Oregon Office of Economic Analysis

Today we learned that the NORPAC sale to Oregon Potato Company fell through and that NORPAC would be shutting down both its Brooks and Salem facilities, in addition to the previously announced closure of their Stayton facility. All told 1,400 jobs are being lost, which any way you slice it is a big number. If we look at food manufacturing in the Salem MSA, on an annual basis employment totals about 4,500 jobs. Now, there are still big seasonal swings where the industry goes from around 6,000 during peak season to more like 4,000 during the rest of the year. But when such large losses are concentrated in a specific industry and in one regional economy, the concerns mount.

Losing a job and having to find another one usually results in lower wages, at least initially, as part of worker pay is not just overall experience, but within firm experience (length of tenure). On the brighter side, it is relatively easier to find a job today when the labor market is tighter than it is during a recession when there is more competition for fewer job openings. But layoffs, closures, and transitions are never easy. The Salem economy is about to have another 1,000 job seekers with similar skill sets searching for employment during the holidays.

Now, we had some inkling that there was trouble within the food industry even if we could not pinpoint what was going on. Starting about a year ago, we saw declines in weekly hours worked. We have imperfect data, but what we could tell were the drops were seen in food manufacturing and were outside of the Portland region. These declines did not appear to be trade war related, as the timing does not line up neatly nor were there declines in durable manufacturing hours worked at the time either. Now, we have seen durable hours worked decline in 2019, and we think some of that is trade war related. But back to food.

The hard thing to know was whether these hours worked declines meant there were underlying issues, or if it was volatility in the data. At the time, and even so far in 2019, the food manufacturing industry overall was adding jobs. We flagged the hours worked issues with our advisors a few times, but kept our outlook intact given employment was growing. Clearly there was something else afoot and we are adjusting our forecast accordingly ahead of next week’s forecast release.

As we discussed last year, Oregon’s food economy has been doing quite well over the past 10-20 years. The cluster is growing quickly, and outpacing growth in most other states as well. In particular, the employment gains in food processing had been robust. During a time period (2005-2018) when Oregon lost nearly 10,000 manufacturing jobs on net, the gain of 12,000 jobs among food and beverage manufacturers was a key reason why the state didn’t see larger losses.

The largest drivers of these gains have been breweries and fruits and vegetables. However the growth has been across all sub-sectors and regions of the state. The processing segment of the food economy in Oregon had grown to around 2% of all such jobs nationwide, and it’s local industry concentration was 50% larger than it was nationwide (location quotient of 1.5). And while wages aren’t high, the pay does tend to be better in processing — the value-added part — than it is in the distribution or service segments of the food economy.

As always in these types of situations, the question is whether or not the closure is a firm specific issue, an industry specific problem, or a harbinger of macroeconomy problems. I won’t pretend I have the answer right now. And even though I am not aware of similar announcements elsewhere in the industry, only time will tell.

Finally, the food industry has a fairly large presence throughout the Pacific Northwest. Expectations today are that local crops will be sent to other facilities, maybe (probably?) those in the region for processing and packaging. This will require reworking the local supply chain to get goods to market. These transitions are also not costless and not always easy, however local farmers should be able to find buyers for their commodities.