UM Economists Predict End to Recession this Year

By Beacon Staff

The recession in Montana will bottom out in 2009 and the economy will begin to improve, according to two economists at the University of Montana, but that recovery will be slow and gradual over the coming years.

Patrick Barkey and Paul Polzin, economists for UM’s Bureau of Business and Economic Research, commenced the mid-year update of their economic outlook speaking series in Kalispell Thursday, sponsored by the state Chamber of Commerce, where they told the crowd gathered that while Montana and the rest of the nation will begin to see signs of an economic rebound this year, Americans are going to save more of their income and new home construction is unlikely to return to 2005 levels any time soon.

“The U.S. recession will end this year,” Barkey, director of the BBER, said. “But really, growth is not going to appear normal going out to 2010.”

Instead, Barkey described, “the new normal,” resulting in “a very restrained recovery, not taking us any place anywhere near where we were.” Barkey predicted personal savings rates, currently around 6 percent, will plateau at roughly 3 percent – still higher than what Americans saved in the years leading up to the recession.

“Spending is going to be ratcheted downward permanently,” Barkey said. “Personal savings rates have changed dramatically.”

Housing starts, currently at 30 percent of 2005 levels, will eventually climb back up to about 60 percent to 70 percent of new home construction during the boom years.

“It’s hard to overstate the decline in housing activity that we’ve seen,” Barkey said. “There’s going to be a lot less froth in the housing market.”

Consumer confidence is on the rise and the effects of the federal stimulus legislation are just beginning to be felt in state and local economies, Barkey said, but warned the federal deficit and trade imbalances will loom over any recovery.

In previous lectures, Barkey and Polzin have maintained that Montana would remain, in some ways, isolated from the national recession, but in their most recent talk, they acknowledged the effects of the current recession have been more severe in the state than any downturn since the early 1980s. Still, Montana’s projected job loss rate – down 2.2 percent by the end of the recession – is one of the lowest in the nation. That decline, however, has hit hardest in Northwest Montana.

“Here in Kalispell, the hurt you are feeling is real,” Polzin said. “Kalispell and Flathead County probably is the epicenter of the recession here in Montana.”

From 2001 to 2007, non-farm income in Flathead County rose 5 percent, second only in growth to Gallatin County with 5.8 percent, and both well above the state average of 3.6 percent. That’s a stark contrast to the losses suffered from the fourth quarter of 2007 through the fourth quarter of 2008, where income in Flathead County fell 4.1 percent; Gallatin dropped 4.8 percent, and the state average dropped 0.4 percent.

But housing was clearly a big part of that growth, and the subsequent decline. When Polzin and Barkey subtracted out construction, Flathead’s income only dropped 2.5 percent between the end of 2007 and 2008. In that same time period, counties where government is a major employer fared far better than elsewhere. In Cascade County, home to Malmstrom Air Force Base, income grew at a rate of 2.9 percent; in Lewis and Clark County, income rose 5.9 percent. Hill County’s income rose 6.6 percent over that year.

From a high of 6.3 percent growth in 2006, the analysts predict Flathead County’s non-farm labor income will decrease 2.2 percent in 2009, and grow 1 percent next year. Flathead County income growth in 2012 is projected at 2.5 percent.

The effect of the current recession on the Flathead’s major industries remains varied. Tourism income is down this year, Polzin said, though the National Park Service has reported healthy visitation numbers. The Flathead continues to grow as a trade center, where people travel to shop or receive medical care. And it’s unclear whether the Columbia Falls Aluminum Company will continue operating.

But it’s no surprise to Flathead Valley residents that the biggest “structural” change Polzin observes in the local economy is the shuttering of five sawmills. Unlike Gallatin County, which saw much fewer permanent job losses over the last year, the loss of jobs in Northwest Montana’s timber industry have created a void that will likely prove difficult to fill.

“It’s going to be smaller; it’s not going to come back and you’re losing good, high-paying jobs,” Polzin said. “Everybody’s going to be recovering pretty slow.”

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