Worried about the future

The numbers don't lie.

Nevada led the nation between 2000 and 2005 in manufacturing job growth and, in 2004 manufacturing's best year the sector contributed more than $4 billion to the Silver State's gross state product.

That was then. Today, manufacturing in Nevada is, well, to quote Ray Bacon, "in the ditch."

Bacon, executive director of the Nevada Manufacturing Association, acknowledges the manufacturing sector has lots of company, especially construction and gaming. The latter two helped Nevada flourish until three years ago. Still, he is concerned that any political fixes to the state's fiscal problems may focus more on raw numbers of unemployed.

"Percentage wise," he says, "we are No. 2 in job losses. We've lost 11 percent of the jobs in the manufacturing sector. Construction has lost 50 percent. But the absolute numbers in job losses fall more in construction and gaming and our voice may not be heard in Carson City next legislative session. That's what worries me."

The raw numbers Bacon points to speak volumes. In September of 2007, the state Department of Employment, Training and Rehabilitation reports there were 50,400 employees in the manufacturing sector. The latest figures available as of July this year show 38,700 employed a loss of nearly 12,000 jobs.

Construction, however, recorded 135,000 workers in September of 2007. Today, that sector reports only 61,200 who are employed a loss of 73,800 jobs.

The worst economic malaise to hit the country and Nevada in seven decades is an equal-opportunity hammer. Virtually every segment of the economy has been hit hard. Many here believe the recession will linger for some time. For manufacturing in particular, Bacon is concerned it may take years before any signs of a strong recovery arrive.

"I've helped people put locks on the doors in approximately 60 plants across this state over the past two years," he says. But as the state leadership and legislators convene next February to grapple with a $3 billion budget shortfall, Bacon's worst fear is that his association members may get little help.

There is an old legislative saw that says if you are not at the legislative bargaining table fighting for your fair share of limited budget dollars, you are likely to be on the menu. Clearly, once the table has been set for this legislative party, Bacon has no desire for his members getting stuck for the drinks.

Manufacturing in Nevada services approximately five markets, Bacon says. Number one is the gaming market, followed closely by construction materials. Then there are customers in Southern California who are served largely by satellite manufacturers in Clark County where, as Bacon notes, "the freight is essentially free when compared to having California product made in the Golden State. Overall, the price differential is substantial." Then there are goods that could likely be manufactured anywhere in the world, and, finally, everyone else who qualifies as a firm that adds value to a product.

"A few are doing OK, others are hanging on," says Bacon. "As a sector, it pretty much all sucks."

"People I talk to think it will be three to five years before things improve," says Chuck Alvey, executive director of the Economic Development Authority of Western Nevada. While there is a need to get more companies interested in moving to Nevada, Alvey says the fact is that businesses are not moving. It's not anyone's fault, he says.

"Companies are holding onto their money and are waiting for more stability and certainty before contemplating relocation. Even then, it typically takes anywhere from six to 18 months," he says.

Alvey says his organization is in contact with scores of companies who have signaled they may be interested in locating closer to their West Coast markets. "Right now, I'd say between 45 and 55 percent of the projects we are working on are in manufacturing," he says.

There are two wild cards, however, likely inhibiting firms from giving the green light.

One is the increase in power costs for manufacturers over the past few years. "At times, we have been competitive, but, today, I don't think we are terribly competitive," says Bacon. "We have higher costs than any other western state with the exception of California." Bacon and others say the state has lost some manufacturing jobs to Utah and Arizona.

A second wild card is Nevada's $3 billion budget hole, and talk that tax increases will be needed to plug the deficit.

"Taxes are not the main issue to recruiting new businesses," Alvey says. "If taxes are the primary reason a company would move to our area, it's only one line in a profit and loss statement. If companies are going to come here based purely on taxes they will save, then their margins are so thin that they are probably not as strong nor as viable a company to begin with."

As if to punctuate his comment, Alvey says, "There is also empirical proof. If low taxes are the driver everyone thinks it is in economic development, then why don't we have all of San Francisco's manufacturing companies? We know they are all paying huge costs to remain there."

He says the driving reason that cutting edge manufacturers stay in the Bay Area is the strong linkage between university research programs, venture capitalists, and new, young entrepreneurs who have come out of institutions such as Stanford, University of California and others. "It is where the talent is," he says. He laments the tough fiscal environment institutions such as the University of Nevada, Reno and the Desert Research Institute have to deal with.

"The Desert Research Institute has already lost some top researchers due to this state's fiscal uncertainty," Alvey says. "DRI is the crown jewel in our community, really the MIT of environmental science that we have not nearly developed yet to create commercial technology transfer."