The Montana recovery: what's on track and what's not.

• Author: Barkey, Patrick M.

In many important respects, the art of economic forecasting has returned to "normal" in recent years. In most years, the economy grows, so forecasting growth is "normal." In ordinary times, that growth is spread out across the state like a checkerboard, with faster and slower growth in individual counties occurring with rio obvious geographic pattern. And for several decades, the performance of the Montana economy has been only loosely connected to the trends that dominate national economic growth.

To say that the behavior of the economy deviated from normal during the 2008-09 recession would be an understatement. The downturn was long and severe, and it left no county in Montana untouched. And its timing and its origins in our state were identical to the U.S. economic contraction. So even if the slow speed of the current economic recovery has been a disappointment, it is heartening to see the more familiar patterns of differing local and state economic growth re-emerging as we study our most recent economic performance.

For the third consecutive year, the nation's economy has stumbled at mid-year. Anemic consumer spending has brought the overall growth rate in national Gross Domestic Product to less than 2 percent in the second quarter of 2012. Many countries in Europe are in recession, in some cases severely. And the wind in the sails of the high-flying Asian and Latin American economies has tempered noticeably, with countries like India, Brazil, and even China pondering or implementing policies to stimulate faster growth. What do these developments portend for the Montana economy?

The Montana Economy in 2012

The current status of the Montana economy, as well as it can be gleaned from the partial data available, remains consistent with our forecast of modest recovery. If anything, the data suggest that actual growth in 2012 may outperform the projection of 2 percent growth in total inflation-adjusted nonfarm earnings we made at the beginning of the year. Among the more encouraging signs of strengthening recovery are:

* Strong income growth. Since November of last year, income tax withholding revenues collected by the Montana Department of Revenue have grown at an 11 percent annual rate. Since these revenues adjust automatically to changes in the wage and salary base, they suggest that this component of total nonfarm earnings has enjoyed healthy growth.

* Job market improvement. The most recent data on employment are preliminary and...