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Paul W. Bauer |

Senior Research Economist

Paul W. Bauer

Paul Bauer is a former senior research economist at the Federal Reserve Bank of Cleveland.

02.15.07

Economic Trends

The Metal Working Industry

Paul Bauer and Bethany Tinlin

Metal working has long been an important industry in the Fourth District. The first blast furnace west of the Allegheny Mountains opened in 1802 near Youngstown, and by 1880, 28 percent of Cleveland’s workforce found employment in its steel mills. Although the industry has undergone substantial restructuring and lost some of its importance over the years, it maintains a significant economic presence in the District.

Most of the District’s primary metals industry is located in Ohio and Pennsylvania. As recently as 1995, the industry employed 66,600 in Ohio, but according to the most recent Census of Manufacturing, employment had fallen to 38,483 by 2005, a drop of over 42 percent. Pennsylvania’s employment in the industry fared slightly better, dropping from 55,600 in 1995 to 34,522 in 2005, a little less than a 38 percent drop.

Despite plunging employment, the value of shipments has held up better, thanks to productivity gains and a sharp rise in prices that began at the outset of 2004. Output from 1995 to 2005 declined only 2.5 percent in Pennsylvania and 11.1 percent in Ohio. Nationally, shipment values fell 8.5 percent.

The surging international demand for steel, led in part by China and India’s booming economies, has changed the pricing dynamics of the industry. From 1980 to 2004, the real price of steel mill products fluctuated in a relatively narrow range, but from the end of 2003 to the end of 2006 the real price of those products rose about 59.8 percent. Not surprisingly, the financial health of U.S. steel producers, as measured by their share prices, increased dramatically.

Workers in the industry have shared in some of these gains. Real wages increased 10.3 percent and 7.0 percent in Ohio and Pennsylvania, respectively, from 1995 to 2005. However, because fewer people are employed in the industry, overall earnings are still down in Ohio. In contrast, earnings in Pennsylvania have nearly reached their 2000 peak.