After a predicted recession never came to fruition last year, economists at the University of Montana’s Bureau of Business and Economic Research (BBER) say that the Flathead Valley will follow state and nationwide trends of slow economic growth looking forward in 2024.
At the 49th Annual Economic Outlook Seminar, which was held on Feb. 6 at the Wachholz College Center in Kalispell, BBER Director Pat Barkey said the Federal Reserve has succeeded in making a “soft landing” after bringing inflation down to 3.4%, as of December 2023, from its 9.1% peak in July 2022.
“A lot of us said the Federal Reserve could not do what it apparently just did and that it actually accomplished bringing down inflation a lot … without tanking the economy. That’s what you call a soft landing,” Barkey said.
In addition to his forecast of sluggish economic growth over the next year, Barkey highlighted the persistent tight labor market, which he said adds strains to small business owners in Montana. The labor shortage especially impacts the construction industry, and even as wages and salaries increase, Barkey says it remains challenging for companies to recruit workers as development demand stays strong.
Flathead County’s population surge is a main driver of the growth in the construction industry, economists say, and the housing supply remains low.
During the height of the pandemic, Flathead County added the most residents among Montana counties, gaining 3,089 residents between 2021 and 2022, according to data from the U.S. Census Bureau.
“What’s really been propelling growth is the population and in-migration – it’s showing up in construction and it’s still showing up in housing,” Barkey said.
But since Montana’s in-migration has slowed since its peak, BBER Research Economist Derek Sheehan said the construction industry has also been depressed. That slowdown has resulted in fewer homebuyers as current homeowners hesitate to list their properties in order to protect their current low mortgage rates.
“We’re seeing a pullback in building activity and that’s sort of a broader trend but it’s also particularly acute in the state of Montana,” Sheehan said. “We’ve seen regional migration slow.”
While demand remains strong, Sheehan said it has receded from its pandemic peak, with home prices falling in 2023, the average days on the market trending up and the volume of sales increasing over the last year.
“That’s the story of why prices declined,” Sheehan said. “This is a change that actually does make the market more affordable.”
For example, since Flathead County’s median sales price peak of $690,000 in July 2022, it has dropped to $579,950 in January 2024. The average days on market rose to 127 in January 2024 from its lowest point in August 2021 of 74 days, according to Montana Regional MLS data.
Looking ahead, economists expect mortgage rates to range between 3% to 6% in the next year.
Samuel Scott, a forest economist at BBER, said demand for wood products, which makes up 12% of Flathead County’s economy, is depressed right now because housing construction is closely tied to interest rates.
According to BBER data, Montana’s primary sales totaled $371 million in 2023 while there was $639 million in 2022. Timber harvests, too, are declining for the fifth year in a row.
“2023 was a slower, less volatile year,” Scott said.
A tight labor market has impacted the lumber industry and experts say the shortage of loggers will likely continue to persist, which impacts timber harvests.
“In Montana, all of our loggers and haulers are working at capacity,” Scott said. “You won’t find a logger out of work.”
Like the wood products industry, the healthcare sector, which makes up 17% of the Flathead’s economy, is also facing severe workforce challenges and as demand rises, the post-pandemic labor market has not recovered in the same way as other industries have.
“The big story has been the labor market and staffing issues have really been profound,” Barkey said.
As the need for healthcare continues to rise with an aging demographic, the industry faces growth challenges because providers can’t find workers. The shortage will most severely impact rural areas where hospitals already struggle to recruit employees.
According to the American Association of Colleges in Nursing, there was a 17% decrease in the 2022-2023 enrollment at nationwide four-year nursing schools.
Touching on the tourism industry, where non-resident travel makes up 21% of the economy, Institute for Tourism and Recreation Research Director Melissa Weddell said the outdoor recreation economy continues to thrive in Flathead County and in gateway communities adjacent to Glacier National Park.
The 2022 economic impact of outdoor recreation nationwide was $1.1 trillion, with the employment of 5 million jobs.
According to 2023 business survey results, 42% of business owners reported an increase in visitor volume while 27% said it remained the same in the state. In Glacier Country, 33% of business owners surveyed expect an increase in 2024.
Weddell said that while business is expected to stay steady, she acknowledged the winter drought has likely impacted ski resorts this season and could affect outdoor businesses that rely on higher water levels this summer.
“I think it’s pretty positive,” Weddell said. “We need more snow and rain, but business will stay steady and business owners have a positive … there’s always environmental and economic concerns.”
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