the economic outlook for montana and the u.s.u.s. and montana economic outlook global economic...

U.S. and Montana Economic Outlook

The Economic Outlook for Montana and the U.S.

Patrick M. Barkey, DirectorBureau of Business and Economic Research

University of Montana


Is the U.S. Economic Expansion Coming to an End?*• Consumer fundamentals

remain sound• Home building perking up• Yield inversion is over• Has the global economy

stabilized?

• Manufacturing has contracted all year

• Global environment is fragile• Trade policy has taken a toll

on investment• Oh yes, isn’t there an

election?

*Short answer: Nobody really knows, but probably not


What Happens to Investment in Election Years?*

*Short answer: Nothing good.


-3-2-10123456

4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Consumption NonRes HousingInventories Trade Government

2015 2016 2017 2018 2019

Consumer Spending is Propelling Recent U.S. GrowthContribution to Growth in Real Gross Domestic Product, Percent


Manufacturing Has Been ContractingISM Purchasing Managers Index, Percent

40

45

50

55

60

65

2014 2015 2016 2017 2018 2019

U.S.Source: Economy.com

Expansion

Contraction


But It Is Really a Global PhenomenonISM Purchasing Managers Index, Percent

40

45

50

55

60

65

2014 2015 2016 2017 2018 2019

U.S. China Germany Japan U.K. CanadaSource: Economy.com

Expansion

Contraction

Source: Peterson Institute


-20

-15

-10

-5

0

5

10

15

20

17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2 19Q3 19Q4

China Other East Asia Europe South Asia Latin America

Tariffs Have Impacted Import Volumes DramaticallyU.S. Container Import Growth by Origin, Year over Year Percent Change

More than 7.6%5.9% - 7.6%2.5% - 5.9%Less than 2.5%

Montana is Highly Exposed to RetaliationAverage Tariff Rates on Traded Sector Production, by County, 2018

Source: Fajgelbaum, et. al., Quarterly Journal of Economics, v.135, 1-55.


Global Economic Growth Set to SlowReal GDP Growth, Percent, Actual and Predicted, 2019-22

2019 2020 2021

Spain 2.2

U.K. 1.2France 1.2

Germany 0.5

Italy 0.0

Japan 0.9

Germany 1.4

U.S. 2.4

U.S. 1.7Spain 1.7U.K. 1.5France 1.3

Italy 0.8

Japan 0.5

Source: International Monetary Fund


Mixed Story for Most Important CommoditiesSelect Commodity Prices

November 2019 vs. 5-Year High and Low

370.69 [Current]

Materials & Foodstuffs(as of November 2019)Low High

297 564

360 current

Source: International Monetary Fund

Source: World Bank, USDA, Random Lengths

1.81 2.79

1.59 2.62

2.58

3.34 6.39

4.29

($ per Thousand BF)Framing Lumber

Low High

2.03 3.21

2.66

502.5 1767.8

1767.8

0.69 1.60

30.3 70.9

57.1

Metals & Energy(as of November 2019)

($ per bushel)Wheat, SRW

($ per Pound)Beef

($ per bushel)Barley

($ per pound)Copper

Palladium

Zinc

($ per troy oz.)

($ per pound)

Oil($ per Barrel)

2.46

1.10

Copper Prices Closed the Year with GrowthLast Six Months

$ per lb.

Source: Macrotrends.net

Copper Prices Closed the Year with Growth?Last Year

$ per lb.


Copper Prices Closed the Year with Growth??Last Ten Years

$ per lb.



Market for Thermal Coal Has Shrunk DramaticallyShare of Net Electricity Generation by Fuel Type, U.S., percent

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-

01Au

g-01

Mar

-02

Oct

-02

May

-03

Dec

-03

Jul-0

4Fe

b-05

Sep-

05Ap

r-06

Nov

-06

Jun-

07Ja

n-08

Aug-

08M

ar-0

9O

ct-0

9M

ay-1

0D

ec-1

0Ju

l-11

Feb-

12Se

p-12

Apr-1

3N

ov-1

3Ju

n-14

Jan-

15Au

g-15

Mar

-16

Oct

-16

May

-17

Dec

-17

Jul-1

8Fe

b-19

Sep-

19

Coal

Natural Gas

Nuclear

Hydro

Source: U.S. Energy Information Administration

WindSolar


De-Industrialization of U.S. and EU Reflected in CO2 Emissions

0

2

4

6

8

10

12

14

16

60 65 70 75 80 85 90 95 00 05 10 15

India

Billions of Tons

Annual CO2 Emissions from Fossil Fuels by Country, 1959-2017Source: Global Carbon Project

U.S.

EU

China

Rest of World


China is the World’s Aluminum ProducerSmelter Production of Aluminum by Country, 2016-18

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

ChinaIndia

RussiaCanada

United Arab EmiratesAustraliaNorwayBahrain

United StatesIceland

Brazil

2018 2017 2016

1,000 metric tons

Source: Statista.com


What We Know About the Montana Economy Today

• Growth since 2016 has continued• Labor market continues to tighten• State revenue growth has been good• Wheat and Calf Prices Down Another 15 Percent• Dark clouds looming for Powder River basin coal• Tech is an under-reported good news story• Gallatin County Now #2 Economy in the State


State Economic Earnings Was Steady in 2018Percent Growth, Inflation-Corrected Nonfarm Earnings, Montana

-1

0

1

2

3

4

2013 2014 2015 2016 2017 2018Source: U.S. Bureau of Economic Analysis

Percent


More than 4.2%3.0% - 4.2%2.4% - 3.0%Less than 2.4%

Montana Growth is Low by Western StandardsPercent Growth in Real Nonfarm Earnings, 2018

Source: U.S. Bureau of Economic Analysis

2.5%

3.6% 4.3%

3.9%3.2%

5.6%

4.4%

3.8%

2.3%

2.2%

4.8%


Wage Growth (NV)

UnemploymentRate (ND)

Job Growth (NV)

GDP per capita(DC)

GDP growth (WA)

Average weeklywages (WA)

-.24%3.4%

1.46%$47K

3.93%

$855

Montana’s Relative Economic PerformanceRelative Position Among All States and DC, 2019

Source: howmuch.net


Growth Carried into 2019Inflation Corrected Earnings Growth FY18-FY19

0 20 40 60 80 100 120 140 160 180

Construction and ManufacturingRetail & Whol. Trade

Finance and Bus. Serv.Health Care

Accomodations & FoodPublic Admin.

MiningOther


$ Mill.


Billings and Non-Urban Counties Performing BetterChange in Inflation-Corrected Wages by County, Montana, Through 2019Q2

-$50 $0 $50 $100 $150 $200

Cascade

Flathead

Gallatin

Lewis & Clark

Missoula

Silver Bow

Yellowstone

Rest of State

$ Millions

Source: U.S. Quarterly Census of Employment and Wages


General Fund Revenue Sources ($ Millions) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY18-19Top Seven Sources Growth Pct. Growth

Individual Income Tax 1,175.7 1,184.8 1,168.2 1,297.8 1,429.0 131.2 10.1 Property Tax 247.9 257.1 260.2 276.4 289.2 12.8 4.6 Corporation Income Tax 172.7 118.4 134.0 167.1 186.5 19.4 11.6 Vehicle Taxes & Fees 106.4 108.5 109.2 109.5 109.5 - -Oil & Natural Gas Production Tax 73.2 39.1 46.3 54.5 54.2 (0.3) (0.6)Insurance Tax & License Fees 66.6 69.3 75.6 75.3 76.1 0.8 1.1 Video Gambling Tax 59.8 60.6 60.0 60.3 63.2 2.9 4.8

Other Selected TaxesLodging Taxes 19.7 21.5 21.8 24.1 26.7 2.6 10.8 Railroad Car Tax 3.7 3.6 3.8 3.6 3.6 - -Rental Car Sales Tax 3.9 3.9 3.4 3.7 4.4 0.7 18.9 Telecommunications Excise Tax 18.3 16.8 15.6 13.7 13.2 (0.5) (3.6)Coal Severance Tax 16.1 14.2 13.8 14.1 14.1 - -Metalliferous Mines Tax 8.3 4.2 4.8 6.3 6.9 0.6 9.5 US Mineral Royalty 27.0 16.8 17.3 20.1 21.6 1.5 7.5 Wholesale Energy Tax 3.8 3.5 3.5 3.6 3.5 (0.1) (2.8)

General Fund Total 2,199.7 2,121.3 2,141.5 2,405.4 2,573.6 168.2 7.0

Another Good Year for State Revenues

Source: Montana Legislative Fiscal Division


Recent Growth Tilts West/SouthwestPercent Change in Real Wages, 18Q2-19Q2

Dawson 5.6%

Yellowstone 0.4%

Gallatin 6.5% Park 7.1%

Missoula 3.1%

Flathead 0.6%


Tech Underlies the Faster Growth Since 2015Percent Growth in Earnings Since 2015

-10% 0% 10% 20% 30%

CascadeFergus

FlatheadGallatin

HillLewis & Clark

MissoulaSilver Bow

Yellowstone

Total Professional & TechSource: U.S. Bureau of Economic Analysis


Declines in Farm Earnings Are WidespreadChange in Farm Earnings, 2018 vs. 2013, $ Millions



Montana Labor Market Still TightUnemployment Insurance Claims, 2017-19

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSource: Montana Department of Labor and Industry

2017

2018

2019


Outlook for Montana’s Key Industries

• State faces new challenges, but with good momentum• Closures in Colstrip, coal upheaval will hurt• Commodity businesses (except palladium) face prospect of price

declines• Federal government spending is good for Montana• Tech, construction, manufacturing propelling western growth• Residential construction is the wild card


2.72.2 2.2

2.9 2.5 2.7 2.31.9 1.6 1.5

01234

17 18 19 20 21 22 23

Actual Projected

Source: BBER and U.S. Bureau of Economic Analysis

Percent

Source: BBER and U.S. Bureau of Economic Analysis

Growth in Nonfarm Earnings,Montana, 2017-23

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