Md. factories on the edge Hit by recession, Md.industries face an uncertain future

THE BALTIMORE SUN

In the 12 years he has worked for the Berlin Metals plant, which cuts sheets of steel to size for cans, Tony Forte has never seen the Quad Street plant so lean.

The plant was humming along with 80 employees last year when demand started to plummet. Today, Mr. Forte oversees a skeleton crew of 14 and fights rumors that the plant will close soon.

But the plant manager concedes that "we can't afford to lose much more."

Economists and manufacturing executives around the state say the recession is pushing Maryland's already troubled industrial sector -- which employs one in 10 working Marylanders -- into a precarious position.

The economic downturn, often mistakenly viewed as a white-collar recession, is hitting blue-collar workers hardest, unemployment statistics show.

More than 8,000 Maryland factory jobs disappeared from December of 1989 to December 1990 alone, while the number of jobs in the finance, real estate and insurance rose by more than 500 in the same period.

Most economists predict that Maryland will lose thousands morfactory jobs before the recession is over, and there is growing concern that the state, like Berlin Metals, cannot afford to lose much more in a sector viewed as the backbone of its economy.

When Maryland loses a manufacturing job, it loses one of the highest-paying jobs in the state. Factory workers, on average, earn twice what workers in retail stores earn, for example.

And when factory workers get laid off, everyone from store clerks to bankers suffers. A recent state study found that every manufacturing job creates as many as four other jobs throughout the economy -- twice the ripple effect of service jobs.

Maryland's manufacturing sector has been retrenching for decades. The debate now emerging is whether the paring has made the sector lean and hardy, or dangerously weak.

In Maryland, an industrial giant in the 1950s, manufacturin businesses shrank even during the go-go years of the 1980s.

The number of manufacturing jobs nationwide today is about the same as in 1972, but manufacturing employment in Maryland has fallen by 45,000 jobs, or about 18 percent, during that period.

It isn't just local plant workers who have suffered disproportionately. The importance of the industrial businesses themselves has faded.

Output of the nation's factories has rebounded in recent years and now makes up nearly one-fourth of the country's total production, according to a report recently released by the Department of Commerce. But the economic importance of Maryland's heavy industries has been declining for two decades, state officials say. Factories in the state now make up less than 11 percent of the state's economy.

The reason Maryland's factories weakened while factories in other states rebounded in the 1980s was that the state's economy was heavy in industries hit hardest by previous recessions, economists say.

With 17,000 workers, Bethlehem Steel Corp., for example, was the state's largest industrial employer in 1980. But after losing hundreds of millions of dollars in the early 1980s, Bethlehem slashed the work force at its Sparrows Point steelyard by nearly 10,000 and now has only 7,400 employees there.

"There is this perception that Baltimore is a blue-collar city," said Stanley Duobinis, a regional economist for the WEFA group in Bala Cynwyd, Pa. But the companies that defined the image of the state's industrial heart "have really been beaten up in the last decade," he said.

Hit harder than the rest of the nation in past recessions, and recovering slower in past booms, Maryland's industrial sector is once again falling faster than that of the rest of the nation, Mr. Duobinis said.

Federal unemployment statistics for December, the latest published for the state, show that Maryland's overall unemployment rate has surpassed the national average and that factory layoffs have cut a third deeper here than they have across the nation.

While the number of factory workers nationwide slipped from 19.3 million to 18.7 in 1990, a decline of 3 percent, Maryland's manufacturing work force dropped 3.9 percent.

"There is no question the decline of [Maryland's manufacturing] sector is going to be aggravated" by this recession, Mr. Duobinis said.

The reason for the dim outlook for Maryland during this downturn?

Ironically, while the basic industries such as steel suffered through the 1980s, local factories involved with the construction, automotive and defense industries boomed. And by the time recession hit in late 1990, Maryland had again developed an unusually heavy concentration of factories in fields especially vulnerable to the downturn.

Westinghouse, for example, thrived during the defense-spending spree of the 1980s. It took over from Bethlehem as the state's top industrial employer as its local work force rose from 14,00 in 1981 to 17,000 last year.

"We were one of the companies keeping the sector up," said Aris Melisseratos, a Westinghouse vice president.

But when the federal government canceled a Stealth aircraf contract, Westinghouse announced "a major layoff" of 1,200 workers that will take effect at the end of February, he said.

Mr. Melisseratos said the best hope he has is that after further plant consolidations and layoffs, manufacturing will bottom out at 8 percent to 9 percent of the economy.

"It can't get much lower," he said.

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can it?

Academics, state officials and manufacturing executives are in the midst of a debate over when -- or whether -- the decline of Maryland's industrial sector will end.

Many of those familiar with the sector argue that factory managers have learned from the past and are better prepared to withstand a recession now than ever before.

Though there is little doubt this downturn will hurt, there is evidence that Maryland's factories are ready to rebound.

Brian Leslie, a vice president at the Eastern Stainless Steel plant on Rolling Mill Road, said that though orders for stainless-steel sheets and plates have fallen in the last few months, his mill won't suffer the way it did in the 1980s.

Eastern, which filed for bankruptcy in 1986, was purchased by Pittsburgh-based Cyclops Industries Inc. and "is in better shape than we were in 1982," during the last recession. It is anticipating a revival, he said.

Cyclops has expanded the mill's product line, improved its equipment and improved efficiency, he said.

"We don't carry much inventory at the plant, Cyclops paid down quite a bit of our debt . . . and we've got fewer employees," he said. Eastern now has about 600 workers, down from 1,100 in the early 1980s.

And some economists say stories like Eastern Stainless Steel's are common across the state.

Pradeep Ganguly, a researcher for the Maryland Department of Employment and Economic Development, pointed to statistics that show manufacturers nationwide have slashed their inventories to conserve cash and have invested hundreds of millions of dollars in new equipment to improve quality and speed production.

Though the employment news has been bad, and no one likes layoffs, job losses aren't necessarily evidence of economic weakness, he said.

"Employment is only one index of the health of an industry," Mr. Ganguly said.

Though painful, some of the layoffs have been good for the state in the long run, he said.

For example, because Bethlehem Steel's Sparrows Point plant turns out the same amount of steel now with less than half the work force it had a decade ago, the plant is profitable and the remaining jobs are secure, he said.

The downturn is simply weeding out the weak plants and forcing Maryland's healthy plants to become even more efficient, Mr. Ganguly said.

Indeed, he said, his research shows that Maryland factories' productivity, on average, is higher than and improving faster than that of competitors in other states.

The value Maryland factory workers added to products for each hour worked rose 17.4 percent from 1972 to 1985, the last year for which complete statistics are available, he said. The national rate was 14.9 percent.

And, while most industrial sectors are being hurt by the recession, two of the largest areas of factory-based employment, food-processing and printing, continue to grow, he noted.

But others familiar with the industry warn that though some companies have emerged lean and strong from the 1980s, the sector as whole has weakened.

And the recession could end up driving away even previously strong companies, they fear.

Charles McMillion, an economist who studies the region's economy for the Johns Hopkins University's Institute for Policy Studies, warned that the recession is cutting important strands in the economic web that supports the manufacturing sector.

To survive, factories need parts, supplies and machines made ++ by other factories, Mr. McMillion explained, and "the supplier network for manufactured products is extremely weak and getting much, much weaker."

"When companies decide where to locate and where to stay, there are a lot of factors, but two of the primary ones are proximity to market and proximity to suppliers," he said.

He said he is confident that Maryland's manufacturing base won't disappear altogether but that it could be in for a long, painful contraction.

If Maryland's already smaller-than-average manufacturing base declines further, factories "could be discouraged from locating here and maintaining or expanding operations they have here," he said.

Jerry Doubroff, a vice president at Eastalco Aluminum in Frederick, said he also fears a "ripple effect" of factory closings and departures.

"More and more factories here are subsidiaries of national companies who won't hesitate to move" in response to higher costs in Maryland, Mr. Doubroff said.

"The Maryland manufacturing sector is not as strong as it has been. It continues to decline," he said.

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