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Montana Economy at a Glance



potlight on Industry Cl uster



The Montana Department of Labor's Research & Analysis Bureau is committed to
promoting the state's economic development by providing businesses and economic
planners with the most accurate and timely Labor Market Information (LMI) available.
One area of economic development that has recently received a great deal of attention is
the concept of "Industry Clusters." The Research and Analysis Bureau offers a wealth of
information related to industry clusters, such as industry concentration, employment by
industry, unemployment rates by county, wages by region, and current and projected
employment growth. To help you better utilize this information, we present the following
article as an introduction to this increasingly imnojftant area of Montana's economic
development. ^^



Building a Stronger Economy

As Montanans, one of our top priorities for state government is to build a stronger and more
diverse economy. The Governor's Office of Economic Opportunity has created a document
entitled Roadmap for a New Economy. This "roadmap" functions as a plan to affect long-term
improvements in our economy by making fundamental changes in the way we attract and
retain businesses, and create higher paying jobs. One of the most important steps in the plan is
to identify and nurture our state's "Industry Clusters." In 2002, the State of Montana took the
first step in promoting cluster-based economic development by contracting with Regional
Technology Strategies, Inc. (RTS) to study Montana's existing and emerging industry clusters.



What are Industry Clusters? ^*

Industry clusters are a geographic concentration of similar, related, or complimentary
businesses linked together by a product supply chain, common markets and technologies, and
worker skills. Industry clusters result from companies, including competitors, coming
together or locating close to each other for their mutual advantage.

What Are the Advantages of Clustering?

As stated by RTS, "clustering provides access to more suppliers and customized support
services, to experienced and skilled labor pools, and to the inevitable transfer of knowledge
that occurs when people meet and talk business. Companies that cluster can operate as a
system, use their resources more efficiently, and collectively produce more than the sums
of their individual outputs."



Got Questions?



If you have a specific question you'd like to ask one of the experts in the Research
and Analysis Bureau, send it in or e-mail us. Please indicate it's for the "Ask an R&A
Expert Column." We'll publish those we can in this monthly publication beginning
with the August 2004 issue. We're also interested in hearing feedback on our
publications from our customers. Please write or e-mail us with your comments or
suggestions. We'd love to hear from you.



The benefits of industry clusters, however, go beyond
providing businesses with better access to resources,
services, and information. Identifying and studying clusters
allows economic planners to more accurately identify
market strengths and imperfections, to predict system
failures, and to choose economic strategies with the greatest
impact. This, in turn, allows government agencies to spend
public monies more strategically and efficiently.



Based Economic Development?



While industry clusters are formed by businesses and
business leaders, there are a number of things our state
government can do to foster cluster-based economic
development. RTS has identified eight priorities for
organizing public sector resources and services, which can
also be used by groups of companies forming clusters:



3.

4.

5.

6.
7.
8.

L



Establish a leadership council for each cluster.

Create ""one-stop cluster hubs'" for each cluster.

Establish cluster-specific workforce

development centers at colleges.

Designate individuals in state agencies to

form cluster teams.

Create cluster-specific funds for collaborative

research and innovation.

Facilitate cross-cluster matches and learning.

Aggressively recruit talent.

Strengthen entrepreneurial education and

support for entrepreneurs



I



How Can I Get More Information
on Industry Clusters?



Whether you're a member of a workforce investment board
or an entrepreneur looking for the ideal location for your
fledgling company, involvement in the future of Montana's
economy could require a working knowledge of industry
clusters. There are a number of informational resources
available to you depending on your specific needs.



For general information about how industry clusters
function and how to make the most of them, check out
RTS's "Just Clusters: Economic Development Strategies
that Reach More People and Places" at http://
www.rtsinc.org/publications/just%20clusters.pdf or "A
Governor's Guide to Cluster-Based Economic
Development" at http://www.rtsinc.org/publications/
NGA%20Cluster-Based%20EDC.pdf .

For specific information on Montana's industry clusters,
you can find a 52-page summary of RTS's "Montana
Industry Cluster Analysis" at: http://www.montanajobs.org/
ClusterSummaryDocument.doc

For related Labor Market Information (LMI), the Montana
Department of Labor's Research & Analysis Bureau
provides some of the best available at no charge. Access
this information and more at www. ourf act sy ourf uture . org
or contact one of our experts at (406) 444-2430.



Coming Soon:

Want more information on specific
^industry clusters? Keep reading Montana
Economy at a Glance for future
articles about some of Montana's
most prominent industry clusters.



What is the Employment Cost Index?



The ECI is a measure of the changes in labor costs,
including non-cash benefits as well as wages and
salaries. It is used as an early indicator of wage
inflation, and is sometimes considered more reliable
than the Average Hourly Earnings (AHE), because it
measures wage increases in the same jobs over time,
whereas the AHE can be influenced by an overall
employment shift between high- and low-wage
industries and occupations. The ECI measures a
different aspect of inflation than does the Consumer
Price Index (CPI), which tracks inflation in day-to-day
living expenses. The ECI is calculated by the U.S.
Bureau of Labor Statistics, and its numbers represent
nationwide, rather than localized, trends.




MONTANA ECONOMY AT A GLANCE - JULY 2004



Why is Labor Force Information Seasonally Adjusted?



Frequent Economy at a Glance readers may have noticed that for a number of
our data series, we produce two sets of estimates: the "unadjusted" and the
"seasonally adjusted" numbers. This article will explain what these terms
mean, and why we have to adjust our numbers according to the seasons.



Unem ploym ent Rate



What is Seasonal Adjustment?)

Seasonal adjustment is a statistical technique that removes the effects of
events that follow a more or less regular pattern each year.







■■■■■" U nadjusted
Seasonally adj


u s te d




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( what Does Seasonal Adjustment Do? )

It makes non-seasonal patterns easier to identify by removing seasonal
fluctuations. Regular seasonal events for which data is adjusted include
holidays, the beginning and end of the school year, and the weather. These
events happen about the same time and have similar effects on Montana's
labor force every year. When graphed, the adjusted data series creates
smoother lines, allowing for easier month-to-month comparisons.
Seasonality is very important in Montana's economy because of our long,
cold winters. Employment in industries such as construction and agriculture
slows down during the winter, while logging usually declines in March,
April, and May due to poor road conditions. Jobs tied to tourism predictably
increase in the summer. Events such as strikes and natural disasters cannot
be adjusted for, since they do not occur at the same time each year.

The following graph shows the monthly employment rate in Montana from
January 1994 to June 2004. Notice the regular, yearly pattern of peaks and
drop-offs in the unadjusted series. Clearly, seasonal factors account for most
of the month-to-month change in the unemployment rate. These factors
obscure the non-seasonal movements in the unemployment rate that are often
of more interest. Montana's unemployment rate tends to be highest in
January and February (winter) and lowest in September (good weather and
school is back in session).



^>9>



\ Row is the Data Adjusted^ )
So, how are the seasonal movements removed from the data series? The
seasonally adjusted data series is produced by the Bureau of Labor Statistics
using a statistical method called an ARIMA model (AutoRegressive
Integrated Moving Average). For each month, the ARIMA model calculates a
seasonal factor, which represents how much employment and unemployment
historically vary from the annual average during that month. The ARIMA
model doesn't use the exact historical average. Instead, it gives extra weight
to more recent observations. The monthly employment and unemployment
seasonal factors are then added to or subtracted from their respective totals
before they are used to calculate the seasonally adjusted unemployment rate.

In July, for example, the unadjusted unemployment rate in Montana was 3.9

percent, but the seasonally adjusted unemployment rate was 4.3 percent. The

seasonally adjusted unemployment rate is higher than the unadjusted rate

because unemployment in July is normally lower than the annual average.

Feel free to contact the Research and Analysis Bureau with any questions on

seasonal adjustment or the seasonal patterns of specific industries in

Montana.

by Brad Eldredge, Economist




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March 2004
to June 2004


June 2003 to
June 2004


0.9%


3.9%


0.6%


2.5%


1.8%


7.2%


1.0%


4.0%


0.6%


2.6%


1.7%


7.3%


1.1%


3.4%


0.7%


1.9%


1.9%


6.6%



Employment Cost Index:

Cost of Benefits hits highest

growth rate since 1990.



Employment Cost Index - June 2004

Percent Change (seasonally adjusted)



Civilian Workers
Total Compensation
Wages and Salaries
Benefits

Private Industry
Total Compensation
Wages and Salaries
Benefits

State and Local Government
Total Compensation
Wages and Salaries
Benefits



Total compensation costs for civilian
workers went up 0.9% from March to
June, and up 3.9% from one year ago.
While these numbers represent average
growth in the overall cost of
employment, the cost of benefits hit
their highest rate of growth in more than
a decade.

The cost of benefits for civilian

workers increased by 7.2% over-the-

year, the fastest growth rate since 1990.

Meanwhile, the growth rate for civilian

wages and salaries reached its lowest

point in more than twenty years. The

price of benefits (health insurance in

particular) has risen sharply in recent

years, and many employers have had to

share these costs with their workers

through increased premiums,

deductibles, and drug co-payments.

What the ECI does not show is the

percentage of wages that employees

spent out-of-pocket for their company

health plans.

by Robert C. Marvin




What is the Employment Cost Index
(see page 3 to find out)



3



Unemployment

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4%



Montana's seasonally adjusted unemployment rate continues
to be lower than the U.S. rate. The states July unemploy-
ment rate of 4.3 percent was 1.2% lower than the nation's.

Earnings

Average weekly earnings for workers in Montana's private
sector reached $431.30 in July, marking an over-the-year
increase of 2.2%. Compare this percent change to the 3.0%
over-the-year increase in the Consumer Price Index (CPI),
which is an indicator of U.S. inflation.

Nonfarm Employment Series



January 2001 - July 2004




Montana's seasonally-adjusted, nonagricultural payroll
employment was up about 8,300 jobs (2.07 percent) over
the year for July. The largest over-the-year gains were in
natural resources and mining; construction; financial
activities; and professional and business services.



Unemployment
by County



Not seasonally adjusted



UNITED STATES
MONTANA

Cascade **
Missoula **
Yellowstone **

Beaverhead

Big Horn

Blaine

Broadwater

Carbon

Carter

Chouteau

Custer

Daniels

Dawson

Deer Lodge

Fallon

Fergus

Flathead

Gallatin

Garfield

Glacier

Golden Valley

Granite

Hill

Jefferson

Judith Basin

Lake

Lewis & Clark

Liberty

Lincoln

McCone

Madison

Meagher

Mineral

Musselshell

Park

Petroleum

Phillips

Pondera

Powder River

Powell

Prairie

Ravalli

Richland

Roosevelt

Rosebud

Sanders

Sheridan

Silver Bow

Stillwater

Sweet Grass

Teton

Toole

Treasure

Valley

Wheatland

Wibaux



July
2004*

5.7%
3.9%

3.9%
3.1%
3.4%

2.5%
12.3%
5.3%
3.3%
3.1%
2.2%
1 .9%
3.1%
1.1%
2.7%
7.8%
2.2%
3.6%
4.3%
1 .9%
1.3%
12.1%
6.8%
5.2%
4.6%
4.1%
2.2%
5.4%
3.6%
2.3%
11.5%
0.6%
1.7%
4.0%
5.0%
6.9%
2.8%
2.2%
3.6%
6.2%
2.2%
5.0%
2.7%
3.9%
3.3%
9.3%
6.1%
5.8%
1.9%
5.0%
2.6%
1 .9%
2.8%
2.2%
4.4%
3.0%
2.5%
2.0%



July
2003

6.3%
4.3%

4.5%
3.5%
3.7%



4%
0%
6%
0%
8%
4%
2%
6%
9%
9%
4%
1%
0%
2%
1%
1%
3%
2%
6%
4%
1%
1%
1%
0%
3%
0%
5%
0%
0%
3%
3%
3%
2%
3%
4%
3%
4%
1%
7%
8%
1%
0%
7%
3%
2%
9%
6%
8%
0%
9%
5%
8%
9%



*July 2004 rate preliminary

* Cascade=Great Falls MSA

Missoula= Missoula MSA

Yellowstone=Billings MSA



www.ourfactsyourfuture.org
Phone: (406) 444-2430 Fax: (406) 444-2638 TDD: (406) 444-0532

July 2004





1

Online LibraryMontana.Dept. of Labor and Industry.Research and AMontana economy at a glance (Volume 2004 Jul) → online text (page 1 of 1)