Economic Impact of Colorado Mining Employment is Significant

In October, the Bureau of Labor Statistics reported the Colorado Mining Sector employed about 35,000 workers, or about 1.4% of the state’s 2,534,600 wage and salary employees.

In 2014 the GDP for the Colorado Mining Sector was $19 billion, or 6.2% of the 2014 Colorado GDP. More importantly, the Mining Sector accounted for about 18.2% of the growth in the state’s GDP.

In a nutshell, mining employment is a small portion of total employment in Colorado. On the other hand, the industry makes a major contribution to the GDP.

The Oil and Gas Industry accounts for about 75% of the employment and GDP total.

With that as a background, it is easy to see why state leaders were concerned when the price for a barrel of oil plummeted to below $40 per barrel in a matter of months.

To make matters worse, the Bureau of Labor Statistics may have overstated employment in the Oil and Gas industry by as much as 4,000 workers. In other words, the data for the state does not appear to have measured the direct, indirect, and induced impact of lower employment caused by lower prices for a barrel of oil.

A quick analysis using IMPLAN shows the loss of 3,200 oil and gas workers and 800 support workers would result in a loss of $4.2 billion in economic activity and a total loss of 12,486 jobs. The direct average annual wages for the oil and gas industry are $96,425 and the direct average annual output per worker is $701,480.

The Bureau of Labor Statistics will update wage and salary data for 2015 in its benchmark revisions next March. At that point we will have a better look at the magnitude of the layoffs in the Mining Sector in 2015.

While we are anxiously awaiting the update, the reduction in mining employment is not a number we really want to see – it will be ugly!

mining impact

What Are the Real Challenges Facing the Extractive Industries?

The extractive industries have been a critical part of the Colorado economy for more than 150 years. The sector has been responsible for high-paying jobs in rural areas that have in turn stimulated growth in other sectors. In addition, the fuel, minerals, and metals have been utilized in ways that have improved our quality of life and made the United States a leader in innovation.

In 2014, the estimated value of the state’s extractive industries was projected to be $17.2 billion, broken down as follows:
• $7.0 billion – natural gas
• $6.7 billion – crude oil
• $2.2 billion – minerals
• $0.9 billion – coal
• $0.4 billion – carbon dioxide.

Despite its importance, the extractive industries have faced significant challenges.

“The Event”

For many years, the extractive industries were allowed to focus almost exclusively on extraction. Without regulation, pressure from industry members, or outside groups, insufficient attention has been paid to the impact of the extraction process.

This was evident when waste from Gold King Mine, near Silverton, recently spilled into Cement Creek. The plume of dirty, yellow water slowly made its way into the Animas River, which flows through Durango, Colorado and Farmington, New Mexico on its way to Lake Powell.

“The event” included a spill that contained a variety of pollutants and it was reported to be similar in volume to six Olympic- sized swimming pools. Within a week, the plume had passed through New Mexico. In Durango the pollutants either settled to the bottom of the river or the volume in the Animas River was great enough to dilute them or push them downstream. As a result, water tests indicated the concentration of pollutants had returned to acceptable pre-event levels – whatever that means.

The reaction to “the event” has been varied:
• Some think it is a disaster, catastrophe, and travesty.
• Initially, some were concerned because of the damage to the environment. As soon as the governor drank from the river, they rearranged their priorities and became concerned about the damage to local rafting companies and tourism businesses.
• Others have taken a wait and see attitude. They have asked, “What is the long-term damage?”
• There are a group of people who are focused on they blame game. They want to blame the mining industry, political parties, special interest groups, and government for “the event”. Others have gone so far as to speculate that “the event” was planned as a part of a conspiracy between the government and mining companies.
• From a historical perspective, “the event” is old news. For decades there have been pollutants in the Animas River as a result of runoff (Mother Nature) and leakage from mines. It wasn’t that long ago that the Smelter Mountain Mill, located in the south end of Durango, produced uranium for the Manhattan project.

Colorado Geological Survey

The website of the Colorado Geological Survey addresses the challenges they face in overseeing the industry.

“Prior to 1977 there were virtually no laws in the United States requiring that mines be reclaimed when mining was completed. Today the Colorado Division of Reclamation Mining and Safety is responsible for assuring that mined lands are restored under the Colorado Mined Land Reclamation Act and the Colorado Land Reclamation Act for the Extraction of Construction Materials. However, prior to those laws, when mining was completed, the companies just walked away leaving piles of waste and dug out holes. Thus, Colorado was left with an estimated 23,000 abandoned mine lands (AML).

Abandoned mines present very dangerous physical hazards to the public. High priority physical hazards identified by the Colorado Geological Survey for the USFS AML inventory are being jointly mitigated by the USFS and the Colorado Division of Reclamation, Mining, and Safety (DRMS). Mine workings are notorious for containing “bad air” including carbon monoxide, carbon dioxide, and hydrogen sulfide. These gases can kill unwary explorers of these old mines by asphyxiation. The old workings and structures can be very unstable and collapse without warning. Dangerous sites close to public access are being safeguarded through filling, capping, or gating the abandoned mine openings with engineered structures.”

Addressing the Challenges

Many in the state and the Four Corners areas will focus on the perspectives mentioned above.  The verbiage from  the Colorado Geological Survey shows this is not a simple problem, with a simple solution.

Colorado’s extractive industries are critical to the state’s economy and to the security and innovative leadership of the United States. Oil and coal are the backbone of the country’s transportation and utilities system. Rare and heavy metals are essential for the aerospace, biosciences, renewable energy, health care, transportation, defense, and environmental industries.

It is necessary for the country, including Colorado, to continue to drill for oil and gas and extract minerals and metals from the earth. Since 1977, government agencies and companies have been held to stricter standards for monitoring the impact of the extraction process. As has been recently demonstrated in Silverton, the efforts to monitor and manage pollutants are not perfect. The important point is that efforts are being made and they will be improved after “the event.”

With good fortune and sufficient funding, the state will remain diligent in its efforts to deal with the 23,000 abandoned mines.

Good luck to the local, state, and federal officials, agencies, companies, and special interest groups who will address the challenges facing the extractive industries in the years ahead.

Challenges Facing the Extractive Industries
The Animas River in Farmington, New Mexico as the plume of water from the Gold King Mine passed through town.

Mining Sector Largest Contributor to State’s GDP in 2014

In early June the Bureau of Economic Analysis released Gross Domestic Product at the state level for two-digit NAICS Codes.

Since 1997 Colorado Real GDP has grown at a faster rate than the Real GDP for the U.S. (Sum of States) in 11 of 17 years. The 2014 U.S. rate of growth was 2.2% compared to 4.7% for Colorado. The Mining Sector played a major role in Colorado’s higher rate of growth this past year.

Since 1997 Colorado Real GDP has grown at a faster rate than the U.S. (Sum of States), 2.8% vs. 2.1%.

There were 8 sectors that gained share in 2014, i.e., their percent of contribution to GDP was greater than their percent of the 2014 total GDP. Collectively, they accounted for 27.1% of the 2014 GDP and 46.5% of the change in the GDP.

The following table shows the sectors, their percentage of the 2014 GDP, and their contribution to the GDP.

Sector % of 2014 Total % of 2014 Contribution
Arts, entertainment, and recreation 1.3% 1.8%
Utilities 1.5% 3.0%
Management of companies and enterprises (MCE) 2.1% 2.9%
Transportation and warehousing 2.8% 2.9%
Accommodation and food services 3.2% 3.4%
Construction 4.4% 8.6%
Wholesale trade 5.5% 5.7%
Mining 6.2% 18.2%

Key points about the contribution of these sectors to GDP growth are listed below.
• The Mining Sector was the major driver in the growth of the state’s GDP, accounting for 18.2% of the change. Volatility in the price of a barrel of oil could potentially have a major impact on this sector’s level of contribution to the 2015 GDP.
• The contribution of the Construction Sector has been driven by a mix of sustained residential and nonresidential growth.
• The combination of the Arts, Entertainment, and Recreation and the Accommodation and Food Services sectors are commonly referred to as Tourism or Leisure and Hospitality. In 2014 the Tourism sector accounted for 4.5% of the GDP% and 5.2% of its growth. Tourism is an important part of the economy for each of the state’s 64 counties.
• The Utilities sector is small, but it experienced growth in 2014 because of strong overall employment and population growth. In addition, GDP growth increased because there was a significant gain in the number of business establishments in 2014.
• The increase in the MCE sector is a result of a 4.5% increase in the number of MCE establishments. In other words more businesses translated into greater GDP growth.
• Both the Wholesale Trade and the Transportation and Warehousing Sectors are small industries. In 2015 they experienced greater than usual gains in employment, which in turn meant stronger GDP growth.

With 4.7% Real GDP growth in 2014, the state economy had significant momentum moving into 2015. Through the first six months of the year, the state has capitalized on that momentum.

gdp gaining share - mining sector

Mining and Real Estate – Drivers of the Colorado Economy

Thank goodness for the  mining and real estate industries! From an output perspective these industries are the primary drivers of the Colorado economy.

In 2013, Colorado’s nominal GDP was $294.4 billion (most current data available). The state’s economy expanded by $157.1 billion between 1997 and 2013 (1997 is the first year that data was available). Between 2009 and 2013 the GDP expanded by $46.3 billion.

The Great Recession had a major impact on the way the economy expanded. This is evident when comparing the contribution to output for the periods 1997 to 2013 and 2009 to 2013.

Between 1997 and 2013 the contribution to GDP was broken down as follows:
• Goods Producing 20.5%
• Service Producing 68.6%
• Private sector (Goods + Services) 89.0%
• Government 11.0%

Between 1997 and 2013 the annualized rate of growth for the GDP follows:
• Total 4.9%
• Private 5.0%
• Government 4.1%

Between 2009 and 2013 the contribution to GDP was broken down as follows:
• Goods Producing 28.0%
• Service Producing 65.5%
• Private sector (Goods + Service) 93.6%
• Government 6.4%

Between 2009 and 2013 the annualized rate of growth for the GDP follows:
• Total 4.4%
• Private 4.7%
• Government 2.2%

Thank goodness for the Goods Producing Sectors (Agriculture, Mining, Construction, and Manufacturing)!

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
All industry total $294,443 $157,072 $46,266
Private industries $258,217 $139,860 89.0% $43,287 93.6%
Goods Producing $57,447 $32,144 20.5% $12,964 28.0%
Service Producing $200,771 $107,718 68.6% $30,325 65.5%
Government $36,226 $17,212 11.0% $2,979 6.4%

The following two tables provide more detail by industry.

The following table shows more detail by industry sector. It is sorted in descending order by the column 2013 minus 1997.

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
Real estate and rental and leasing $40,194 $21,355 13.6% $6,895 14.9%
Mining $19,848 $17,964 11.4% $8,518 18.4%
Government $36,226 $17,212 11.0% $2,979 6.4%
Professional, scientific, and technical services $26,355 $16,084 10.2% $4,233 9.1%
Information $21,578 $12,019 7.7% $1,407 3.0%
Health care and social assistance $17,438 $10,503 6.7% $2,262 4.9%
Wholesale trade $15,915 $7,818 5.0% $2,606 5.6%
Retail trade $16,105 $6,926 4.4% $1,965 4.2%
Manufacturing $21,600 $6,657 4.2% $2,171 4.7%
Finance and insurance $14,480 $6,067 3.9% $2,436 5.3%
Accommodation and food services $9,409 $5,255 3.3% $1,769 3.8%
Management of companies and enterprises $6,207 $5,106 3.3% $1,550 3.4%
Construction $11,820 $4,861 3.1% $208 0.4%
Administrative and waste management $8,653 $4,308 2.7% $1,090 2.4%
Transportation and warehousing $7,984 $4,094 2.6% $1,598 3.5%
Other services $6,549 $2,784 1.8% $605 1.3%
Agriculture, forestry, fishing, and hunting $4,179 $2,662 1.7% $2,067 4.5%
Arts, entertainment, and recreation $3,848 $2,029 1.3% $890 1.9%
Utilities $3,798 $1,782 1.1% $646 1.4%
Educational services $2,258 $1,588 1.0% $373 0.8%

The following table shows more detail by industry sector. It is sorted in descending order by the column 2013 minus 2009.

Industry 2013 GDP (millions) 2013 minus 1997 % of Total 2013 minus 2009 % of Total
Mining $19,848 $17,964 11.4% $8,518 18.4%
Real estate and rental and leasing $40,194 $21,355 13.6% $6,895 14.9%
Professional, scientific, and technical services $26,355 $16,084 10.2% $4,233 9.1%
Government $36,226 $17,212 11.0% $2,979 6.4%
Wholesale trade $15,915 $7,818 5.0% $2,606 5.6%
Finance and insurance $14,480 $6,067 3.9% $2,436 5.3%
Health care and social assistance $17,438 $10,503 6.7% $2,262 4.9%
Manufacturing $21,600 $6,657 4.2% $2,171 4.7%
Agriculture, forestry, fishing, and hunting $4,179 $2,662 1.7% $2,067 4.5%
Retail trade $16,105 $6,926 4.4% $1,965 4.2%
Accommodation and food services $9,409 $5,255 3.3% $1,769 3.8%
Transportation and warehousing $7,984 $4,094 2.6% $1,598 3.5%
Management of companies and enterprises $6,207 $5,106 3.3% $1,550 3.4%
Information $21,578 $12,019 7.7% $1,407 3.0%
Administrative and waste management $8,653 $4,308 2.7% $1,090 2.4%
Arts, entertainment, and recreation $3,848 $2,029 1.3% $890 1.9%
Utilities $3,798 $1,782 1.1% $646 1.4%
Other services $6,549 $2,784 1.8% $605 1.3%
Educational services $2,258 $1,588 1.0% $373 0.8%
Construction $11,820 $4,861 3.1% $208 0.4%

 

Colorado Outperforms U.S. in Real GDP Growth

Today the Bureau of Economic Analysis released its updated real GDP data by state for 2013. There were increases in 49 of the 50 states, with Alaska being the one state showing a decline.

In 2013 U.S. Real GDP growth expanded at a rate of 1.8%, compared to 2.5% in 2012. Private sector growth grew by 2.3% in 2013 compared to 3.0% in 2012.

In short, Colorado outperformed the U.S. in output growth last year. While the rate for the U.S. declined, real GDP growth for Colorado increased.

Nationally, the top six contributors to absolute growth were:

• Real estate and rental and leasing
• Agriculture, forestry, fishing, and hunting
• Health care and social assistance
• Finance and insurance
• Wholesale trade
• Professional, scientific, and technical services.

Combined, these 6 categories accounted for 53.6% of the change in U.S. output in 2013.

The Colorado Real GDP growth increased from 3.0% in 2012 to 3.8% in 2013. Real private sector growth expanded at a rate of 4.2% in 2013 compared to 3.4% in 2012.

In Colorado the leading contributors to absolute growth were:
• Mining
• Real estate and rental and leasing
• Professional, scientific, and technical services
• Agriculture, forestry, fishing, and hunting
• Construction
• Government.

Combined these six sectors accounted for 75% of the change in Colorado output in 2013.

There is a significant difference between the composition of the top contributors for the U.S. and Colorado. In part this helps explain why the Colorado economy has outperformed the U.S. economy over the past five years.

Note: There is a slight difference between the national GDP and the national GDP calculated as a summary by state outputs. Details are explained on the BEA website. Also, for methodological reasons, the contributions to absolute growth were calculated using the nominal GDP data.