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Weekly UpdatesMontana's economic outlook has darkened during the past year as a national economic slowdown concentrated in a few industries (most of which aren't important here) spread to more and more sectors (some of which are important here). The Bureau slightly lowered its forecast at midyear 2008 to account for the deterioration then present. The current forecast (Figure 6) calls for barely positive growth in 2009, with modest accelerations to 2.2 percent in 2012.
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The blows to the Montana economy include (in rough order of appearance):
* Closures and shutdowns in the wood products industry.
* Construction plummeting and real estate stalled, with Missoula house prices now turning negative.
* Announced closing of Columbia Falls Aluminum Company.
* Wheat prices plummet. Agriculture's record revenue growth confined to a single year.
* Plunging metal prices lead mines to issue precautionary layoff notices.
* Announced layoffs in high-tech and other manufacturing industries.
The house price bubble is bursting in Montana, but the impacts so far are not as disastrous as elsewhere in the nation. Single family house prices in Montana eked out a 0.3 percent increase from the fourth quarter of 2007 to the fourth quarter of 2008 (Table 1). Nationwide, house prices declined 4.5 percent during the same period. Missoula County was the only major urban area to post a decline--house prices decreased 1.0 percent from the fourth quarter of 2007 to the fourth quarter of 2008. We do not, however, have data for the highflying housing markets in Gallatin and Flathead counties because the U.S. government does not publish that information. House prices increased 0.5 percent in Cascade County and 3.6 percent in Yellowstone County between the fourth quarter of 2007 and the fourth quarter of 2008. In every case, there has been a significant deceleration in house prices. For example, the Yellowstone County change in house price decelerated from 9.0 percent to 7.2 percent to 3.6 percent between 2005 and 2008.
In addition to the events in the basic industries, there is now an additional negative factor impacting Montana's economy--abysmal consumer sentiment. As shown in Figure 2, Montana's Consumer Sentiment Index has consistently been above U.S. index since 2003. But, the December 2008 figure for Montana is an all-time low since it was first calculated in 1982. The downward trend in Montana consumer sentiment since late 2007 has mirrored national trends. This erosion in consumer sentiment helps to explain the weakness in November and December data for certain retail trade sectors in Montana.
The Bureau's forecasts are summarized in Figure 6. We are currently anticipating that Montana's economy will grow about one half of 1 percent in 2009. Depending on the risk factors mentioned below, the actual figure could turn out to be a decline of one half of 1 percent. We are sure of one thing, however: 2009 will probably be the worst year for the Montana economy in decades. The last year the state's economy grew less than 2 percent was 1996, and the year 1988 was the last year we posted a decline.
The Bureau believes the Montana economy will follow the national economy and begin to recover in 2010 when the projected growth is 1.3 percent. Notice that the overall projected rates of growth in 2010, 2011, and 2012 are generally less than those of 2006 and 2007. The growth in 2006 and 2007 (as well as the years before) was buoyed by the unsustainable bubbles in construction and real estate. It will be many years before these sectors eliminate the current excess supplies and return to "normal."
There are a number of risks to the forecast. First of all, there are always concerns about the weather, insects, and volatile agricultural incomes.
Secondly, the actual 2009 outcome will depend on how many more layoffs and closures are announced and whether or not they actually materialize. It could be that the commodity price decline is now over and some of the mining layoffs may be delayed or cancelled. On the other hand, the state's small but important high-tech manufacturing industries may be facing further difficulties, as they did during the 2001 recession. High-tech manufacturing is concentrated in Flathead County and the Bozeman area.
Thirdly, the financial gridlock may worsen. U.S. credit flows have dried up and this suggests a dearth of investment spending in the future. This will impact Montana as well as the rest of the nation.
Finally, the U.S. recession may get even worse. If the malaise spreads to more sectors of the national economy, some of these impacts will be felt here in Montana.
Missoula County
The economic slowdown began earlier in Missoula than in other counties and is likely to last longer. The shutdown of the Stimson plywood plant in mid-2007 blunted the positive impacts of the Direct TV call center opening. The delayed impacts of the plywood plant closure, combined with the further closing of the Stimson sawmill and other events, led to the small decline in Missoula's economy during 2008. The bad news was not confined to wood products. Missoula continues as the dominant trade and service center in western Montana, but the opening of chain stores and other establishments in nearby communities has meant that retail trade is no longer a significant contributor to Missoula's economic growth. Even health care and professional services are not growing at their historic rates. Missoula is the only Montana metro area to experience house price declines (Page 7, Table 1). Wood products jobs will not return, and the outcome of the competition with other communities is uncertain. Missoula's economy is projected to grow about 1 to 2 percent per year, well below 2 to 3 percent between 2002 and 2005.
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Flathead County
Flathead County was one of the fastest growing areas in Montana. But repeated blows during 2008 resulted in a 1.1 percent decline in the overall economy. First came the collapse of the high-flying construction and real estate industries. Then there was a seemingly endless series of cutbacks and shift reductions in the wood products industry. The national economy took its toll on the nonresident travel industry. During late-2008 there were further announcements of layoffs and cutbacks in manufacturing industries and nearby mining operations. Still to come is the looming possibility of a final shutdown of the Columbia Falls Aluminum Company. On the positive side, the evolution of Kalispell into a regional trade center continues to be one of the major contributors to growth in the economic base. After the negative figure in 2008, the Flathead economy is projected to recover relatively quickly, reaching 4 to 5 percent growth by 2012.
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Butte-Silver Bow County
The worldwide energy/commodity boom had significant impacts on the Butte-Silver Bow economy, as illustrated by the 5 to 6 percent growth during the 2004 to 2007 period. Future economic trends depend crucially on events in the mining industry. Our forecast assumes that the Montana Resources mine will remain open but that the employee bonuses will decline as lower prices for copper reduce profits. If there are mining layoffs or the mine itself closes, our forecasts for 2009 and beyond are probably too optimistic. The good news is that the trade center components (retail and services) continue to grow, reflecting Butte's continued development as a regional trade and service center.
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Cascade County
The Cascade County economy will be among the least impacted of Montana's major urban areas by the current recession. Malmstrom Air Force Base (including both civilian and military workers) accounts for almost one-half the economic base in the Great Falls area, and stable or slightly increasing staffing levels lends stability to the local economy. Weaker construction and real estate, along with declines in financial services, led to the sharp deceleration in growth during 2008. House price increases have slowed but are still heading upward (Page 7, Table 1). Great Fails continues as the dominant medical center in North Central Montana, but recent growth in this sector has moderated. Projected overall growth in the next four years is likely to average less than the last few years because the post-Sept. 11 build up of federal civilian and military employment will not be repeated.
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Lewis and Clark County
The current recession will likely have a relatively small impact on the Helena-area economy. State and federal government workers account for almost 65 percent of the economic base in Lewis and Clark County, and government employment is traditionally less cyclic. A potential state government pay freeze in response to reduced tax revenues may reduce the growth rates in 2009, 2010, and 2011 but then increase the rate in 2012 and later as "catch-up" raises are approved. Although the Helena area never experienced the house-price bubble of other areas, the sharp acceleration in 2007 and then the slowdown in 2008 was mostly due to construction and real estate.
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Yellowstone County
A slowdown in the natural resource industries is likely to have a "double whammy" on the Yellowstone County economy. First of all, Billings is the dominant trade and service center in the region. Layoffs or closings in Richland or Stillwater counties will be quickly felt by local suppliers and other firms serving the rural areas. Secondly, even though there are few mines or drilling rigs in Yellowstone County, many energy and natural resource-related headquarters and management personal live in and near Billings. The forecasts do not incorporate actual shutdowns and closures, but should they occur, the projections may be too optimistic. Retail and service establishments in Miles City and Bozeman continue to provide stiff competition. Although house prices remain relatively strong (Page 7, Table 1), the negative growth in 2008 (and also 2009) reflects significant declines in construction and real estate employment and earnings.
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