Economists Predict Zero Growth in 2023

As interest rates continue to rise and inflation remains high nationwide, Patrick Barkey, the executive director of the University of Montana’s Bureau of Business and Economic Research (BBER), predicts no statewide growth in 2023 followed by weak growth in 2024.

“The rural economy is slowing down and the Federal Reserve is stomping on the brakes,” Barkey said at the BBER Economic Summit in Kalispell on Feb. 7. “Maybe there will be a recession; after all, this has been one of the most advertised recessions in my professional life.”

While Flathead County generally follows statewide trends of stagnant growth, Barkey said industries like healthcare, construction, accommodations and food service are driving economic growth and remain strong locally compared to other counties in the state.

According to BBER data, the healthcare industry brought in just under $700 million in earnings in 2021, followed by construction with just over $400 million. Accommodations and food service also stand out, he said, which was twice as prominent in Flathead County as the rest of the state.

“Construction is huge because of your dynamic economy,” Barkey said. “Stuff is new here with commercial and residential, not to mention roads. Healthcare is big. It’s increasingly a much more mature healthcare market with specialty services bringing in patients from other regions.”

Flathead County rebounded quickly in 2021 with fast growth and tight labor market pressure, and with nonresident travel accounting for 21% of economic activity.

Gross domestic product (GDP) also rose in 2021, which Barkey attributed to construction and growth in the Flathead Valley’s tech industry.

Much of Flathead County’s growth in 2021 resulted from in-migration, and Bryce Ward of ABMJ Consulting presented how the “demand for Montana” surged since the pandemic began and how it impacted housing prices and infrastructure.

According to Ward, Montana’s net migration rate over a two-year period spanning July 1, 2020, to July 1, 2022, was 3.3 times higher than its average between 2000 and 2019 average, peaking in in 2021. He also noted that most of the in-migration population brought bachelor’s degrees with them.

While Montana has experienced booms and busts in the past, Ward says this boom is unique due to the widespread acceptance of working from home. From 2020 to 2021, 14% of non-migrants worked from home compared to 22% of in-migrants. Remote work has increased from an average of 5% of workdays to 30%.

Historically, job and housing availability dictated where people chose to live, Ward said, but remote work has changed that model of economics. As more people move to Montana, housing supply has shrunk – resulting in higher costs.

“As the technology changes and the work-from-home workers are here, it’s starting to shape Montana,” Ward said.

In-migration is also changing the share of high-income earners in the state, with 13.2% of in-migrants earning an annual salary of more than $200,000 compared to 8% of non-migrants.

In northwest Montana, home prices rose 68% from 2019 to 2022, according to the Federal Home Finance Agency House Price Index.

As wealthier populations migrate to Montana, Ward says the lower income workers are suffering the consequences.

“That fundamentally changes the composition of our population,” Ward said. “In particular, low- and middle-income workers typically get squeezed out. We’ve seen this in California for decades. So, you get a different but also potentially much larger change in the composition of Montana’s population.”

Ward said that, while the population boom does not come without growing pains, there are benefits to the growth, such as an increase in accommodations, competitive wages and more opportunity.

“But it comes with some costs,” Ward said. “We’ve got to figure out how to accommodate these additional people and we’ve got to figure out how to build stuff and supply the stuff that they need.”

Montana’s future is difficult to predict, Ward said, and he’s confident the demand for the state will fluctuate significantly in the coming years. Rising demand will also depend on supply – if supply rises with demand, then residents will suffer the consequences of a large population. But if supply doesn’t keep up with demand, residents will suffer the consequences of high costs.

“How this rising demand manifests itself in our lives is fundamentally shaped by how we decide to allocate scarcity and what we do to try and alleviate it,” Ward said. “When we think about that – there’s kind of two extreme paths that we can go. More people want to live here – demand is rising in Montana.”