Forecast: No Bust Yet

Big Sky Economy Still Chugging Along

By Robert Struckman, 8-08-08

High transportation costs have pushed prices up across the board and made Montana consumers feel like losers, yet the state’s economy—and those all-important employment numbers—will continue to grow, said Tobias Madden of the Federal Reserve Bank in Minneapolis in a mid-year sum-up.

When forming the core of his analysis, Madden considers the state’s two main economic forces: natural resources and the natural amenities, which drives tourism, in-migration, cross-border trade and related industries.

“You have some other small pockets, manufacturing and so on. But those two are the big drivers,” he said.

Here’s how the analysis works. He looks into each segment. For instance, agriculture depends on input costs and output prices as well as Mother Nature. Will it be a good crop this year? Yeah. Maybe not as good as last year. But sales will be good, probably. There are higher input costs, yeah, but will those shrink margins too much? It won’t be too bad this year. So that’s OK. It’s not as big a yield or a margin as last year, but it’s helping the overall economy.

Then he goes down the list. Oil and gas, for instance, are still very strong. Mines are profitable, even though commodity prices have dropped a bit. They’re still producing as fast as they can. However the aluminum smelter in Columbia Falls (which laid off its workers earlier this year) suffered from high utility prices.

Cross-border trade is going well.

How’s tourism? It’s pretty solid this year. Not too many fires to drive them away.

In-migration? Those people yearning for the good life? That’s still coming along, although it’s softer than it has been.

So then considers the risks.

If there’s no more rain, you don’t have crops. Commodity prices for metals could drop so much that it’s no longer profitable to mine. Oil and gas prices fall so you don’t explore so much. There’s no snowfall, so ski areas don’t get anything, or it might not be cool to live in Montana anymore, if the jet-setting crowd finds it more favorable to go to Wyoming.

“You’re still in the boom cycle. The big question is, when is the boom going to be over, and is it going to be gradual or a big bust?” he said.

The next couple of years look OK, although not as good as at the beginning of the year. Still, Montana is better off than most of the rest of the nation. Madden expects 1.6 percent growth in employment, quarter over quarter, which should lower Montana’s unemployment rate (which is about 4.1 percent) to about what it was last year, (3.1 percent).

“Montana’s still moving along, but not as fast as it had been in the past,” he said.

Finally, here are a few other pieces worth noting.

With high inflation in China and high transportation costs, domestic manufacturing has been competing favorably against the Chinese and other distant competitors. Warehouse demand in California is down, for instance, while some manufacturers in Minnesota have seen more work. Still, America is importing more than its exporting, but the gap is narrowing, he said.

(As an aside, cheap goods from China have made Americans feel better off in recent years. More domestic manufacturing may help with jobs, but it won’t produce the same low, low prices. It’s always a trade-off, Madden said. Winners and losers. For more on this stuff, check out the Minneapolis Fed’s newspaper, the fedgazette.)

Toby Madden will be speaking more in-depth with two other economists on the future our real estate market at the upcoming Real Estate and Development in the Northern Rockies conference in Missoula in late October. Click here for more details.

Like this story? Get more! Sign up for our free newsletters.