Over the past three years, every state in the union posted a loss of manufacturing jobs – totaling more than 2.6 million positions nationwide, many of them high-paying and highly skilled. However, Nevada proved itself as the only positive beacon in the gloomy picture by being the only state to increase the number of durable and nondurable goods-producing jobs in the same period.
According to the National Association of Manufacturers, the Silver State added 100 jobs from July 2000 to June 2003, while traditional manufacturing states, such as California, Michigan, Ohio, Texas, North Carolina and Illinois, were each losing hundreds of thousands of jobs. More than 1,850 Nevada manufacturers are listed in the three-digit North American Industrial Classification System, and 96 of them have 100 or more employees.
Why is this state of barely more than 2.3 million inhabitants – with a workforce slightly less than half that figure – such a ray of hope to the rest of the nation? Some Nevada manufacturers describe the state’s business climate as second-to-none.
The Economic Climate
“This is definitely a pro-business environment,” said Bill Spencer, general manager of Milgard Windows, a major supplier of residential windows, doors and skylights for Southern Nevada’s explosive homebuilding market. “Coming from California, this is a refreshing place to work, and since we are in the homebuilding industry, being in a fast-growing town like Las Vegas is especially rewarding.”
Milgard Windows and its 250 employees moved into a new $8.5 million, 140,000-square-foot production plant in Henderson this April after spending the last 10 years in a downtown Las Vegas location less than half the size. The decision to reinvest in Nevada was an easy one, said Spencer, because the regulatory climate here is vastly different than in California, where the company has four plants. “Go try to run a business there for 10 years and you’ll be back in Nevada in nothing flat,” he said.
That’s not to say everything in Nevada is 100 percent rosy. There are challenges to be faced, for sure, including Nevada’s new payroll tax, which Spencer said will increase his state tax bite by 350 percent.
Despite the substitution of a more costly payroll tax for the $100-per-employee business tax on Oct. 1, Purafilter 2000 still thinks Nevada has its advantages. The company manufactures 2 million lightweight air-duct filters annually. It is breaking ground in January on a facility twice the size of its current operation and is planning to open a second plant, possibly in Texas.
“The tax climate is very favorable here, since we don’t have to contend with an inventory tax or a state income tax, which are the kinds of things you look at when launching a new factory,” said Mike Zimmer, president of the company. “Texas has no personal income tax. However, they do have a business property tax, which would be a big deal for us.”
The Challenge of Labor
Labor – its supply and cost – is another challenge many Nevada manufacturers must deal with, but Zimmer, who has to compete with the resort industry for workers, said, “One of our goals is to try to build a climate and create opportunities for our employees so they can actually view their jobs as careers and not as a stopping-off point.”
Debbie Fields, chief financial officer for Southern Nevada Micrographics, a producer of digital document images in North Las Vegas, sees her labor challenges stemming from “pricing inelasticity”. Competition forces her prices down, while the state piles on higher taxes, resulting in less operating capital and the potential to lay off workers.
“Because of pricing inelasticity, we’re looking more and more at outsourcing some of our more labor-intensive work. Then we don’t have to worry about worker’s compensation, unemployment insurance and health insurance,” she said. “If we keep getting squeezed, we’ll seriously look at that as an option.”
Threats from Abroad
While the nagging issues of taxes and labor are more parochial in nature, a larger, more dangerous threat awaits Nevada manufacturers. Foreign imports, whether raw materials, parts and assemblies, or finished goods, increasingly are looming as potential time bombs. When foreign currency values fluctuate wildly, sometimes undercutting the value of the U.S. dollar, they make domestic products more costly.
An obvious result of that menace surfaced in Henderson in August when Kerr-McGee Chemical Co. furloughed 85 of 130 workers in the electrolytic plant where it produces electrolytic manganese dioxide (EMD) for use in dry-cell batteries. It also put the plant on stand-by for an indefinite period.
Kerr-McGee filed an anti-dumping complaint against China, Australia, Greece, Ireland, Japan and South Africa with the U.S. International Trade Commission (USITC) July 30, claiming the six countries caused “material injury to the U.S. industry.”
“In this case, we feel a significant volume of the dumped imports has materially impacted the entire electrolytic manganese industry,” said Debbie Schramm, director of corporate communications for the $10 billion, Oklahoma City-based company. “It has definitely impacted Kerr-McGee, as you can see by the furloughs we’ve had to enact and the necessity of putting the plant on stand-by.”
In mid-September, the USITC did declare in its preliminary review that all the countries, except China, did sell EMD in the United States at less than fair value. However, the USITC’s actions appear to be too little, too late for the salvation of the Henderson plant and the 85 furloughed employees.
“As a company, we’re focusing on two areas – oil and gas exploration and production and the manufacture of titanium dioxide pigment,” Schramm added. “That is our corporate strategy, and our intent is to exit our non-core businesses, which includes the electrolytic plant in Henderson.”
To Nevada Association of Manufacturers Executive Director Ray Bacon, China represents a serious threat to the Silver State. He feels that with the continued undervaluing of the yuan, the Chinese currency that has had an exchange rate of 8.28 per U.S. dollar since 1994, a variety of Chinese goods could flood the market and cause havoc for local manufacturers.
That thought is amplified by reports that China’s manufacturing sector ranks fourth the world behind the United States, Japan and Germany, due in large part to its cheap, but increasingly well-educated, workforce. It also has a population more than four times greater than that of the U.S. and a labor force six times larger than the size of America’s labor force.
According to an article printed in the Federal Reserve Bank of Dallas’ September newsletter, “China’s gross domestic product is expanding at roughly 8 percent per year (and) at this rate, and assuming a 3 percent average annual growth rate for the United States, China will ascend to the world’s largest economy in just 12 more years (by 2015). It is truly a giant.”
Bacon predicts China’s manufacturing future could have dire consequences throughout the nation and in Nevada. “If they start producing end goods, the companies in Nevada that produce comparable end goods will be hurt,” Bacon stated. “Because many might think declining orders for consumer goods and parts are an effect of the national economy, a lot of our folks could be blind-sided and never see this China thing coming. Think what would happen if China started making slot machines.”