Convention highlights booming economy

Montana is experiencing an economic boom of record proportions according to University of Montana professor Paul E. Polzin.

Polzin has profiled the state's economy for 25 years, and he compared the last three years to Montana's success in the late 1940s and 1970s. The professor and Sen. Max Baucus spoke during the kick-off luncheon for the Montana Contractors' Association's annual convention at the Red Lion Hotel in Kalispell.

"What has caused this boom is likely to continue," he said. "Most things in our economy deal with world economic conditions rather than just the United States."

The forecast for Montana's economy this time last year predicted 4.2 percent growth. Instead, 2007 posted 4.8 percent growth, and economists predict that 2008 will keep the 4-percent streak alive.

Polzin said that there are plenty of reasons for the experts to be more optimistic than a year ago.

First, the construction boom has remained strong, which is vital to Flathead County's economy. Construction and real estate slow downs across the country haven't hit the valley, but Montana could begin to feel the effects if economic factors cause people to forego all those Montana vacation homes.

Polzin said that although the construction industry faces certain risks, Montana's strong economy is based on numerous industries that are all performing well.

Second, world commodity prices remain high, which means companies in Montana are riding the wave of demand caused by countries like China that are developing at astounding rates. Although the focus has been on rising oil costs, metals such as zinc, copper and lead rose at much higher percentages.

In 2005, copper sold for $1.01 per pound. In 2006 it had reached $3.05.

"A year ago we were starting to worry we'd see a decline in these prices," Polzin said. "That didn't happen, and the longer these prices remain high, the better off we are. Even if the bubble does burst, we're looking at a return to the 2006 levels, not the 2005 level. We're still much better off than we were four or five years ago."

Strong wheat prices also provided a boost to the farming industry. Many farmers in Montana used the money to reinvest in equipment and property. The question is, are the high prices sustainable?

Polzin said the spike in prices was due to supply shortages elsewhere in the world.

"If the supply situation changes, high wheat prices might not stay up," Polzin said.

He did note that even if supply rises, the demand may increase in proportion, which would keep wheat prices high. Many underdeveloped countries are converting to Western diets, and that requires more wheat-based products.

Along with commodities and construction, Montana's economy is driven by tourism, mining, manufacturing of wood and paper products, agriculture and jobs with the federal government.

"Our strength is not based on one factor alone," Polzin said.

According to the professor, even if the oil and gas mining boom were absent, the economy would still be showing strong growth.

There are some areas of concern for Montana's economy, however. Wheat prices could fall, the housing market could stumble and finding a stable workforce is becoming increasingly difficult.

"I continue to be optimistic," he said. "There are certain sectors of the economy that will be slowed by the U.S. economy - wood products is a good example of that - but most of our growth is associated with strong demand conditions elsewhere in the world."

Polzin often pointed to China, India and southeast Asia as countries that are commodity driven while they develop. For example, manufacturing is 45 percent of China's economy while it is just 12 percent for the United States.

"It would take something significant like political upheaval in China to interrupt that," he said.

Before Polzin had the microphone, Sen. Baucus addressed the contractors and discussed infrastructure issues for Montana and the United States.

Two years ago, Sen. Baucus visited China and said that the government there is spending huge amounts of money to create the best infrastructure in the world. As the Finance Committee Chairman, Sen. Baucus spoke of his efforts to bring $3.9 billion to Montana through highway bills in 1998 and 2005.

"I take great pride in getting money for Montana," he said. "We're a highway state more than any other state, and Montana has been lucky that I'm there at the table to get these bucks."

Sen. Baucus said that he's a fair guy who believes in the 50/50 rule when it comes to funding.

"Fifty percent for Montana and 50 percent for the rest of the country," he said.

Reporter Michael Richeson may be reached at 758-4459 or by e-mail at mricheson@dailyinterlake.com