1989: Montana's state and local area outlook.

• Author: Polzin, Paul E.
• Position: Economic outlook

1989: Montana's State and Local Area Outlook

To assess Montana's economic outlook for 1989, we will systematically analyze the statewide economy, Montana's multicounty regions, and the major urban areas. In each case, we will first look at general economic indicators to determine past trends. Then, we will examine the factors that caused these trends. Finally, we will look at forecasts for the future.

Montana's

Economy

General Economic

Indicators

We use population, per capita income, personal income, and nonfarm labor income to examine the overall trends in Montana's economy. Each of these indicators measures a different part of the economy, and they may not have identical trends. But, taken together they provide good overviews of the general condition of the state's economy.

Population. The population data for Montana from 1970 to 1987 is presented in figure 1. The state's population grew rapidly during the 1970s. These increases continued in the early 1980s, and the population reached a peak of 824,000 in 1985. Since then the population declined, and the latest estimate is that Montana had 804,000 residents in 1987.

Population is a lagging economic indicator. That is, changes in population trends usually lag behind other general economic indicators. For example, as we will see later, a population usually peaks several years after other economic measures have turned downward. Therefore, Montana's recent population declines are the result of past events, rather than a harbinger of future declines.

Per capita income. Our second general economic indicator is per capita income, equal to total persona income divided by population. Per capita income is a measure of economic well-being--that is, how well off people are. It measures money income, and certainly Montanans enjoy many benefits that cannot be converted into dollars and cents. Per capita income has been converted into 1987 dollars in order to eliminate the effects of inflation.

Figure 2 presents per capita income for Montana and the United States for 1970 to 1987. During the 1970s, per capita income in Montana grew faster than in the United States, from 87 percent of the national average in 1970 to about 90 percent in 1980. The 1980s, however, were a different story. Per capita income continued upward in the United States while it stagnated in Montana. Consequently, the state's per capita income dropped to about 80 percent of the national average by 1987.

Nonfarm labor income and personal income. Nonfarm labor income is the wages and salaries, proprietors' income, and other labor income of all employed persons--except those working on farms and ranches. Agriculture is excluded because of its volatility. As we will see later, the significant year-to-year changes in agricultural income may mask important trends elsewhere in the economy.

Nonfarm labor income is a proxy for Gross National Product (GNP), which is not available for states or local areas. It is a measure of overall economic activity.

Figure 3 presents nonfarm labor income data from the first quarter of 1979 to the second quarter of 1988. These data clearly show three distinct periods in Montana's economy during the 1980s:

(1) Sharp declines from late 1979 to late 1982. This corresponds to a downturn in the national business cycle; the infamous "double dipper," the most severe recession period since World War II. Montana's nonfarm labor income declined by 9.9 percent from the third quarter of 1979 to the second quarter of 1982.

(2) Modest recovery during 1983 and 1984. Nonfarm labor income grew 3.5 percent from its trough in late 1982 to mid-1984.

(3) Slow downward trend since 1985. By mid-1985, nonfarm labor income was about 12 percent less than its peak in 1979.

Personal income includes income from all sources, and is closely related to the purchasing power in an area. Personal income is one of the few measures of consumer activity in Montana, because of the lack of reliable statistics for retail sales.

As shown in figure 3, personal income has remained relatively constant in Montana during the 1980s. Increases in transfer payments and dividends, interests, and rents have made up the difference between nonfarm labor income and personal income.

From mid-1987 to mid-1988, Montana's nonfarm labor income declined about 1 percent. These figures are important because later we will see that both of the indicators increased in the state's six major urban areas during the same period. This suggests that the declines were concentrated in the rural areas, and were much larger than the statewide average.

The Basic

Industries

Basic or export industries are the major determinant of growth (or the lack of it) in Montana's economy. These industries depend heavily on markets outside the state, or are otherwise influenced by factors originating beyond the state's borders. The major examples are the natural resource industries--agriculture, mining, wood, and paper products. Other basic industries include nonresident travel (tourism), the federal government, railroads, and certain types of manufacturing. The labor income of workers in export industries is an injection of new funds into Montana's economy, which creates additional income as these dollars are spent and respent in the state.

Basic or export industries are analyzed in terms of labor income rather than employment, output, or production. It is the amount of basic labor income that affects the local economy, not necessarily the number of basic workers, the board feet of timber, or the ounces of gold that is produced. In addition, it makes little difference whether $30,000 of basic labor income represents the salary of one worker, or the income of two workers each earning $15,000.

Our estimates of labor income in the basic industries are not accurate to the last cent. Complete information was...