2022 Business Year in Review: An Economic Slowdown

After 2021 shattered tourism records and housing prices skyrocketed as the pandemic triggered tremendous growth in the Flathead Valley, a tight labor market, a rise in interest rates and inflation brought an economic slowdown – but economists stop short of declaring a recession. Following a year of significant growth, 2022 also brought a decline in travel numbers at Glacier Park International Airport and northwest Montana’s tourism destinations reported a slowdown as a result of inflation and high fuel prices.

Housing Prices Remain High

Even before the pandemic, housing prices in the Flathead Valley and beyond were surpassing personal incomes and the region’s growth. In December 2021, Flathead County’s median home sale price was $635,000, according to Montana Regional MLS data. The Federal Reserve began raising interest rates in March and while median home prices reached $693,500 in June 2022, prices dropped to $625,000 in November. Since the interest rates started spiking this year, a 30-year mortgage rate now hovers between 6% and 7%.

“When you look at what happened over a five-year period, housing prices were going up and eclipsed the growth and income,” said Patrick Barkey, the director of the Bureau of Business and Economic Research (BBER) at the University of Montana at its annual economic outlook seminar in Kalispell in February. “Then the pandemic hit. The gates opened and everybody wanted housing.”

While housing demand is contributing to high prices, the construction industry continued to struggle with supply chain issues, a labor shortage and high material costs – delaying development and impacting prices.

Development demand was strong in 2021, especially in Kalispell, which saw almost twice as many building permits compared to 2020 after the city council voted to lower impact fees for developers. Multifamily development proposals skyrocketed in Kalispell and that momentum continued in 2022. Kalispell this year approved a controversial eight-story parking garage that will include multifamily housing and local developer Mick Ruis’ grain silo project has been chugging along all year to complete a restaurant and multifamily housing development along the Parkline Trail.

In January, Barkey and economists forecasted a slower but still above-trend growth rate for 2022 compared to 2021, but that growth dropped more than expected, and a sustained downturn is predicted through 2023.

“In early 2022 when we were here making a forecast, we were coming off an extraordinary fourth quarter and we forecasted 2022 would be another year of slower but above-trend growth,” Barkey said in August.

Montana’s Labor Market Remains Tight

In addition to skyrocketing housing prices, the tight job market has remained steady and while Montana added thousands of jobs, business owners still struggled to hire and many were forced to adjust operations and increase wages to attract workers, which also contributed to inflation.

Despite the workforce challenges, Montana’s gross domestic product (GDP) grew by 6.7% in 2021 – the fastest GDP growth since 1980, said Montana Department of Labor and Industry (DLI) Chief Economist Barb Wagner in August.

In 2021, about 19,600 jobs were added to 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, while GDP began to decline in 2022.

“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.”

Montana’s unemployment rate hit a record low of 2.3% in April, creating challenges for employers to find workers. But Wagner said a large chunk of the population is not 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, was 85% in 2022. Employees under age 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.

The sustained tight labor market led to a rise in wages to establish more attractive job offers, which was passed on to consumers and has contributed to inflation.

Although wages have increased, services like restaurants didn’t see as high of an inflation rate as goods, which Wagner described as significantly higher – meaning other factors contributed to inflation.

Last June, average fuel prices for unleaded gas in Montana hovered around $4 per gallon while diesel hit nearly $5 per gallon. The spike in prices meant higher transportation costs, which were passed on to goods.

COVID stimulus packages and the war in Ukraine also contributed to inflation.

Even as inflation and spiked interest rates slowed the economy down, economists say Montana’s market was strong this year compared to 2019. 

Sluggish Summer Travel

Glacier National Park and its gateway communities reported a downturn in tourism this year, which officials and business owners say was predicted and was likely a result of expensive airfare and high fuel costs.

According to data compiled by Glacier Country Tourism, the official tourism marketing organization for western Montana, the visitor-to-resident ratio fell from 2.02 in 2021 to 1.62 this year, meaning for every resident there were 1.62 nonresident visitors. That equates to 22% fewer visitors that came to Glacier Country in 2022 compared to the year prior.

Airline data also confirmed slower travel numbers with 64,526 total enplanements this July at Glacier Park International Airport compared to 72,683 during the same month in 2021. In 2019, there were 60,470 enplanements in July. 

The average gas transaction in Glacier Country jumped from $47 in 2021 to $63 in 2022, marking a 29% increase, while the average lodging daily rate spiked 11.6%, rising from $244 in 2021 to $274 in 2022.

“Everybody keeps talking about a big dip in our numbers this year, but if you look at historic visitation patterns, it’s not really out of line,” Glacier Park Spokesperson Gina Kerzman said this fall. “The summer of ‘21 was totally crazy, and the year before that we had half the park closed due to Covid. So, while I’m reluctant to say we saw a return to normalcy, we certainly weren’t alarmed by our visitation numbers slowing down a bit this summer.”

Outfitters in the Flathead Valley also say business dipped this year, and Glacier Guides owner Denny Gignoux said raft trips saw a 25% decline. He pointed to inflation and June’s historic flooding in western Montana, which deterred tourists.

In Whitefish, lodging occupancy in June declined 8.7% compared to the same month last year and it was down 3.5% compared to 2019, according to the Whitefish Lodging Report. In July, occupancy was down 11.5% compared to July 2021 and it was down 10% compared to 2019.

“The cost of travel in general is higher this year,” Whitefish Convention and Visitors Bureau Executive Director Dylan Boyle said this fall.