Montana economic outlook: smooth sailing toward a cliff?

• Author: Barkey, Patrick M.
• Position: Statistical data

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A lot of things started to fall into place for the recovering Montana economy in 2012. Income growth was strong, thanks to robust energy activity in the eastern part of the state and a swing to growth in the harder hit cities in the west. Grain and cattle prices remained fairly high, and the state escaped the full brunt of the summer drought that devastated Corn Belt farm production. And after five years of decline, housing prices finally started to rebound in markets across the state.

We estimate that the state economy grew by about 2.7 percent, as measured by inflation-adjusted nonfarm earnings, in 2012. This estimate exceeds the forecast we made last year for 2012 of 2.0 percent. It also is above the U.S. overall growth for the same time period.

The state managed this better-than-expected performance during a year of tepid national growth for a number of reasons:

* Strong growth continued in mining industries, particularly oil and gas activities, primarily concentrated in the eastern counties, but also affecting Billings (see Figure 1);

* Stronger than anticipated growth in professional business services in Yellowstone, Flathead, and especially Gallatin counties, with the latter seeing a very large, one-time boost in earnings that resulted from the sale of software company RightNow Technologies to Oracle;

* A resumption of stronger growth in health care earnings across all major Montana markets;

* High activity in construction, particularly heavy construction, in Billings and in the eastern counties related to energy development.

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An additional factor supporting stronger growth that is not reflected in wage and salary figures shown in Figure 1 was the performance of Montana's ranchers and farmers. While the summer drought affected yields for some crops, most notably hay, others were less affected and with continued high prices it was a reasonably good revenue year.

The state's economic performance also has been reflected in state revenue collections. Both income tax and corporate tax collections grew strongly in fiscal year 2012, posting growth (not adjusted for inflation) of 10.3 and 7.5 percent, respectively. Minus these two large items, however, general fund revenues were essentially flat.

Looking Ahead to 2013 and Beyond

The year ahead will certainly present challenges to the state in trying to repeat last year's performance. Not only is the U.S. economy expected to have...