FEELING THE EFFECTS

December 24, 1998

Jeffrey Kaye of KCET-Los Angeles reports on how one community is feeling the impact of Asia's continued economic problems.

PHIL PONCE: We begin tonight with a look at how the Asian economic crisis is hitting the United States for better and for worse. Jeffrey Kaye of KCET-Los Angeles reports from Provo, Utah. JEFFREY KAYE: This Christmas season is more difficult than usual for the Sperry family of Provo, Utah. Mike Sperry, father of two boys, has been out of work since September. To keep busy Sperry fixes cars out of his home. These days he's mostly in his garage, instead of the steel mill or he worked for 20 years. MIKE SPERRY: It's tightened up big time. I mean, when you're used to eight/nine hundred every two weeks, bring home -- take home pay, you know, to pay your mortgage and utilities, and food, and things like that - you really tighten up when it goes from that to $284 a week. JEFFREY KAYE: That's unemployment? MIKE SPERRY: Yes. That's the unemployment. JEFFREY KAYE: Sperry is one of 800 people to have lost jobs at Geneva Steel. That's 30 percent of the mills workforce. Geneva dominates the Utah Valley landscape 40 miles south of Salt Lake City. Until fairly recently when the area became home to many high-tech companies, steel production drove the local economy. The area is about as far away as you can get from Asia, culturally as well as geographically. Remote, the Utah Valley is surrounded by mountains and a lake. Its population is predominantly white and Mormon, but its economy buffeted by Asian financial storms is a reminder of the interconnectiveness of global finances, according to University of Utah economist Thayne Robson. THAYNE ROBSON, Economist, University of Utah: Geographical isolation is now what he used to be - that is, with modern technology and transportation, information economy, the real question is: Are there any isolated places left on the globe? JEFFREY KAYE: And Utah -- says Robson -- is feeling the effects of a wide trade deficit, as troubled nations sell more goods and services to the U.S. than they buy. THAYNE ROBSON: Many are experiencing recessions, as in the case of Japan, and consequently, they are trying to work their way out of their difficulties by exporting more goods and services to the strongest market in the world, which is the United States, and of the same time they're curtailing their purchases from American firms. JEFFREY KAYE: Case in point -- the American steel mill industry. Geneva Steel, where Mike Sperry worked, is the largest steel mill west of the Mississippi. Like other U.S. steel producers, it's spacing stiff price competition from abroad. The U.S. steel industry has complained foreign steel producers are selling steel for less than across them to make it. In last quarter Geneva lost $15 million. Timothy Clark, Geneva's vice president of manufacturing, says the price of steel plate - Geneva's main product - fell 60 to 70 dollars a ton, 15 percent, in the last few months. TIMOTHY CLARK, Vice President of Manufacturing, Geneva Steel: The surge of and imports has blasted our markets. Our pricing's gone south, volume's gone south, and basically we're subsidizing the poor performance foreign economies. JEFFREY KAYE: How so? TIMOTHY CLARK: They got themselves into situation where they weren't consuming their own steel, so that steel has come to America's shores in an attempt to find a new home. JEFFREY KAYE: In short, the global supply of steel is greater than the demand, so the price is down. Geneva has cut its production by two-thirds. TIMOTHY CLARK: The worst noise, I guess, at a steel mill is no noise, and this place is awfully quiet right now, which is not a good thing. It's not what you want to hear. JEFFREY KAYE: The story is much the same at the other end of the industrial revolution; in order to make computer memory chips, Micron Technology built a $600 million factory in the Utah Valley. That the plant is unfinished and the buildings are virtually empty. Micron vice president Kipp Bedard, standing in what was supposed to be a high-tech factory, says foreign oversupply has led to a price drop in memory from $50 a chip to $2. KIPP BEDARD, Vice President, Micron: And because we're in a commodity business, in order for us to sell product to the same customer base that our competitors do, we have to match those prices. JEFFREY KAYE: And? KIPP BEDARD: Well, we have, but what it's done is taken us from a profitable situation to the most severe losses that we've seen in our history as a company. JEFFREY KAYE: The U.S. government estimates that 200,000 manufacturing jobs have been lost since March. It's not just the companies, themselves, that are affected in the global economic turmoil; there's been a ripple effect throughout the Valley. Business for the truckers that ship Geneva's steel is off, as it for the company's other suppliers. Projects and services that expected to benefit from Micron's expansion have been placed on hold. Suppliers of farm equipment and chemicals are also hurting, as agriculture feels the pinch. SPOKESMAN: Agricultural prices are very much depressed. The loss of foreign export markets to Asia has -- in the efforts of foreigners to import agricultural commodities -- farmers have had their incomes reduced substantially because of the decline in prices that have resulted from this - in this particular area and in parts of the West the apple growers have been hit quite hard. JEFFREY KAYE: Prices for apples have declined so much the Utah Valley the Ercanbrack Brothers are plowing under acres of 16 year old apple trees. At current prices they figure it would cost more to care for and harvest the apples than they could make selling them. This year, they've let 120 acres of apples rot, 120 out of a total of 180 acres. Randall Ercanbrack reckons there are $2 million worth of rotting apples in his orchard. RANDALL ERCANBRACK: It just breaks my heart to see apples - you know - on the ground. And I've sprayed this all season; I've watered it; and I've pruned it last year; and I've gotten no money at all for what I've done. And it just gets you in the heart. JEFFREY KAYE: In a nearly empty packing shed Randall's brother, Sheldon, filled gift boxes purchased by a local bank for its customers. SHELDON ERCANBRACK: We would probably have around 35 people in this building - three or four out here and the rest in the packing area working today. Today we have none. JEFFREY KAYE: One person who has work is Haley Ercanbrack, Randall's 16-year-old daughter. She's needed every day after school. HALEY ERCANBRACK: Because I'm his daughter and the - if he hired somebody else, he'd have to pay them more, and me, I'm just here because I want to be, and to help out my dad. JEFFREY KAYE: Global economic conditions may have resulted in bad news for American producers of goods trying to sell the merchandise, but for consumers looking for bargains, it's another story. In furniture, in toys, and in clothes, shoppers, such as Haley Ercanbrack, have found that prices this holiday season have been flat compared to last year. HALEY ERCANBRACK: Actually, last week I bought a dress for a dance. JEFFREY KAYE: Uh-huh. HALEY ERCANBRACK: It was about $40 and sold regularly $80 - really good sales. JEFFREY KAYE: ZCMI, Utah's biggest department store chain, recently locked in prices of Asian made merchandise for next year. Buyer Joe Frodshom says he's made good deals with his suppliers. JOE FRODSHOM, Buyer, ZCMI Department Stores: I think in most cases the price range will be 10 percent lower than the we've been getting. JEFFREY KAYE: Why? JOE FRODSHOM: They need cash flow, and they need to keep on going. JEFFREY KAYE: Will you pass the savings along to the customers? JOE FRODSHOM: Absolutely, because you would be kidding yourself. The competition will, and we definitely intend to. JEFFREY KAYE: Already, prices of computer goods are down significantly because of cheap foreign components, and while price decreases threaten U.S. manufacturers, they've helped consumers in some U.S. businesses. The Utah Valley is a hub of high-technology. One of the area's largest employers is Novell. The company makes network software, programs that enable computers to hook up to each other. ERIC SCHMIDT, Chairman and CEO, Novell: And from this site here Utah we manage all of our networks. JEFFREY KAYE: Eric Schmidt, the firm's Chairman and CEO, says cheaper prices for computers and memory chips, none by the acronym DRAM, are good for his business. ERIC SCHMIDT: As United States prices for DRAM and the computers that are around them get lower, more and more people buy computers, which is good for us, because our software runs on his computers. JEFFREY KAYE: In addition, says Schmidt, he sees an improved market in Asia for his network software. ERIC SCHMIDT: Asia has many, many computers, but most of them have not been networked. Once those computers get networked together, the company can take its business processes and make them more automated. JEFFREY KAYE: Generating more business and more jobs for Novell, the Asia crisis is also helping at least one local car dealer. The Korean-made Hyundai Sonata is selling for $750 less than last year's version. That's a result - says dealer Ted Lassetter - of the devalued currency. TED LASSETTER: Their economic demise has become our economic boon and has increased our fortune - that they're able to do a lot more things when you're talking about the dollar versus the wan, and so - JEFFREY KAYE: The Korean currency. TED LASSETTER: The Korean currency. So their situation is such that we're able to benefit from it. JEFFREY KAYE: Some short-term benefits may have long-term consequences for the U.S. The American auto industry is having to compete with cheap cars from Korea. TED LASSETTER: They want to put them in to this market and increase their sales dramatically. That puts a downward pressure on the price of automobiles generally. They do not have a very large share of the American market, but they're trying to increase their share at the expense of other manufacturers of automobiles. JEFFREY KAYE: For now, U.S. made cars for selling well. In particular, sales of gas and guzzling sport utility vehicles and light trucks have benefited from relatively low gasoline prices, another byproduct of global economic conditions - reduced demand in Asia has led to an increase supply. Low interest rates on loans, spurred in part by the Asia crisis, have helped not only car dealers but also home buyers and the construction industry, were some laid off steel workers have found employment. Mike Sperry believes he has a future in automobiles; he studying to become a transmission mechanic and perhaps open his own shop. He is aware of the national trend reflected in the Utah Valley that workers who lose jobs in manufacturing have a hard time finding comparable paying jobs elsewhere. Jobs are plentiful, but wages are low. MIKE SPERRY: You can go out and find menial jobs - five, six bucks an hour -- they're handing them out right and left. Me, personally, would rather tighten the belt - so to speak - extremely tighten the belt, maybe sell a few things, just really watch were every dime goes, go back to school, get some advanced technical training, and then go out the market, because I know the market that I'm going into is there. JEFFREY KAYE: Sperry's optimism is not shared by many American unions and businesses facing stiff competition from abroad. There's a growing national debate over whether or not tariffs and quotas are necessary to protect U.S. industries - even in once remote areas like the Utah Valley, where international trade policies have very local consequences.

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