About six months ago, the economic outlook for Montana said it was going into 2017 with less momentum, and growth would reflect the rather lack luster of 2016. An update, at mid-year, indicates the prediction is on target.
Of greatest concern this year is weak earnings by business owners, said Patrick Barkey, director of the Bureau of Business and Economic Research, which along with the Montana Chamber of Commerce, presents an annual tour to numerous cities regarding the status of the state’s economy, mid-year.
While the job market in Montana is good – unemployment stands at a low 4.5 percent— and while wages and salaries are going up in Montana, recent data stirs concern because it indicates that businesses are suffering weaker earnings. Proprietors of unincorporated businesses are paying themselves less.
Weaker earnings means lower income tax revenues for the state, and since this is an “income tax state,” said Barkey, “that matters.” Montana’s personal income tax revenue collections have been flat for three years running, due to declines in natural resource industries such as oil and coal, and because of a struggling agriculture economy.
Just this week, getting less revenue than anticipated so far this year, Governor Steve Bulloch announced $97 million in cutbacks over the next two years in state spending and hiring.
Why business owner earnings are off is still to be determined. It could be that business owners are deferring earnings until some future point, in anticipation of lower federal income taxes, as President Donald Trump and Congress have promised. It could be a matter of other costs to the bottom line, imposed by the ramp- up in regulations on business, which reached an all- time high over the past couple of years. It could be a combination of both.
The matter is clearer in regard to farmers and ranchers. They have seen an especially large decrease in earnings, because, said Barkey, Montana is experiencing low crop prices and drought. Montana has had the biggest drop in farm earnings of any state from 2015 to 2016 of 71 percent. The industry has suffered nationally as well, but the average decline has been about 40 percent.
Fires that raged through the mid-northern part of the state at the same moment that the BBER economic researchers were touring the state, will most certainly make a bad ag situation worse. Claiming over 400 square miles of crop land and killing livestock, and leaving farmers without resources going into the winter, is creating a disastrous hit for that segment of the state’s economy.
With the decline in coal and oil production wage growth has shifted from the eastern part of the state back to the more traditional trend of growth in Western Montana. The top two counties fastest growing counties over the past two years has been Gallatin and Flathead Counties, which jumped 9.2 and 6.7 percent, respectively, each year. But, even their growth has slowed over the past year, according to Paul Polzin, director emeritus of the University of Montana’s Bureau of Business and Economic Research.
Polzin also noted that while unemployment is low, so is the number of employed in Montana. It is at its lowest level since the 1970s, due in part to the past recession and perhaps also due to the retirement of baby boomers.
Polzin warned that we may be due for another recession, since recessions seem to occur at 10-15 year intervals.
Darryl James, executive director of the Montana Infrastructure Coalition, discussed Montana’s need for infrastructure, an issue addressed by the Montana State Legislature in imposing a new gas tax to help fund infrastructure improvements in the state.
He advised the state to find new sources of revenue to build infrastructure, but cautioned that there is no “automatic connection” between infrastructure spending and economic growth.