Economic review from Bureau of Business and Economic Research

By Patrick Barkey

Bureau of Business and Economic Research at the University of Montana

After the oil and commodity boom, Montana’s economy is evening out.

“The big story is Montana’s economy is coming into balance both geographically and across industries,” said Patrick Barkey, director of the Bureau of Business and Economic Research at the University of Montana.

“Three or four years ago, conditions were right for more rapid growth in rural counties –  primarily eastern counties – than in the bigger cities,” Barkey said. “Now the more populous western counties are growing again as migration trends resume and income gains make consumer spending stronger.”

This theme is contained in the latest issue of BBER’s Montana Business Quarterly, a magazine that provides accessible and reliable information about Montana’s business and economic climate.

The latest issue contains a question-and-answer segment with Montana’s top economists, covering a wide range of economic areas such as agriculture, energy, manufacturing, housing, tourism and health care. In that piece, senior economist Kyle Morrill said, “Economic growth, along with low interest rates, is spurring demand for housing” in Montana.

The issue also spotlights the outlooks for farming and ranching, forest products, oil and natural gas, manufacturing, real estate and construction, and technology and innovation. Insights suggest the real estate and construction market remains strong, agriculture prices are falling back to earth, and Montana manufacturing has seen a year of change.

BBER has provided full range of survey services for more than 35 years. Highly skilled bureau researchers use advanced data collection systems and techniques to offer broad-based survey services for public- and private-sector studies, including survey development, data collection, analysis and report writing.

Established in 1948, BBER is the main research unit of UM’s School of Business Administration. It informs Montanans about the economic climate in which they live and work. In addition to conducting its Economic Outlook Seminars across the state each year, BBER researchers engage in a wide range of applied research projects that address different aspects of the state economy, including survey research, economic analysis, health care research, forecasting, wood products research and energy research.

Montana joined the list of 31 states who have adopted some form of Medicaid expansion under the Affordable Care Act when the Montana legislature passed SB 405 in May, which extends the health benefits of the federal-state program to families earning up to 138 percent of the federal poverty line.

The expansion, which will expire in 2017 unless renewed by a future legislature, is currently taking enrollees and is expected to begin coverage in January 2016. The fall in grain prices, most notably wheat prices, became more pronounced in 2015, effectively bring to an end a nearly seven-yearlong run of above average prices. Lower exports caused in part by a higher dollar and strong wheat production abroad helped end an era that helped Montana farmers and the communities that depend on them thrive. NorthWestern Energy, the state’s largest investor-owned utility, completed its purchase of 11 hydroelectric dams once owned by its nowdefunct predecessor, Montana Power, from the company that had acquired them, PPL Montana (now Talen Energy). Even after the Confederated Salish and Kootenai Tribes exercised their option to purchase one of those dams – the 194-megawatt Kerr dam – in September 2015, the purchase moves NorthWestern much closer to being able to meet its customers’ daily electric energy needs with its own generation assets.

The slowdown in oil- and gas-related energy activity, which began with the big declines in crude oil prices at the end of 2014, continued. Drilling rig counts fell to near zero in eastern Montana, and to less than half of 2014 levels in North Dakota. As of mid-December, crude oil prices have moved below $40 per barrel, more than 60 percent lower than the triple digit prices of early 2014. The U.S. Environmental Protection Agency announced its final rules as part of the Clean Power Plan aimed at reducing greenhouse gas emissions from electric power plants. Montana’s emissions rate target for year 2030 is 44 percent lower than the 2012 baseline rate, which is a larger reduction than any other state.

 If you pay close attention, you will notice that almost all economic forecasts have two things in common. 

Recessions are much less common than growth, after all. But those forecasts are usually accompanied by a second item – a long list of things that could make those fundamentally optimistic forecasts go awry.

There was no shortage of things to worry about last year when we looked ahead to forecast how the Montana economy would perform in 2015 – especially for energy, mining and farming businesses. Yet even though these obstacles to growth were real, the strength in other parts of the economy was strong enough to overcome them, and the state economy went on to post a very good year. Complete data for the calendar year won’t be available for several months, but in the fiscal year (FY) 2015, the state economy was up over 6,000 jobs and by more than $600 million in wages and salaries compared to the previous fiscal year.

The job growth is in line with the previous three years, but wage growth in FY 2015 was more than twice as strong as 2014. Together with falling unemployment rates and surging tax revenues, 2015 was shaping up to be a year that saw the Montana economy operate much closer to full capacity.

FYI

For more information or to subscribe to the Montana Business Quarterly, visit BBER at http://www.bber.umt.edu/ or call 406-243-5113.