HELENA - Montana economists say after several years of rapid economic growth in the state, signs are pointing to a change.
The University of Montana’s Bureau of Business and Economic Research (BBER) presented its midyear economic outlook Wednesday morning at the Best Western Premier Great Northern Hotel in Helena.
“The view out the rear-view mirror is fantastic — what a great year it’s been!” said BBER director Patrick Barkey. “What’s ahead is what the problem is – that’s what we’re worried about; we don’t see it as clearly.”
Barkey said the last year brought strong gains in income for Montana, thanks partially to the recovery of the service industry. He said the state’s employment numbers have recovered to their trendline from before COVID-19, and wages have actually increased – even when adjusted for inflation.
Those increases contributed to strong growth in state tax collections, though Barkey said he didn’t expect that to continue into future years.
Barkey said the growth has been unbalanced, with much of it focused in areas like Gallatin and Flathead counties. He reported the real wages in Lewis and Clark County actually declined in 2021, which he attributed partially to the waning of federal stimulus money.
Barkey had predicted continued strong growth through 2022 in his economic outlook presentation this winter, and he said Wednesday that what he called a “growth stall” came sooner than he was expecting.
He said he doubted the current slowdown would qualify as an official recession because industrial production and consumer spending are continuing to go up, but he said it does appear the fastest growth is past.
“The ice for continuing even positive growth, let alone remarkable growth, is getting very thin for the national economy,” he said. “The challenges are stacking up. We’ve had challenges of workforce housing, inflation, and now we’re having more challenges come in from interest rates.”
Barkey said the Federal Reserve is right to increase interest rates to attempt to slow inflation, but he argued they haven’t done it quickly enough and he questioned whether they’ll have the political will to continue increases.
Montana continues to have one of the highest rates in the U.S. of people moving in from other states. Barkey said that’s had benefits for the economy, but it’s continued to put pressure on the housing market.
Barkey said specific data also shows a more complicated picture. For example, Gallatin County has continued to see more people moving in than out overall, but that has been driven by migration from outside Montana. Since 2017, more people have left Gallatin County for other Montana counties than come in from elsewhere in the state.
“That’s interesting because it suggests that the housing price situation in that county is having an impact — as I think it’s having pronounced impacts all over,” said Barkey.
Barkey pointed to building permit data from across the state, showing that the number of new single-family homes hasn’t increased significantly in the last few years, but there does appear to be a big jump in multi-family construction.
Also during Wednesday’s event, Simona Stan, a professor of marketing at the University of Montana, presented on the ongoing supply chain issues that have contributed to long waits for certain products. She said complex globalized supply chains have had positive effects on the economy — as long as demand has stayed predictable.
That changed during the pandemic when demand for consumer goods jumped significantly. Stan said the major increase in e-commerce played an especially big role, as online retailers handle warehousing and logistics differently than other businesses.
“In the short term, we see a leveling of the situation — shorter delivery times, so things getting slowly back to normal,” she said. “Are they going to be back to normal like 2019-normal this year? No. Are they going to be back to that stage in the first six months of 2023? Well, that is what people expect, but we’ll see if that’s really true.”
Stan said there has been a lot of discussion about “reshoring,” or bringing manufacturing back to the U.S. However, she expected it was more likely production would shift away from China toward other low-cost countries. Still, she said it might make sense to consider reshoring for some critical products.
“This is not going to be the last pandemic, right?” she said. “Other things are going to happen in the future.”
BBER is delivering this midyear update in seven Montana cities this week. They also visited Great Falls on Wednesday and will appear in Missoula and Kalispell on Thursday.