2017 Economic Round Table

This year, the Bureau of Business and Economic Research traveled to nine cities across Montana to deliver its annual assessment of economic activity in the state. The 2017 Economic Outlook Seminar covered a wide range of sectors and topics from job growth to energy and tourism. In this round table discussion, we highlight some of those topics and industries in an effort to better understand the state’s economic climate.

Nation, State and Local

Patrick M. Barkey is director of the Bureau of Business and Economic Research at the University of Montana.

Q: Why did Montana tax revenues fail to grow last year and was there a recession?
The state’s general fund revenue collections of $78 million (3.6 percent) in fiscal year 2016 was the kind of decrease you would associate with a recession. But Montana is not currently experiencing a recession. Growth slowed substantially across the state, especially in Billings and the east. What dragged down overall revenue were two business taxes. The corporation income tax, which is largely paid by only a handful of companies, collected $54.3 million less last year and oil and gas production tax receipts suffered a $34.1 million decline. The loss in oil and gas tax receipts was primarily driven by price movements.

Q: What is driving U.S. economic growth right now?
It may be easier to note what is not contributing to growth. Exports, for instance, fell by 3.6 percent last year due to a strong dollar and weak economic growth abroad. Business spending is also holding us back. Three years ago, especially during the oil boom, investment spending was a big plus; now it’s falling back. In this era of high-tech devices, business productivity is also down. What is working is consumer spending. Thanks to job growth, income growth and an increasing willingness to borrow, consumer spending has consistently grown over the past three years.

Q: Are some parts of Montana faring better economically than others?
The most recent data show pretty big disparities in growth between different parts of the state. Gallatin County, which accounts for about 12 percent of the entire state economy, was by itself responsible for 46 percent of the growth seen over the first half of last year. The growth pattern of 2015 was a bit more balanced than that, but there’s no question that Gallatin County has been the growth leader in recent years, which has been fueled by high tech, manufacturing and visitor spending. The next tier of growth is in Missoula, Flathead and Yellowstone counties. Those areas are performing better than the state average. Growth is lower in Cascade and Lewis and Clark counties, with growth in Helena remains restrained after some strong years associated with stimulus spending after the recession.

Agriculture

George Haynes is a professor and agricultural policy specialist in the Department of Agriculture Economics and Economics at Montana State University.

Q: Commodity prices have fallen sharply, particularly for wheat and livestock. Are Montana farmers and ranchers financially prepared for the coming year?

Low commodity prices for grain (wheat and barley) and livestock (cattle) have caused financial challenges for many producers. Wheat prices have declined nearly 40 percent and cattle prices by more than 50 percent since January 2015. For well-established farms and ranches these low commodity prices are simply a bump in the road, but for more aggressive producers, who borrowed money to expand during the near record grain and cattle prices of 2013 and 2014, low commodity prices are very challenging. In short, expansion has caused a short-term cash flow problem for some producers.

Q: Will commodity prices bounce back or can we expect them to stay at lower levels for years to come?
Long-term commodity price projections report stable-to-slightly higher wheat and cattle prices than those experienced in 2016. The near term challenge for wheat producers is the enormous quantity of wheat available (stocks) and projections of higher stocks in 2017. The near term challenge for cattle producers is the impact of increased production on already low calf prices – expected to increase by 3 percent or more this year. In addition, the strong dollar is putting pressure on both grain and cattle markets making our grain and cattle expensive exports for foreign buyers.

Energy

Terry Johnson is director of natural resources and energy research at the Bureau of Business and Economic Research at the University of Montana.

Q: How do low energy prices and production factor into the recent weakness in Montana state tax revenue?
State tax revenue can be difficult to understand because of how that revenue is distributed under state law. For example, oil, natural gas and coal taxes are distributed to a number of state accounts (bank accounts) that do not directly impact the general operating account (general fund) of the state. However, when examining natural resource tax collections in total – regardless of how the funds were distributed – the reduction is in excess of 62 percent from fiscal 2008 to 2016. This means that state and local governments have about $231 million less tax revenue today.

Q: Is there evidence that activity in the Bakken formation is improving now that crude oil prices are back up?
Based on actual oil production and price data reported to the Montana Department of Revenue, oil production has declined every quarter since the fourth quarter of 2014. Fiscal 2016 second quarter production declined nearly 25 percent from fourth quarter 2014. This is six quarters of consecutive decline in production. In addition, there are no oil rigs operating in Montana at this time – the last operating rig was in November 2015.

Health Care

Bryce Ward is associate director and director of health care research at the Bureau of Business and Economic Research at the University of Montana.

Q: Are health care outcomes different in Montana than other places throughout the country?
Health outcomes in Montana are excellent. Life expectancy at age 40 is well above the U.S. average and most Montanans enjoy between 0.6 and 2.3 additional years of life expectancy. Fifty-five percent of Montanans report being in very good or excellent health – this ranks No. 14 among all states. We enjoy low obesity rates (No. 3), low heart disease rates (No. 6) and low rates of cancer deaths (ranks No. 13). But Montana is not perfect. The state ranks last in suicide rates, the rate of pertussis infection (whooping cough) and 47th in excessive drinking.

Q: How much of the recent growth in health care is related to Medicaid expansion in Montana?
During 2016, enrollment in Montana’s Medicaid expansion program exceeded expectations – over 60,000 enrolled. 2016 also saw a surge in health care employment in the state. After a couple of years of relatively slow growth, health care employment grew by more than 3 percent. It is unclear though the extent to which these are related. Nationally, the first year of Medicaid expansion was not consistently associated with a surge in health care employment. Some states that expanded Medicaid saw employment changes, some did not. Health care expenditures nationally increased in 2014 and 2015. However, in Montana large increases in premiums suggest that other forces may be affecting health care spending.

Manufacturing

Paul E. Polzin is director emeritus of the Bureau of Business and Economic Research at the University of Montana.

Q: What products are seeing the strongest performance in manufacturing?
Fabricated metal products have been the fastest growing component of manufacturing, led by new firms in Cascade and Missoula counties. ADF International (modular buildings) and Loenbro (pipes and pipelines) opened new facilities north of Great Falls and Harris Manufacturing (thermal products) recently located to the former mill site east of Missoula in Bonner. Alcoholic beverage producers have also increased. From 2010 to 2015, there were 46 new distilleries, wineries and breweries throughout Montana. Overall, manufacturing is growing. From the depth of the Great Recession in 2009 to the latest data for 2016, manufacturing employment grew 15 percent – significantly above the 4.8 percent U.S. growth during the same period.

Q: Are Montana manufacturers hopeful for the coming year? What hurdles can they expect?
When asked about their outlook for 2017, Montana manufacturers were generally optimistic. About 36 percent said they expected employment at their plant to increase in 2017 and roughly 56 percent thought that overall conditions for their plant would be better than they were in 2016. The future of manufacturing exports has one dark cloud on the horizon – lethargic worldwide economic conditions. After growing rapidly to $1.1 billion in 2011, manufacturing exports have stagnated or decreased slightly. Even though exports account for only 10 percent of manufacturing they are very important for several of Montana’s largest manufacturers.

Tourism

Norma P. Nickerson, Ph.D., is the director of the Institute for Tourism and Recreation Research in the College of Forestry and Conservation at the University of Montana.

Q: What effect do forest fires have on park budgets, which are already stretched thin?
Public land management budgets continually steal from Peter to pay Paul. Most recreation budgets for national forests get stripped to fight fires leaving campgrounds and trails with little to no maintenance. Land managers often depend on a “friends group” to raise money and hire workers. National and state parks are both hurting as visitation numbers continue to increase while budgets either decrease or remain stagnant. Outdoor recreation contributes substantially to the economy of both Montana and the U.S., but our love of recreation without adequate resource protection is showing problems.

Q: Is the dollar’s strength showing up in foreign visitor spending in Montana?
The U.S. dollar’s strength does affect international visitation and spending in Montana. When the dollar is strong we generally see fewer international visitors to the U.S., including Montana. Canadian visitation to the U.S. decreased 31 percent between 2011 and 2015, which is directly correlated with the exchange rate. Visitation from Canada to Montana decreased 5 percent between 2012 and 2015, but the amount of spending per trip went down 19 percent in just four years.

Wood Products

Todd Morgan is director of forest industry research at the Bureau of Business and Economic Research at the University of Montana.

Q: Dire predictions were made about the expiration of the Softwood Lumber Agreement. Did those fears come to pass?
The expiration of the Canadian-U.S. softwood lumber agreement has had an impact on sawmills in the U.S. Lumber imports from Canada have increased, both in quantity and proportion, and are rising faster than domestic lumber production, which is keeping lumber prices lower than they would be if Canadian imports were not increasing. The U.S. Lumber Coalition has filed petitions asking the U.S. International Trade Commission and Department of Commerce to investigate if Canadian lumber imports are harming the U.S. industry. Their findings will determine if duties are placed on Canadian lumber imports.

Q: Can Montana’s loggers and mills expect more consolidations after the Weyerhaeuser/Plum Creek deal?
Montana’s wood products industry is comprised of privately held or family-owned businesses. The mills and land that Weyerhaeuser now owns in Montana were part of a much larger corporate merger between two of the biggest timberland companies in the U.S. I anticipate Weyerhaeuser selling some or all of their land and mills in Montana, as the company seeks to maximize their value. The sale could benefit other Montana mills by easing the competitive demand for logs. However, with two fewer mills, Montana’s timber owners and loggers will have fewer outlets and communities around the mills will lose jobs and tax revenues.