Montana economy likely to fare better than other states in 2008

By PAMELA J. PODGER of the Missoulian

In this season of giving, several economists Tuesday shared their predictions of a slowing national economy and cited concerns about inflation.

A trio of Wells Fargo economists said housing woes and the subprime meltdown were relatively isolated in the U.S., but contribute to a "stagflation feel," especially in early 2008.

But the Rocky Mountain states, which avoided the astronomic housing price increases of California, Las Vegas, Michigan and elsewhere, were likely to fare better than the rest of the nation.

"The Montana economy and mountain state economies have held up quite a bit better than other parts of the country," said Wells Fargo senior economist Scott Anderson.

Montana avoided the excesses in subprime lending and housing remained affordable in many parts of the state, he said.

"There are a lot of reasons to believe the mountain states will outperform other parts of the country, even though we see a slower economic environment ahead," he said.

Senior economist Eugenio Alemán predicted rural economies would benefit from a weak U.S. dollar, which makes exported goods and products cheaper for foreign buyers. Growing markets in Europe, India, Asia, Latin America and Canada will help exports remain strong.

"As long as commodity prices remain high, I think there is a very, very good prospect for the current expansion to continue," Alemán said.

Nationwide, he said, he"s concerned about tightening credit and the specter of inflation.

"My biggest concerns are the credit crunch and inflation. I don"t think lowering the federal funds rate will take us out of the credit crunch," he said. "Inflationary spurts are not instantaneous and it takes a long time to get into the system" and out of the mainstream economy.

Anderson said even if the country avoids a recession, defined as two quarters of negative growth, consumer sectors will be a drag on the economy.

"The probability of a U.S. recession I would put at 40 percent, but the first half of 2008 will feel recessionary," Anderson said. "Coming out of the holiday season, the consumers will feel tapped out and that will affect their spending behavior."

James Paulsen, chief investment strategist at Wells Capital Management, said he remains more optimistic than his colleagues, especially regarding the fallout from the housing market.

"While there is crisis, the actual crisis will be far less than the fears are," he said.

A 2008 business outlook poll and forecasts from the Federal Reserve Bank of Minneapolis, also released Tuesday, pointed to slower growth in the region as compared with 2007. The bank tracks data for North Dakota, South Dakota, Minnesota, northwestern Wisconsin and the upper peninsula of Michigan.

Industries in Montana that are growing faster relative to the nation are oil drilling, mining, construction, manufacturing, tourism and professional and business services, said Rob Grunewald, associate economist at the Fed.

In the district, Montana has the fastest growth in employment. The state has also seen the unemployment rate drop steadily. That trend is expected to continue, decreasing slightly next year from 2.8 percent at the end of 2007 to 2.6 percent by late 2008, Grunewald said.

Montana"s agriculture was strong in 2007, with wheat, corn and soybean prices nearing record levels, and indicators are positive for next year. Agriculture is expected to remain vibrant, but concerns linger over fuel and fertilizer prices. A healthy farm economy helps retail sales in nearby small towns and cities, Grunewald said.

State manufacturers were optimistic for 2008 for strong sales, profits and production as well as slight increases in employment and investment.