THE YEAR IN REVIEW: Statewide Economic Performance: Consumers Lead Strong Bounce Back.

• Author: Barkey, Patrick M.
• Position: MONTANA ECONOMIC REPORT

The two months of economic free fall in the spring of 2020 were as intense and frightening in Montana as any other state, but what has followed has been equally amazing. Digging out of a very deep hole, economic growth since midsummer of 2020 has vacillated between torrid and red hot, particularly as measured by wages and income. And with that growth has come some familiar problems, such as the labor shortage, and one new one--inflation.

The fact that the state economy registered growth of 1.6% in inflation corrected nonfarm earnings in the recession year 2020 is testimony to how strongly the economy rebounded in the second half of that year. The Bureau of Business and Economic Research now estimates that growth in 2021 surged to 4.3% as vaccines relaxed health concerns and the services economy reopened. In a sign of the underlying economic strength, Montana general fund revenues grew by a heady $430.5 million in fiscal year 2021, led by a 23% gain in individual income taxes.

A Jobs Recession

A recession that was nowhere on the radar screen exploded across the economy in March and April--leaving no community, state or even country unscathed. The list of unprecedented changes in economic activity was a long one, as fear spread of a widespread, potentially lethal contagion contracted by ordinary human contact that characterized so many aspects of economic activity. By the end of April, the number of Montanans collecting unemployment insurance pushed past 60,000, well over 10% of the total workforce. And many forecasters, including the Bureau of Business and Economic Research, were predicting serious challenges for state and local government revenues as they foresaw a long period of underperformance.

Yet within six months of this epic event, evidence of the error of this assessment--in everything from consumer spending to state tax revenues--was unmistakable. The explanation for this is the divergence of the performance of employment and inflation-corrected total wages over the recession and recovery, as depicted in Figure 1.

There is no mistaking the recession when measured in terms of jobs in Montana. Even with strong growth in the remainder of 2020, it was a significant downturn. Yet when we examine the total wages paid to Montana payroll workers ,the downturn in the second quarter of 2020 is barely perceptible and the growth that came immediately afterward is dramatic. How is an economy with fewer workers bringing home nearly the same, or...