The West is Back, Economists Say

By Beacon Staff

Echoing local optimism about an expanding economy, state analysts are encouraged by Flathead County’s quick recovery and see 2014 as a potential “breakout” year.

Declines in the Western Montana economy are over as metro areas are once again making a contribution to statewide growth, according to economists from the University of Montana Bureau of Business and Economic Research.

“The vigorous oil-related growth in the east continues, but the big news in the 2014 outlook is that declines in the west are over,” Patrick Barkey, director of the BBER, told more than 200 people who attended last week’s 39th annual Economic Outlook Seminar at Kalispell’s Hilton Garden Inn.

Flathead County has recovered quickly from a sharp decline during the Great Recession, but the overall economy made solid gains in 2013 and appears poised for even more growth this year, Barkey and others said.

“Construction has begun to inch upward, rekindling of home building nationwide is slowly bringing the wood products industry back to life, the improved U.S. economy has meant renewed growth in nonresident travel and better worldwide economic trends have improved conditions in high-tech manufacturing,” said Paul Polzin, director emeritus of BBER.

Polzin said home construction should keep growing, though it won’t likely return to pre-recession levels in 2014. The emergence of Kalispell as a regional trade and service center has added an additional dimension to the economic base of Flathead County, he said. The most recent data suggest that the heath care industry now attracts more dollars than it sends to other medical centers, such as Missoula and Great Falls. There is also evidence that more Canadians are crossing the border for elective procedures, Polzin said.

Flathead’s nonfarm labor income is projected to rise 2.9 percent in 2014.

The biggest story in the state continues to be the roaring oil development on the eastern part of the state.

Measured once again by growth in real wages, the state’s two fastest growing urban areas are Gallatin County (Bozeman) and Yellowstone County (Billings). Bozeman has enjoyed growth related to the housing recovery and university- and tourism-related spending.

Yellowstone has benefited from the boom in oil production in the Bakken.

Barkey predicted this year could become a “breakout” one for the Flathead, and Montana as a whole. The national economy could surprise everyone with a year of significant growth, and faster growth in consumer spending could give Montana an extra boost, particularly in tourism. Barkey predicts Montana’s economy will outperform the nation’s.

Here are a few snapshots of Montana sectors:

Montana attracted 11 million nonresident visitors in 2013, a 2 percent increase over the previous year, according to the latest figures from the University of Montana Institute for Tourism & Recreational Research. Visitors spent roughly $3.5 billion overall, including 20 percent more per day, or $162, in the third quarter from July to September. Among visitors surveyed, 72 percent said they appreciated Montana’s scenic driving opportunities, 49 percent enjoyed wildlife watching and 48 percent were interested in nature photography. The government shutdown in October did have a dampening effect; national park visitation was down 63 percent, Amtrak ridership sunk 7 percent, airport deboardings dropped 6 percent and the percentage of hotel bookings dipped 5 percent.

Heavy rains blanketed the state last May and June, replacing ongoing worries of drought with near record crop and livestock production across the state. The state’s growth revenue estimates increased for a fifth consecutive year and jumped 7 percent over 2012 to a record $3.1 million, according to Montana State University’s Department of Agricultural Economics. As a whole, the financial stability in the nation’s agriculture sector is increasing farmland values and cash rents in Montana. Yet the state’s farmland values increased 3.8 percent last year, lower than the national average of 9.4 percent. The farm debt-to-asset ratio had declined steadily since 2008 and is expected to fall to 10.2 percent, its lowest level since 1960. Cash receipts are expected to increase by 2-3 percent this year, but could be offset by higher cash expenses. Grain and cattle prices are expected to remain above long-run historical averages. The demand for Montana’s high protein wheat and high quality barley will remain strong, according to analysts. Livestock producers are anticipating higher prices driven by lower cattle numbers. With record prices, livestock producers are becoming increasingly concerned about domestic and international demand.

The manufacturing sector has experienced three consecutive years of improvement, each year outpacing the previous in employment, worker earnings and outputs, according to the BBER. It remains an important piece of the state’s economy, providing jobs with higher than average wages.

Employment numbers were estimated to be 22,100 last year, nearly 3,000 more than in 2010. The state’s total worker earnings were estimated to have grown 6 percent last year, topping $1.1 billion.

Flathead County had the second largest manufacturing sector in the state behind only Yellowstone. Flathead had $163 million in worker earnings in 2012, 10 percent more than in 2010.

Wood, paper and furniture accounted for the largest specific portion of the state’s manufacturing industry and experienced a 1 percent decrease in employment last year with roughly 4,158 jobs.

Forecasters predict a positive outlook for Montana’s manufacturing industry in 2014, expecting higher sales, increased production levels and greater profits among most of the sectors, according to the Bureau of Business and Economic Research. Many manufacturing employers are predicting increased employment, however health insurance cost was rated as the most important issue.

Forest Products
As housing starts increased more than expected in the fourth quarter of 2012 and first quarter of 2013, lumber and structural panel prices reached a five-year high in March and April. Mills across the U.S. ramped up production and lumber prices climbed steadily from their June 2013 low. For all of last year, average lumber and other major wood prices were the highest since 2005. Montana’s forest industry enjoyed continued improvements and gradual recovery. Lumber production was up roughly 4 percent and wages were up 3 percent, according to the BBER. The average number of mill workers increased roughly 2 percent. Sales value of the state’s primary wood products was estimated to be $614 million, up roughly $56 million, or 10 percent, from 2012. The state’s timber harvest volume remained low, though, with roughly 365 million board feet, the same as 2009. The state’s industry continues to struggle with raw material availability due to very low timber harvest levels. In fiscal year 2013, National Forest System timber harvest volumes in the state were 10 percent lower than 2012. Widespread mountain pine beetle mortality and ongoing environmental litigation have hampered the U.S. Forest Service’s timber production, according to the BBER. Yet members of the state’s forest products industry have a positive outlook for the coming year, analysts say, as markets keep improving and the housing recovery gains further ground. Availability of timber will be the major challenge, according to the BBER.

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