Montana's economy: all sectors contribute to recent growth.

• Author: Polzin, Paul E.

Montana's economic boom continues! The 2.3 percent unemployment rate recently released by the Montana Department of Labor and Industry is the latest data confirming this trend. For the fifth straight month, the statewide unemployment rate has come in at less than 3.0 percent. I have been analyzing the Montana economy for almost 40 years and cannot remember unemployment rates this low.

Figure 1 summarizes our current outlook for the state's economy. It is simply a reformatting of the forecast we presented last winter with more emphasis on 2007 and the recent past. Montana's economy grew 5.1 percent in 2004, 4.5 percent in 2005, and 5.9 percent in 2006. Our forecast is for 4.2 percent growth in 2007. This slight deceleration is not due to deterioration in the fundamentals driving Montana's economic boom. Rather, we believe that Montana's construction and home building industries will finally cool--following the national trend.

Multiple Causes for Economic Boom

What is causing Montana's economic boom? The first thing that comes to mind is the energy/commodity boom, which has transformed portions of eastern Montana and places like Butte. Worldwide conditions haven't changed, and these areas can expect current conditions to continue for awhile. But, the energy/commodity boom is actually just icing on the cake because we would have had a strong economy even without it. Almost all sectors of Montana's economic base have contributed to the state's recent growth.

Because the algebra and interpretation are so complex, we can't just decompose the annual growth rates and identify the portion that is attributable to the energy/commodity boom or any other single basic industry. We can, however, use simulation techniques to demonstrate the multiple causes of Montana's current economic boom.

The actual growth in Montana from 2002 to 2006 is presented in the orange bars in Figure 2. If we assume that mining (where the energy/commodity growth is concentrated) remained constant at its 2003 level, we can calculate the state's growth if there had been no energy/commodity boom. As shown by the yellow-colored bars, Montana's 2002-2006 growth would have been only slightly less if there had been no boom in mining. Specifically, 2006 nonfarm labor income growth would have been about 4.9 percent if there had been no energy/commodity boom, as compared to an actual growth of 5.9 percent.

We can use the same methodology to look at other basic industries. One of the...