U.S. and Montana Economic Outlook
The Economic Outlook for Montana and the U.S.
Patrick M. Barkey, DirectorBureau of Business and Economic Research
University of Montana
U.S. and Montana Economic Outlook
Is the U.S. Economic Expansion Coming to an End?*• Consumer fundamentals
remain sound• Home building perking up• Yield inversion is over• Has the global economy
stabilized?
• Manufacturing has contracted all year
• Global environment is fragile• Trade policy has taken a toll
on investment• Oh yes, isn’t there an
election?
*Short answer: Nobody really knows, but probably not
U.S. and Montana Economic Outlook
What Happens to Investment in Election Years?*
*Short answer: Nothing good.
U.S. and Montana Economic Outlook
-3-2-10123456
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Consumption NonRes HousingInventories Trade Government
2015 2016 2017 2018 2019
Consumer Spending is Propelling Recent U.S. GrowthContribution to Growth in Real Gross Domestic Product, Percent
U.S. and Montana Economic Outlook
Manufacturing Has Been ContractingISM Purchasing Managers Index, Percent
40
45
50
55
60
65
2014 2015 2016 2017 2018 2019
U.S.Source: Economy.com
Expansion
Contraction
U.S. and Montana Economic Outlook
But It Is Really a Global PhenomenonISM Purchasing Managers Index, Percent
40
45
50
55
60
65
2014 2015 2016 2017 2018 2019
U.S. China Germany Japan U.K. CanadaSource: Economy.com
Expansion
Contraction
Source: Peterson Institute
U.S. and Montana Economic Outlook
-20
-15
-10
-5
0
5
10
15
20
17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2 19Q3 19Q4
China Other East Asia Europe South Asia Latin America
Tariffs Have Impacted Import Volumes DramaticallyU.S. Container Import Growth by Origin, Year over Year Percent Change
More than 7.6%5.9% - 7.6%2.5% - 5.9%Less than 2.5%
Montana is Highly Exposed to RetaliationAverage Tariff Rates on Traded Sector Production, by County, 2018
Source: Fajgelbaum, et. al., Quarterly Journal of Economics, v.135, 1-55.
U.S. and Montana Economic Outlook
Global Economic Growth Set to SlowReal GDP Growth, Percent, Actual and Predicted, 2019-22
2019 2020 2021
Spain 2.2
U.K. 1.2France 1.2
Germany 0.5
Italy 0.0
Japan 0.9
Germany 1.4
U.S. 2.4
U.S. 1.7Spain 1.7U.K. 1.5France 1.3
Italy 0.8
Japan 0.5
Source: International Monetary Fund
U.S. and Montana Economic Outlook
Mixed Story for Most Important CommoditiesSelect Commodity Prices
November 2019 vs. 5-Year High and Low
370.69 [Current]
Materials & Foodstuffs(as of November 2019)Low High
297 564
360 current
Source: International Monetary Fund
Source: World Bank, USDA, Random Lengths
1.81 2.79
1.59 2.62
2.58
3.34 6.39
4.29
($ per Thousand BF)Framing Lumber
Low High
2.03 3.21
2.66
502.5 1767.8
1767.8
0.69 1.60
30.3 70.9
57.1
Metals & Energy(as of November 2019)
($ per bushel)Wheat, SRW
($ per Pound)Beef
($ per bushel)Barley
($ per pound)Copper
Palladium
Zinc
($ per troy oz.)
($ per pound)
Oil($ per Barrel)
2.46
1.10
Copper Prices Closed the Year with GrowthLast Six Months
$ per lb.
Source: Macrotrends.net
Copper Prices Closed the Year with Growth?Last Year
$ per lb.
Source: Macrotrends.net
Copper Prices Closed the Year with Growth??Last Ten Years
$ per lb.
Source: Macrotrends.net
U.S. and Montana Economic Outlook
Market for Thermal Coal Has Shrunk DramaticallyShare of Net Electricity Generation by Fuel Type, U.S., percent
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-
01Au
g-01
Mar
-02
Oct
-02
May
-03
Dec
-03
Jul-0
4Fe
b-05
Sep-
05Ap
r-06
Nov
-06
Jun-
07Ja
n-08
Aug-
08M
ar-0
9O
ct-0
9M
ay-1
0D
ec-1
0Ju
l-11
Feb-
12Se
p-12
Apr-1
3N
ov-1
3Ju
n-14
Jan-
15Au
g-15
Mar
-16
Oct
-16
May
-17
Dec
-17
Jul-1
8Fe
b-19
Sep-
19
Coal
Natural Gas
Nuclear
Hydro
Source: U.S. Energy Information Administration
WindSolar
U.S. and Montana Economic Outlook
De-Industrialization of U.S. and EU Reflected in CO2 Emissions
0
2
4
6
8
10
12
14
16
60 65 70 75 80 85 90 95 00 05 10 15
India
Billions of Tons
Annual CO2 Emissions from Fossil Fuels by Country, 1959-2017Source: Global Carbon Project
U.S.
EU
China
Rest of World
U.S. and Montana Economic Outlook
China is the World’s Aluminum ProducerSmelter Production of Aluminum by Country, 2016-18
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
ChinaIndia
RussiaCanada
United Arab EmiratesAustraliaNorwayBahrain
United StatesIceland
Brazil
2018 2017 2016
1,000 metric tons
Source: Statista.com
U.S. and Montana Economic Outlook
What We Know About the Montana Economy Today
• Growth since 2016 has continued• Labor market continues to tighten• State revenue growth has been good• Wheat and Calf Prices Down Another 15 Percent• Dark clouds looming for Powder River basin coal• Tech is an under-reported good news story• Gallatin County Now #2 Economy in the State
U.S. and Montana Economic Outlook
State Economic Earnings Was Steady in 2018Percent Growth, Inflation-Corrected Nonfarm Earnings, Montana
-1
0
1
2
3
4
2013 2014 2015 2016 2017 2018Source: U.S. Bureau of Economic Analysis
Percent
U.S. and Montana Economic Outlook
More than 4.2%3.0% - 4.2%2.4% - 3.0%Less than 2.4%
Montana Growth is Low by Western StandardsPercent Growth in Real Nonfarm Earnings, 2018
Source: U.S. Bureau of Economic Analysis
2.5%
3.6% 4.3%
3.9%3.2%
5.6%
4.4%
3.8%
2.3%
2.2%
4.8%
U.S. and Montana Economic Outlook
Wage Growth (NV)
UnemploymentRate (ND)
Job Growth (NV)
GDP per capita(DC)
GDP growth (WA)
Average weeklywages (WA)
-.24%3.4%
1.46%$47K
3.93%
$855
Montana’s Relative Economic PerformanceRelative Position Among All States and DC, 2019
Source: howmuch.net
U.S. and Montana Economic Outlook
Growth Carried into 2019Inflation Corrected Earnings Growth FY18-FY19
0 20 40 60 80 100 120 140 160 180
Construction and ManufacturingRetail & Whol. Trade
Finance and Bus. Serv.Health Care
Accomodations & FoodPublic Admin.
MiningOther
Source: U.S. Bureau of Economic Analysis
$ Mill.
U.S. and Montana Economic Outlook
Billings and Non-Urban Counties Performing BetterChange in Inflation-Corrected Wages by County, Montana, Through 2019Q2
-$50 $0 $50 $100 $150 $200
Cascade
Flathead
Gallatin
Lewis & Clark
Missoula
Silver Bow
Yellowstone
Rest of State
$ Millions
Source: U.S. Quarterly Census of Employment and Wages
U.S. and Montana Economic Outlook
General Fund Revenue Sources ($ Millions) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY18-19Top Seven Sources Growth Pct. Growth
Individual Income Tax 1,175.7 1,184.8 1,168.2 1,297.8 1,429.0 131.2 10.1 Property Tax 247.9 257.1 260.2 276.4 289.2 12.8 4.6 Corporation Income Tax 172.7 118.4 134.0 167.1 186.5 19.4 11.6 Vehicle Taxes & Fees 106.4 108.5 109.2 109.5 109.5 - -Oil & Natural Gas Production Tax 73.2 39.1 46.3 54.5 54.2 (0.3) (0.6)Insurance Tax & License Fees 66.6 69.3 75.6 75.3 76.1 0.8 1.1 Video Gambling Tax 59.8 60.6 60.0 60.3 63.2 2.9 4.8
Other Selected TaxesLodging Taxes 19.7 21.5 21.8 24.1 26.7 2.6 10.8 Railroad Car Tax 3.7 3.6 3.8 3.6 3.6 - -Rental Car Sales Tax 3.9 3.9 3.4 3.7 4.4 0.7 18.9 Telecommunications Excise Tax 18.3 16.8 15.6 13.7 13.2 (0.5) (3.6)Coal Severance Tax 16.1 14.2 13.8 14.1 14.1 - -Metalliferous Mines Tax 8.3 4.2 4.8 6.3 6.9 0.6 9.5 US Mineral Royalty 27.0 16.8 17.3 20.1 21.6 1.5 7.5 Wholesale Energy Tax 3.8 3.5 3.5 3.6 3.5 (0.1) (2.8)
General Fund Total 2,199.7 2,121.3 2,141.5 2,405.4 2,573.6 168.2 7.0
Another Good Year for State Revenues
Source: Montana Legislative Fiscal Division
U.S. and Montana Economic Outlook
Recent Growth Tilts West/SouthwestPercent Change in Real Wages, 18Q2-19Q2
Dawson 5.6%
Yellowstone 0.4%
Gallatin 6.5% Park 7.1%
Missoula 3.1%
Flathead 0.6%
U.S. and Montana Economic Outlook
Tech Underlies the Faster Growth Since 2015Percent Growth in Earnings Since 2015
-10% 0% 10% 20% 30%
CascadeFergus
FlatheadGallatin
HillLewis & Clark
MissoulaSilver Bow
Yellowstone
Total Professional & TechSource: U.S. Bureau of Economic Analysis
U.S. and Montana Economic Outlook
Declines in Farm Earnings Are WidespreadChange in Farm Earnings, 2018 vs. 2013, $ Millions
Source: U.S. Bureau of Economic Analysis
U.S. and Montana Economic Outlook
Montana Labor Market Still TightUnemployment Insurance Claims, 2017-19
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSource: Montana Department of Labor and Industry
2017
2018
2019
U.S. and Montana Economic Outlook
Outlook for Montana’s Key Industries
• State faces new challenges, but with good momentum• Closures in Colstrip, coal upheaval will hurt• Commodity businesses (except palladium) face prospect of price
declines• Federal government spending is good for Montana• Tech, construction, manufacturing propelling western growth• Residential construction is the wild card
U.S. and Montana Economic Outlook
2.72.2 2.2
2.9 2.5 2.7 2.31.9 1.6 1.5
01234
17 18 19 20 21 22 23
Actual Projected
Source: BBER and U.S. Bureau of Economic Analysis
Percent
Source: BBER and U.S. Bureau of Economic Analysis
Growth in Nonfarm Earnings,Montana, 2017-23