Is Montana's recovery at risk? Challenges abound for state economic growth.

• Author: Barkey, Patrick M.

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When is economic growth in the wake f a painful recession not good news? he answer is: When it is less growth an people expect. Even though e Montana economy has largely delivered the stronger growth that we predicted in December when we prepared our annual forecast, it has not been fast enough to ease the apprehension shared by many that the recession is truly over.

This was precisely the backdrop for our summer update to the Montana economic forecast we presented statewide last winter. Even though unanticipated events like the Arab spring uprisings and the Japanese earthquake and tsunami rattled the global economy, we concluded that Montana's growth trajectory still looked reasonably solid. With the major exceptions of the state's housing and wood products industries, we reaffirmed our projection of improving growth in 2011 through 2014.

But disappointment over slow growth has given way to a heightened concern in recent months over a much worse event--namely, a second recession in the U.S. economy. By some measures, the wheels started coming off the national economic recovery in the late summer of 2011. Job growth began to stall, the stock market swung sharply downward, and the federal government suffered the embarrassment of having the AAA rating of its public debt downgraded for the first time in history. National forecasting firm Global Insight put the chances of a second recession at 50 percent in September. And every speech, debate, and vote in Washington starkly served as a reminder of what little consensus exists to deal with the worsening situation.

The softening trajectory of the national recovery was not yet fully apparent at the time our update was prepared in July. As shown in Figure 1, the expectation of U.S. forecasters for growth this year was only slightly less optimistic at the year's half-way mark than when the year began, but rapidly deteriorated in subsequent months. Thus a new Montana forecast made today might not be quite as optimistic as the one we presented just a few months ago.

The heightened uncertainty over U.S. economic growth prospects is, in truth, just one of several challenges that the Montana economy will face if our state's growth is to remain on track. These include threats to global economic expansion, the special challenges of the housing industry, and the growing need to address persistently high federal budget deficits. Before we address those challenges, let's summarize how the state's economic outlook evolved through the first half of the year.

Revisiting the December Forecast

How has the BBER forecast of stronger growth in Montana's economy actually played out thus far in 2011? It is too soon to give a definitive answer to this question--comprehensive data on the state's economy are only through the first three months of the year. Yet the best available information shows that the turnaround in Montana's economic performance that began in the spring of 2010 continued on a reasonably strong pace through the first nine months of 2011.

The turnaround has been more apparent in wage and salary income than it has been in jobs. Indeed, if we examine the performance of Montana's payroll employment since the recession was officially declared in late 2007, as shown in Figure 2, there has been little sign of an economic recovery. By the spring of 2009, payroll employment data from the Quarterly Census on Employment Wages (QCEW) experienced approximately a 4 percent decline, with no...