Economic outlook update: the boom begins to slow.

• Author: Barkey, Patrick M.
• Position: Cover story

The interesting thing about economic trends is that by the time they become understood by the public at large, they've often changed. As we assess the performance and the outlook for the Montana economy well past the halfway point in the year, new data call into question two trends that many Montanans have become familiar with: the stronger-than-average performance of our state economy and the natural resource boom that has played such an important part in that performance. There are signs that growth in the Montana economy has been slowing, and it will be important for decision makers to take these new trends into account.

Swings in momentum and confidence are fairly typical in most economic recoveries, of course. And in a national economic recovery that is now reaching average age--the average length of recovery between recessions since World War II is 56 months--fluctuations in growth are closely watched for signs of more serious issues. But the 2007-09 recession was much more severe, and the subsequent recovery has been much weaker than historical experience, and much of the repair work on the economy remains unfinished.

The U.S. Economy at Midyear

Those who see every glass as half full can take to heart the fact that the national economy turned in its best growth quarter of the last two and a half years in the spring of 2014. The bad news is that it followed a winter quarter with the worst decline in economic output since the recession. The net result of a 1 percent annual rate of growth in Gross Domestic Product in the first half of the year for the world's largest economy was certainly disappointing, even if the first half of the year continued to produce steady job gains and falling unemployment rates.

The performance of new home construction, so important for jump-starting local economies throughout the western region of the country, was particularly disappointing. Despite very low mortgage rates, signs of price growth in existing housing, and a pick-up in rents, U.S. housing starts barely surpassed 1 million units (annual rate) in the late spring, with no growth posted over most of the summer. This is less than half the rate of peak activity before the housing bust and considerably lower than the 1.5 million-unit rate some had forecast.

This has kept the policy spotlight squarely on the Federal Reserve. So far the new leadership of Janet Yellen has not produced any different policies, with the short-term interest rates controlled...