Q&A with Montana's top economists and industry experts.

• Position: Economic Outlook

The Economy

Patrick Barkey and Paul Polzin

MBQ: For the past several years the forecast for the U.S. economy has been the same-sluggish growth this year and better growth next year. Has "next year" finally arrived in 2014?

Patrick Barkey: There are promising signs. Business confidence is solidifying--especially for small business--hiring has been durable, and profits and cash on hand for businesses are plentiful. Energy is a new spark to growth that's showing up in national economic statistics. The strength in commodity prices has kept Montana producers very happy over the past several years, though on the metals side, were seeing a slow decline. Stock markets--and some housing markets-are heating up. Looking at our trading partners, the European recovery will proceed, but at a very sluggish pace. In addition, China's growth rate will be sustained. The U.S. economy had growth above 4 percent in the third quarter of 2013 and should continue to accelerate in 2014.

MBQ: Are there obstacles to growth in 2014?

Patrick Barkey: The labor market is cause for concern. Since the recession, and into the recovery, we've consistently seen a decline in the proportion of Americans who are working. Baby boomers are retiring, younger people are putting off going to work, and more people are working part time, possibly because they can't find a full-time job. In addition, commodity prices are slowly cooling off. As developing countries stabilize, demand for commodities will strengthen slightly.

Montana Economy

Patrick Barkey and Paul Polzin

MBQ: How does Montana compare to the rest of the U.S. in terms of economic growth?

Patrick Barkey: Montana continues to show better economic growth than the U.S. economy. The western portion of the U.S.--including Montana--is leading the economic recovery. Wages and salaries grew by an average of 1.6 percent over the past year in the non-western states. Most of the western states including Montana-which grew by 2.1 percent-did better than that. The western states are doing better for two reasons: 1) Housing is coming back more quickly in the West than in other parts of the country; 2) The West is closer to Asia, and Asia is still the most rapidly growing region in the global economy.

Most Montana industries are expanding. Energy remains the biggest story of the Montana economy. It continues to be what drives the economy. We expect that 2014 will be another year where Montana's economy outperforms the nation.

MBQ: In the past few years, Montana has seen an upside-down pattern of growth, with the rural, eastern counties growing faster than the urban western counties. Is that still the case?

Paul Polzin: Recently, we have noticed that a big share of the new economic activity has been occurring outside the cities. So I'm changing my approach a bit, and I'm looking at things from a regional perspective. There are a number of ways that regions can be defined. We chose to look at the regional trade areas of Montana's three largest cities. Our regions correspond to the Missoula trade area, the Great Falls trade area, and the Billings trade area.

From 2009 (the trough of the Great Recession) to 2013, the state grew at an average rate of 2.2 percent per year. In the Northeast region, we see a pattern that will also be repeated in the Southeast region. The rural Northeast grew faster than the statewide average and faster than any of the urban areas. This region contains some of the most prosperous agricultural areas and the northern edge of the Bakken oilfields on the Montana/North Dakota border.

In the Southeast region, there was above average growth in both the cities and the rural areas. The rural Southeast includes much of the Bakken, and Billings is the nearest urban area and the beneficiary of many of the indirect impacts.

The slowest growth was in the West region. All of the cities in this region grew less than the statewide average. Only Flathead County came close to the average for Montana. There was almost no growth in the rural West.

Health Care

Patrick Barkey

MBQ: Health care costs have been growing steadily over the years, but during the past few years, costs are actually declining. What is happening?

Patrick Barkey: After averaging growth of 7.6 percent per year nationally over the years 2001-2007, growth in total health care spending has fallen to just 4 percent in the years since. The rate has come down quietly for several years running, and we're trying to figure out the reasons. The biggest questions are: Is it the recession? Is it the fact that more people are on high-deductible insurance plans? Is it the Affordable Care Act? The portion of health care spending that has decreased is prescription drugs, a little bit in doctor spending, and a little bit in administrative costs. Health care spending in general, and Medicare in particular, have had slowdowns in the past, only to resume heady growth again later. It's hard to know whether this episode will repeat that experience, but it certainly bears watching.

MBQ: Providing insurance for the uninsured is one of the major goals of the Affordable Care Act. What do we know about Montana's uninsured?

Patrick Barkey: Actually, we know quite a bit-thanks to the Bureau's survey on Montana's uninsured. About 190,000 people are uninsured, which is roughly 20 percent of our population. The uninsured are disproportionately...