The puzzle of the Montana economy

You wouldn’t think that the economy we all live and work in would be such a mystery. Especially in this information age. Yet the state of the state economy — and especially for Montana’s cities and communities — can be frustratingly hard to assess sometimes. And this may be one such time.

On the one hand — as economists are famous for saying — we have the sudden and surprising weakness in state government tax receipts. General fund tax revenue for the last complete fiscal year more closely resembled a recession year than a year of continued growth. It wasn’t just energy-related revenue, which was down sharply. Income tax receipts, the mainstay of Montana tax revenues, were virtually stagnant.

But when you look at jobs and the labor markets around the state, the picture brightens considerably. The latest monthly estimate of unemployment across the state stood at just 4.0 percent, well below the national rate. At a time where state revenues were faltering, Montana employers kept hiring, and tighter labor markets were pushing up wages.

The Devil in the Details

It will take time to sort it all out, simply because the most reliable, most complete information on the economy of the state and its regions won’t be released for several months yet. But this much we do know — it is the changing pattern of growth, not fluctuations in growth itself, that has served up this puzzling, two-sides-of-the-coin, story of statewide economic performance. We need to understand better what is driving growth around the state if we are to make sense of how we are doing.

That’s a pretty tall order for a half-day program devoted to the state economy — such as our very own Outlook program we’re taking around the state this month and next — much less a brief newspaper column. But there are some bottom line observations we can share here.

It’s not just Montana — the nature of U.S. growth has changed as well. The force putting wind in the sails of the economy today is coming from consumers. Income growth, better job security, and an improved debt situation are coaxing all of us to borrow more and spend more, on everything from home improvement to travel. The spark of growth from things like energy development and exports to customer abroad has been dimmed by the commodity bust and the strong U.S. dollar.

The geographic patterns are changing as well. One of the biggest changes has been the emergence of Bozeman. The Gallatin County economy is just 12 percent of the state total, yet this single county accounted for almost half of all wage growth in the entire state in the first half of 2016. Growth there is being propelled by a lot of things, but one that stands out is less familiar to other Montana communities — the emergence of tech-related businesses in software and specialty manufacturing.

Other parts of Montana are performing well also, especially in the western part of the state. But there is no mistaking in the tax collection numbers the painful evidence of retrenchment in key segments of Montana’s economy that have helped carry growth in the past. Energy price and production declines factor heavily into state revenue collections, but so do the declines for both payroll workers and business proprietor incomes related to the oil bust. These setbacks have had an outsized influence on the total tax base, since their wages are substantially higher than average.

A newer curve ball to another important Montana industry comes from declining grain and beef prices. Events in the marketplace have pushed global production levels up to finally end an impressive run of higher prices, and plunging receipts for Montana agricultural mainstays like wheat and calves will put more financial pressure on Montana ag producers in the coming year.

One sector of the state economy that is growing still qualifies as a disappointment, namely, the construction industry. The rate of residential home construction, in particular, has pushed up impressively in the last two year, but remains much lower — by half or more in many parts of the state — than the building levels of the previous decade. With housing prices growing faster than incomes in many of Montana’s cities, the sluggish pace of building promises more of the same.

Disappointment is a word that has been much used when describing the economy, both in Montana and across the country. Growth has not been up to the standard of previous economic expansions, without doubt. Faster growth would help us individually and collectively pay for everything from housing to retirement, and there are plenty of challenges requiring attention and resources ahead.

But consumer-led growth in the world’s largest economy is really nothing to complain about. Consumers in Montana and the rest of the country are spending more because they have more income, more confidence, and more ability and willingness to borrow. It’s showing up in visitor spending in Montana’s parks and tourist destinations. And it creates opportunities for businesses to grow and expand. Unless and until global markets smile on prices for our energy, natural resources, and agricultural products, it will have to suffice.

Barkey is director of the Bureau of Business and Economic Research at the University of Montana. The bureau’s economic outlook session will be held in Kalispell on Feb. 7. For more information visit www.bber.umt.edu .