The “quiet” recovery of the oil industry is the biggest story for Montana in 2017, according to Patrick Barkey, director of the Bureau of Business and Economic Research (BBER) of the University of Montana. A second big story has been the budget woes of State government, and a third was the devastating fires, the real impacts of which are not yet reflected in much of the data used by BBER in gauging the status of the state’s economy.
BBER gave an overview of that economy at the end of January, during their annual Economic Outlook Seminar. The seminar is presented in several Montana communities, featuring a number of different presenters.
The economists predict growth for the coming year to be 2.4 percent, as measured by nonfarm earnings.
“It looks like the Montana economy has dusted itself off,” said Barkey. Montana experienced only moderate growth over the past couple of years, due to declines in worldwide commodity prices, droughts and fires. 2017 was a reasonably good year, just not quite as good as was expected. Growth that was projected for Montana a year ago at 2.5 percent, came in at only about 1.5 percent.
There was quite a surprise in that for state government, and something of a mystery. Montana state government experienced surprisingly low tax revenues in 2017. A special session of the state legislature was called to deal with the problem.
Montana saw strong job growth in 2017, and wages increased, but there was less income. “Why did Montana’s economy demonstrate such restriction in growth even with job growth? That is the question,” pondered Barkey.
The answer seemed to be that while many aspects of the state’s economy fared well over the past couple of years, Montana’s small business owners have not. According to Barkey, “the production related income of sole proprietorships, partnerships and tax exempt cooperatives sharply contracted by 6.6 percent in calendar year 2016” and perhaps well into 2017. Data is not yet available for 2017. Also, income from royalties, interest and rent came in low at 0.2 percent in 2016.
Otherwise 2017 was a year of reasonably good wage growth. In fiscal year 2016-17 wages paid to payroll workers were more than $800 million higher than the previous fiscal year. For each of the past three years in Montana wage growth has remained between 3.2 percent and 3.5 percent.
Payroll jobs increased by 5,000 in 2017, and unemployment remains low across the state.
While a few years ago, rural, eastern Montana counties were growing at unprecedented rates, outpacing the more populated counties in more western areas of the state, growth has reversed back to more historical trends in which the growth is occurring most rapidly in the population centers. Reversing that trend was a decline in oil prices and the gradual recovery of western Montana counties from the Great Recession.
As oil prices begin to climb upward so does the economies for some of Montana’s eastern counties, but research shows that those economies were not as negatively impacted as first thought by the drop in oil prices. While there were layoffs and wage declines, the number of jobs leveled off considerably higher than before the oil boom. According to Paul Polzin, BBER Director Emeritus, “…workers have lost only a portion of their wage gain.”
The number of jobs in Richland County during the first three months of 2017 was 12.5 percent higher than the corresponding period in 2007, before the boom began . . . more than double the statewide growth of 5.7 percent during the same period.” At the peak of the boom Richland County had employment of 6,900 – that number seems to have now stabilized at between 5,300 – 5,500.
The state has suffered from one of the most intense and all-encompassing droughts in history, which contributed greatly to the wildfires. George Haynes, Department of Agricultural Economic & Economics MSU Extension, said, “I’ve never seen anything like this in the years I’ve worked in Montana agriculture.”
For Yellowstone County the story is a mixed one. It is projected to grow 3.1 percent in terms of earnings in 2018.
The county did not do as well as some counties in 2017, with growth of 1.4 percent. It has borne the brunt of the national downturn in transportation and wholesale trade. It is also recovering from the 2014 slump of the Bakken because of low oil prices.
But, in Yellowstone County all wages were either at the state average or above. According to Barkey, the county’s growth is not likely to exceed the state average in years ahead.
One of the barriers standing in the way of growth for Yellowstone County is housing and rent prices that are outpacing incomes, making it difficult to attract labor. While home prices increased faster in other counties, as well, Yellowstone County jumped 16.6 percent. Housing prices are down from recent peaks but continued increases are not expected to slow much.
Contributing the most to growth in Montana has been health care, fueled by Medicaid expansion. Also, financial activities, real estate and professional services, led by strong tech-related expansion.
Construction and manufacturing grew slower, “due to a wind down of industrial construction projects in Billings and the continued restraint in single family home building.”
Retail and wholesale trade suffered somewhat from on-line competition.
Wage declines for oil and gas slowed down as modest improvements came for the oil and gas industry, and there were modest improvements in wages for mining.
Rail and transportation made very modest improvement after dropping significantly three years ago.
Agriculture is still struggling from low grain and cattle prices, drought and fires, but data is not yet available regarding its losses in 2017, but “the losses suffered by owners and families promises to be substantial.”