Despite the economic and workforce challenges that Montanans have faced since the beginning of the pandemic, the state’s gross domestic product (GDP) grew by 6.7% in 2021 while employment has grown by 3.8%, Montana Department of Labor and Industry (DLI) Chief Economist Barb Wagner said July 28 at a chamber of commerce update at the Hilton Garden Inn in Kalispell.
“It’s the fastest GDP we’ve had since 1980,” Wagner said. “This is an amazing growth rate.”
In the years leading up to the pandemic, Montana saw an average GDP growth rate of 1.7%, Wagner said, steady growth but significantly lower than 2021.
Gov. Greg Gianforte highlighted the economic growth at the statewide chamber of commerce update.
“The economy grew at a rate not seen here in 40 years,” Gianforte said. “Montana is the seventh strongest economy in the country, and we have more Montanans working than ever before with 550,000 Montanans employed last month and we’ve recovered 146% of the jobs lost from the start of the pandemic.”
In 2021 alone, 19,600 jobs were added in the state at a 3.8% growth rate – three times faster than any year since 1976. All industries fully recovered since the pandemic began, and the rapid economic growth has led to strong consumer spending, supply chain constraints and inflation – with GDP declining in the last two quarters.
“The problem with having such fast growth is the economy is sometimes very, very challenged when it has to make quick changes,” Wagner said. “It’s more of a turtle than it is a rabbit, and it is hard for our labor markets and even our supply chains when growth ends up being so fast. Even though that growth was awesome and led to a huge amount of prosperity, there are some negative things.”
For example, Montana’s unemployment rate hit a record low of 2.3% in April, creating challenges for employers to find workers. Wagner said it’s also important to look at not only the unemployment rate but the labor participation rate.
According to DLI data, 62.5% of Montana’s population that is over age 16 is either working or looking for work.
“There are a lot of reasons for people to not be participating in the labor force and one of the biggest reasons is retirement … There are a lot more baby boomers than there are millennials and that’s why we have more and more of our population that are in retirement and not in the labor force.”
But workforce participation for 25- to 45-year-olds, the prime age for employees, is 85%. Employees under age of 25 took longer to recover following the pandemic because that age group tends to work very low wage jobs and they are the last age demographic to be inspired to return to the labor market, Wagner said.
Wagner predicts that by 2024, labor markets will loosen up when most of the baby boomer population will already be retired, causing aging population dynamics to change.
Despite employment growth, the labor market remains tight and has led to a rise in wages to establish more attractive job offers. The wage growth has passed on to consumers and has caused a spike in prices.
According to DLI data, Montana’s wage growth was the tenth fastest in the country, growing 5.9% from 2020 to 2021 with average annual wages increasing by $2,879.
But services like restaurants aren’t seeing as high of an inflation rate as goods, Wagner says, meaning there are other factors contributing to inflation, which was at 9.1% nationally in June, besides wage increases.
“Goods inflation is significantly higher than services and that means inflation is being caused by gas prices and transportation of goods more so than wages and the creation of those workers.”
Additionally, other factors like consumer spending, COVID stimulus packages, which contributed to 3% of the current inflation rate, and the war in Ukraine are causing inflation as it continues to keep fuel prices high globally.
Even as inflation and spiked interest rates slow the economy down, Wagner says Montana’s market remains strong compared to 2019, and she doesn’t foresee a recession despite two consecutive quarters of negative GDP growth.
“We have lots of cushion and we’re looking for continued growth that I think is the most likely outcome here and we will see continued growth that’s just a little slower than in the prior few years,” Wagner said.