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SURVEY AUTHORS

Thale DillonBureau of Business andEconomic Research

Charles Keegan IIIBureau of Business andEconomic Research

John BaldridgeBureau of Business andEconomic Research

This survey is conductedthrough the MontanaManufacturers InformationSystem, a joint project ofthe Bureau of Businessand Economic Researchand Montana BusinessConnections.

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Visit our Web site for a directory of Montana manufacturers.www.mmis.umt.edu

BUREAU OF BUSINESS &ECONOMIC RESEARCHThe University of Montana

Gallagher Building, Suite 23132 Campus Drive #6840

Missoula, Montana 59812-6840Phone: 406-243-5113

FAX: 406-243-2086

he Bureau of Businessand Economic Researchat The University of

Montana started an annual surveyof Montana’s largest manufactur-ers in 1999. Conducted each yearduring November, December, andJanuary, the survey queriesmanufacturers on a variety ofbusiness issues pertaining to boththe year just completed and theoutlook for the coming year. Theresults shown here are from theseventh such survey, completed inJanuary 2006. This year’s ques-tionnaire was sent to 218 ofMontana’s largest manufacturingfacilities (as measured by thenumber of people employed), aswell as a handful smaller firmsrepresentative of their sectors.Seventy-seven percent of thefirms (167 total) completed thequestionnaire and returned it toBBER.

The information collectedthrough the manufacturers surveyis featured in the Bureau’s annualEconomic Outlook Seminar,where it is used in forecastingconditions for the industry for theupcoming year. While partialinformation is published in the

Outlook booklet and in BBER’sMontana Business Quarterly, thispublication provides a completedescription and analysis of thesurvey results.

Manufacturing Categories

Results of the 2005-2006 Montana Manufacturing Survey2

Although the manufacturing industry consists ofhundreds of highly specific categories, for the purpose ofthis report, we have divided the industry into five segments:

Wood/PaperFacilities that harvest and/or process timber into lumber,plywood, log homes, pulp and paper, and posts and poles,as well as facilities that further process primary woodproducts into furniture, laminated beams, trusses, windowand door frames, and wood carvings.

Chemicals/Petroleum/OthersIncludes a wide range of facilities, such as those manufactur-ing products by transforming organic and inorganic rawmaterials by a chemical process (chemical manufacturing) orby transforming mined or quarried nonmetallic mineralssuch as sand, gravel, stone, or clay (nonmetallic mineralproduct manufacturing), as well as facilities engaged in thetransformation of crude petroleum and coal into usableproducts (petroleum and coal products manufacturing), andfacilities engaged in smelting and refining ferrous andnonferrous metals (primary metal manufacturing).

Food/OthersFacilities that manufacture food and beverages, includingprimary processors of Montana’s crops and livestock, as wellas those producing for retail sale. Examples include sugarbeet plants, flour mills, bakeries, and dairies.

Machinery/EquipmentFacilities engaged in manufacturing machinery, equipment orinstruments. Included here are industrial and commercialmachinery, computer equipment, electrical equipment,transportation equipment, and fabricated metals.

All OthersFacilities engaged in mostly light manufacturing such asplastics products, sporting goods, games and toys, apparel,and jewelry, as well as those engaged in printing or perform-ing services for the printing trade such as bookbinding.

Montana Manufacturing:An Overview

The manufacturing sector includes traditionalheavy industries as well as a broad array of lighterproduction activities, ranging from the assembly ofsophisticated high-technology equipment to smallcottage industries. Overall, the state’s manufacturingsector:

• produces about $5 billion in outputannually,

• directly employs over 25,000 workersearning over $1.1 billion in annual laborincome,

• includes over 2,000 entities such ad factories,logging companies, and at-home cottageindustries,

• pays high wages with employees averagingabout $34,000 per year (compared to anaverage $25,000 per year for all Montanaworkers), and

• accounts for over 20 percent of Montana’seconomic base.

The Year 2005 in ReviewThe 2004-2005 survey indicated that Montana’s

manufacturers continued to exhibit a measure ofoptimism for the immediate future. Forty-sevenpercent of responding firms expected 2005 to improveover 2004, while 34 percent anticipated approximatelythe same conditions. Only 19 percent were expectingconditions to worsen in 2005 as compared to 2004.The survey results presented here indicate that 2005was indeed a good year, with the majority of respond-ing firms experiencing increased production, sales,and profits.

For the second year in a row, the majority of re-sponding firms (56 percent) saw their productionincrease during 2005. Also in 2005, for the secondyear running, only 19 percent of respondents reportedany curtailment of production, and only 7 percentpermanently eliminated production capacity. Further-more, sales were up for 59 percent, with 46 percentexperiencing higher profits. Though lower than 2004,these percentages indicate that 2005 was relativelygood year for the state’s manufacturers, providing asecond year of economic recovery following threeyears of decline.

Close to one-third (32 percent) of responding firmshired more workers in 2005, while 48 percent main-tained 2004 employment levels. Only 20 percent

Figure 1Overall Outlook for 2006

Figure 2Production Outlook for 2006

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Results of the 2005-2006 Montana Manufacturing Survey 3

reduced the number of workers in 2005, a ratecomparable to 2004. Over one-third (37 percent) ofrespondents released new product lines, and close totwo-thirds (62 percent) reported making majorcapital expenditures in 2005. These percentages arealso comparable to 2004.

General Outlook for 2006Encouraged by improving sales and profits, the

state’s manufacturers see further improvement in2006. When asked about their outlook for 2006, 52percent of responding firms reported it to be betterthan 2005, while 42 percent reported it to be thesame. That leaves only 6 percent who expect condi-tions to worsen, down from 19 percent on last year’ssurvey. The most optimistic sector was machinery/equipment, where 62 percent of respondents expectimproved conditions in 2006, while the chemicals/petroleum/other sector is notable as no respondentsexpected 2006 to be worse than 2005 (Figure 1).

Close to two-thirds (63 and 65 percent, respec-tively) of respondents anticipated increases both inproduction and sales, though considerably fewer (50percent) were expecting higher profits in the comingyear. Approximately half (51 percent) expected tomake major capital expenditures in 2006, with themost optimistic sectors being food/other and chemi-cals/petroleum/other, both with 59 percent.

There is still some caution coloring the manufac-turing outlook. Three-quarters of responding firmsanticipated the costs of inputs to increase over 2005levels, with few responding firms expecting the energycosts to go down by a significant amount in thecoming year. However, while 51 percent expectedproduct prices to either stay the same or go down in2006, 57 percent still expected maintaining currentemployment levels, with only 4 percent foreseeing adecrease.

Outlook for Operations in 2006Production

Sixty-three percent of responding Montana manu-facturers expected increased production levels for2006, up from 56 percent in 2005. Again, the machin-ery/equipment sector expected the most productionincreases, followed by secondary producers in thewood/paper sector, and in all others. At least 60percent of respondents in these sectors expectedincreased production for 2006. The food/other sectoris notable for having no respondents expectingdecreased production levels in 2006.

Thirty-one percent of all respondents anticipatedproduction to remain about the same in the comingyear, compared to 28 percent of last year’s respon-dents, while only 6 percent foresaw a productiondecrease for 2006. No sector had over 10 percentexpecting production declines (Figure 2).

Figure 4Profit Outlook for 2006

Results of the 2005-2006 Montana Manufacturing Survey4

Sales

In terms of sales, respondents to this year’s surveywere more optimistic than last year’s respondents.Sixty-five percent, up from 57 percent last year, wereanticipating 2006 sales to outpace those of 2005. Inaddition, the portion of respondents who expecteddeclining sales was down to 8 percent compared to 18percent on last year’s survey.

While only 50 percent of respondents in the food/other sector expected higher sales, another 50 percentexpected sales to remain the same, leaving no respon-dents expecting lower sales. The most optimisticsector was machinery/equipment, with 72 percentanticipating increased sales, and the least optimisticwas the chemicals/petroleum/other sector, with only46 percent expecting increased sales and 9 percentanticipating a decline (Figure 3).

Profit

With 50 percent of responding firms experiencingincreased profits in 2005, it is encouraging to note that52 percent of respondents also expect increased profitsfor 2006, with 40 percent expecting them to remainthe same.

Respondents in the food/other sector are notamong the most optimistic in terms of increasedprofits, however, once again, none of them anticipatedlower profits in 2006. The most optimistic sector waswood/paper, where a full 64 percent of respondents(again, mostly secondary producers) expected higherprofits for 2006, while 23 percent of respondents in thechemicals/petroleum/other sector foresee a profitdecline (Figure 4).

Major Capital Expenditures

Fifty-one percent of responding firms had plans formajor capital expenditures in 2006. Both the food/other and the chemicals/petroleum/other sectorsreported high rates of intended investment with 59percent each, while the all others sector reported thelowest rate at 45 percent (Figure 5).

Employment

Based on the Manufacturers Survey, employmentshould increase in 2006. Thirty-nine percent ofrespondents to the 2005-2006 survey expected toincrease employment in 2006, compared to 30 percentwho had such expectations for 2005. Additionally, 57percent of respondents anticipated their employmentlevels in the coming year to remain even with 2005,

Figure 3Sales Outlook for 2006

Figure 5Outlook for Major Capital Expenditures in 2006

Figure 7Significant Worker Shortage in 2005?

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Results of the 2005-2006 Montana Manufacturing Survey 5

Figure 6Employment Outlook for 2006

the same as for last year’s survey. A modest 4 percentanticipated to reduce employment levels, downconsiderably from last year’s 13 percent.

With the exception of the machinery/equipment,the majority of respondents in each sector anticipatedkeeping employment levels the same in 2006. Norespondents from the food/other sector nor thechemicals/petroleum/other sector foresaw any cuts inemployment in 2006, while the majority (55 percent)of respondents in the machinery/equipment sectorexpected to increase employment in the coming year(Figure 6).

Worker AvailabilityThis year’s survey responses indicated that worker

availability is growing as a problem. Thirty-eightpercent of responding firms indicated they hadexperienced significant worker shortage at some pointduring 2005, up from 37 percent in 2004, and 22percent in 2003. The problem was especially prevalentin the wood/paper sector (47 percent), though allsectors reported some level of shortage, even thechemicals/petroleum/other sector (14 percent),which has been attracting skilled workers away fromother sectors (Figure 7).

Energy CostsEnergy costs rose dramatically in 2005, peaking in

the fall, just before this survey was sent to manufac-turing firms. Recipients were asked two questionswith respect to energy costs, both with November’srecord-high prices as reference.

First, survey recipients were asked whether or nottheir plant had been affected by high energy prices in2005. A surprisingly low 75 percent of respondentsindicated that their plant had indeed been affected.

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Results of the 2005-2006 Montana Manufacturing Survey6

Though 25 percent reported that their plant had notbeen affected, their responses to other questions onthe survey indicated that other aspects of theirbusiness had, primarily through higher raw materialprices and higher transportation costs. The machin-ery/equipment sector (66 percent) and the wood/

Figure 10Rating of Business-Related Issues

Figure 9Expectation for Energy Prices in 2006(as compared to prices in November 2005)

Figure 8Level of Preparedness of New Hires in 2005?

paper sector (67 percent) reported the lowest ratesof cost impact to their plants, while at least 85percent of each of the other sectors reported suchan impact (Figure 8).

Secondly, survey recipients were asked what theyanticipated would happen to the prices for various

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Results of the 2005-2006 Montana Manufacturing Survey 7

sources of energy in 2006, as compared to prices atthe time of the survey dissemination (November,2005). Seventy-one percent of respondents expectedthe cost of natural gas to increase further, while 56percent anticipated an increase in the cost of elec-tricity. Twenty-one percent of respondents expecteddiesel prices to go down, with 20 percent expecting adrop in gasoline prices. Only 3 percent thought theprice of electricity would go down in 2006 (Figure 9).

Rating of Business-Related IssuesSurvey recipients were given a list of eight busi-

ness-related issues and were asked to rate each interms of its importance to their business. There wasno specified time frame, indicating the general andenduring nature of these issues.

The issue respondents found most important wasthe high price of energy. Seventy-five percent ofrespondents indicated it as very important to theirbusiness, with an additional 23 percent indicating itas somewhat important. Only 2 percent indicated that

energy costs was somewhat unimportant to theirbusiness.

Health insurance costs were also very important to75 percent of responding businesses, with 19 percentindicating it as somewhat important. Only 6 percentfound health insurance costs to be unimportant.Worker availability was very important to 63 percent ofresponding firms, and somewhat important to 31percent, while Workers’ Compensation rates were veryimportant to 60 percent and somewhat important to 31percent of respondents.

Raw material availability/cost was very important to52 percent of respondents, while 40 percent of re-sponding firms indicated that Workers’ Compensationrules were very important to them. Further, the cost ofwork force development was very important to 26percent of respondents, as was foreign competition.However, a full 49 percent indicated that the latterwas unimportant to them, compared to 21 percent forthe former (Figure 10).

About the Montana Manufacturers Information SystemBecause of Montana’s large size and sparse population, Montana manufacturers are

often unaware of other manufacturers within the state, leading to missed business opportu-nities. The primary goal of the Montana Manufacturers Information System (MMIS) is toeliminate this situation by providing one place where detailed and up-to-date informationabout Montana manufacturers and service providers can be found. A second goal is toprovide additional exposure to Montana manufacturers’ products and capabilities. A thirdgoal is to collect and report accurate information about manufacturing in Montana,helping people make informed decisions.

MMIS is located at The University of Montana’s Montana Business Connections andhas been developed in cooperation with the Bureau of Business and Economic Research,Montana State University’s Montana Manufacturing Extension Center, and the MontanaDepartment of Commerce. The system allows for the inclusion of detailed informationregarding products, processes, equipment, certifications, and licenses. MMIS currentlycontains data on over 1,200 facilities, and those firms listed in the MMIS can enter thesystem through a password-protected program to update their profiles.