 6.48 — 16% — 55 — 9 + 5 — 13 +13 — 14 — 6 — 15 — 15 Consumption % Ch ange from 1958 + 32% + 58 +11 — 7 + 11 — 28 +164 + 5 6 + 2 + 40 a Other than electric utilities and coke plants. b The price of coal by industry used for calculating the price change was determined by d iv id in g the total cost of coal to an industry by the total amount of coal consumed by that industry. The price is thus the ave rage cost per ton of coal to an industry. Source: U.S. Department of Commerce are tied to coal by price and nature of pro- industries. One type of innovation which duct, respectively. For example, the type of may have led to gains is that permitting a heating process used influences the fuel wider quality range of coals to be utilized choice of some industries. An industry that and fuel costs to be reduced by burning has a continuous heat treating process might lower quality coal. burn coal, but gas would be preferred if the An indirect g a in in coal consum ption, process were intermittent, due to the relative which ultimately was reflected in coal sales ease with which a gas fire can be turned off. to electric utilities, has resulted from rapid Factors that must be considered by industrial expansion in industrial use of electricity. Al- consumers in selecting a fuel are available though a portion of this gain represents a storage facilities and location of the plant. shift from self-generated to purchased elec- Some coals may deteriorate when exposed tricity — or from the industrial to the electric to inclement weather. On the other hand, in- utilities market for coal — substantial net dustrial consumers might shift away from gains have been recorded. Of the ten largest coal for convenience or ease of handling. An coal-using industries in Ohio, only the chemi- industrial consumer, for example, may pre- cals and allied products group consumed fer gas, despite its higher cost, because gas less electric power in 1962 than in 1958, as is cleaner. Gas also releases energy more shown in Table IV. easily and may be a lower cost fuel in cer- ABATEMENT OF RETAIL SALES tain industrial applications. The retail coal market, which accounts New technology and burning techniques for only 5 percent of total coal consumption could also have played a significant role in in Ohio, amounted to 2.6 million tons in 1963, the rise in coal consumption by individual or 40 percent less than in 1958. In large part, 18 OCTOBER 1 96 5 the decline reflected preference changes by Areas where nuclear power will be economi homeowners, the major consumers in this cally feasible will be those now generating category. Homeowners tend to prefer a cleaner, less bulky fuel than coal, regardless electric power by higher cost mineral fuels such as oil and gas. The electric utilities in of price. As incomes have increased, many Ohio, homeowners have converted home heating states, will probably be among the last to units to oil, gas, and, to a lesser extent, elec convert to nuclear power due to the avail tricity. A gain in electric heating, it should be ability of low-cost coal. like those in other coal-producing noted, is an indirect gain to the coal industry The coke market is expected to require a since all electricity in Ohio is generated by declining share of total coal consumption in burning coal. Ohio. Technological advance may further re SOME CONCLUDING COMMENTS duce the amount of coke required per unit Barring technological changes that would of pig iron produced. The outlook for coal replace coal as an energy fuel, coal con consumption by industries in Ohio other than sumption in Ohio can be expected to in electric utilities and coke plants poses a crease in total although not in each of the question. Changing technology could open individual markets. new industrial markets for coal if methods The electric utility market in Ohio appears currently under study for handling, burning, likely to record substantial gains in coal con or using coal are developed to the point of sumption at least in the near future. Nuclear economic feasibility. A continued decline in fuel, a long-run competitor of coal, is ex the retail market for coal can be expected, pected to account for about one-fifth of elec although growth in electric heating would in tric power generation in the U. S. by 1980. directly help offset the decline. TABLE IV Electric Pow er Consum ption Ten Largest C oal-U sing Industries in O hio Percent Change, 1958 to 1962 Q uantity Purchased Chem icals and Allied P r o d u c t s ........................... Stone, Clay, and G la ss P r o d u c t s ........................... Paper and Allied P r o d u c t s .................................... Rubber and P l a s t i c s ............................................. Transportation E q u i p m e n t .................................... Food and Kindred P r o d u c t s ............................... Machinery, except e l e c t r i c a l ............................... Electrical M a c h i n e r y ............................................. Fabricated Metal P r o d u c t s .................................... Petroleum and Co al P r o d u c t s ............................... - 5% + + + + + + + 17 63 35 26 14 33 26 + 12 + 19 SelfG enerated — 48% — 26 + 2546 n.a. n.a. — 50 + 1 n.a. n.a. n.a. Total Consum ption 8% + 7 — + 196 35 b 26 b 11 31 26 b 12 b 19 b n.a. — Not availab le ° Other than electric utilities and coke plants, b Percentage ga in in purchased electric energy only. Source: U.S. Department of Commerce 19 Fourth Federal Reserve District
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