Economic Growth Stronger Than Expected

By TYLER CHRISTENSEN of the Missoulian

The rapid growth that has left western Montanans gasping in recent years has slowed and appears to be spreading across nearly every industry in the state.

“Looking across the breadth of Montana, all of our basic industries are doing well with the exception of the wood products industry,” said Paul Polzin, Bureau of Business and Economic Research at the University of Montana. “The economy has been even stronger than we anticipated, and the main reason is that we have not yet seen a slowdown in construction.”

Housing prices, he added, have been relatively stable since the fourth quarter of 2006.

“Housing prices have decelerated,” he explained. “They’re still going up but not as fast.”

Meanwhile, construction employment continues to grow. In May it was up 9.2 percent over the previous year, Polzin noted. While a good share of that is due to road projects, the state’s overall construction industry now accounts for 33,000 workers -- and that adds up to a significant economic force.

Unfortunately, it’s not a particularly stable one. Transportation construction is largely dependent on public funding, which changes from year to year, and housing construction is tied to relatively volatile market conditions.

Even so, Tyler Turner, an economist for the state Department of Labor and Industry, pointed out that Montana appears to be somewhat insulated from the market conditions disrupting the rest of the nation.

“In Montana, we’re currently in a different type of housing market for the most part,” he said. “It’s not people building their first homes, it’s more of a second-home, retirement type of housing.”

The state’s economy has also been boosted by strong commodities prices, Polzin added. Rising world demand for materials traditionally provided by Montana’s extractive industry -- like oil, coal, copper and gold -- has driven prices skyward, though recently prices for some commodities, such as gold, have leveled off a bit.

While the mining industry is a relatively tiny sector of the state’s overall economy, it produces a high-value good sold outside the state, Turner said. It doesn’t take long for that steady cash infusion to seep out into other Montana industries.

Even manufacturing employment, which has been languishing of late, is looking up, Polzin said. He attributed the increase primarily to a surge in high-tech manufacturing in the Bozeman area.

In fact, thriving technology sectors in Bozeman, Butte and Ravalli County have been of great interest to economists recently, Turner said, because “those three areas seem to be of particular interest to new and relocating companies.”

Many of those companies, he added, weren’t here five years ago. Now they are growing and having a significant impact on their surrounding economies.

The flip side to all this growth, Polzin said, is a tightening labor market. The labor pool simply isn’t growing apace with economic expansion.

“We’re staying between 2 to 3 percent (unemployment),” Polzin said. “I’ve been here 40 years and I’ve never seen that.”

Many employers are already struggling to recruit enough skilled workers, said Larry Swanson, regional economist and director of the University of Montana's O'Connor Center for the Rocky Mountain West.

The region’s labor market, he added, will continue to grow even tighter as the oldest group of workers ages into retirement. By some estimates, Montana will have the fourth-oldest residency in the nation by 2025; one in four Montanans will be 65 years old or older.

“This aging thing is a big deal,” Swanson said. “I probably go to 40 or 50 meetings a year in the region, and the thing they’re talking about more and more is labor market issues. I used to think it would take 4 or 5 years, but it’s already developing in places, and that’s tightening it up all around.”

Population and labor force issues tend to be strongly linked, he explained. Economic expansion creates a demand for workers, which pulls in more people -- and as more people are pulled in, they contribute to economic expansion and add to the demand for more workers.

“That’s how this growth becomes powerful,” Swanson said. “The whole challenge through this entire thing is just developing a better understanding of it.”

Western Montana is now in its 17th year of economic expansion, he said. He estimates Missoula County now counts more than 100,000 residents, and is adding about 1,000 more each year, giving it a relatively steady growth rate of 1 percent. Similarly, Ravalli County’s growth rate appears to have leveled off at 2 percent.

Much of this growth, he noted, is due to net in-migration. That is, more people are moving into the state than are leaving it. Many of these new residents come for western Montana’s wide array of recreational opportunities -- and for its entrepreneurial potential.

“Small cities are very attractive places for people to live,” Swanson said. “Missoula’s going to grow basically in relation to its quality of life -- including economic quality of life.”