Montanas Growth Stall: Real or Artificial? Patrick M. Barkey, - - PowerPoint PPT Presentation

Montana’s Growth Stall: Real or Artificial?

Patrick M. Barkey, Director

The Montana Economy at Mid Year

• No sign yet of an end to the earnings growth malaise that began

in 2016

• Ag producers have something new to worry about: drought
• Is the environment for natural resource producers improving?
• Labor market, unemployment rates continue to improve
• Business proprietor income suffering steep declines
• Is the slow growth real, or an artifact of the national election?

Growth Stall Not Visible From Job Growth

Percent Growth in Covered Employment, Montana, 2014-16

1 2 3 4 5 6

All Jobs Construction Health Care Manufacturing 2014 2015 2016

Percent Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages

Fiscal Year FY2016/ FY2017 2015 2016 2017 Change Pct. Change Individual Income Tax 1180.5 1181.0 1178.0

• 3.1
• 0.3%

Estimated Payments 271.2 278.5 271.3

• 7.3
• 2.6%

Refunds

• 256.1
• 275.3
• 289.1
• 13.8

5.0% Withholding 875.2 900.5 940.9 40.4 4.5% Property Tax 258.0 275.0 272.3

• 2.7
• 1.0%

Corporation Tax 168.0 119.0 125.0 6.0 5.1% Oil and Gas Prod. Tax 187.8 95.5 98.1 2.6 2.7% Coal Severance Tax 61.8 54.5 55.4 0.8 1.5% General Fund Revenues 2169.1 2110.4 2134.7 24.3 1.1%

Montana General Fund Revenue Collections, FY15-FY17, $ Millions

Spring Was Cruel to the Montana Treasury

Percent Change Jan-May 2017 vs. Jan-May 2016

• 15
• 10
• 5

5 10

Withholding Estimated Tax Final Payments Refunds

• Tot. Pers. Inc. Tax

Montana U.S.

Source: Rockefeller Institute

Fast Growing States Concentrated in West, Southeast Regions

Percent Growth in Real Wages, 2015-16

5.8% 5.4% 5.1% 2.4%

• 7.3%
• 6.1%
• 2.8%

Trajectory of Wage Growth Different in Montana

2 4 6 10 11 12 13 14 15 16

Growth in Real Wages, Percent, 2010-2016

Montana Source: U.S. Bureau of Economic Analysis

Percent

Washington Idaho

2 4 6 10 11 12 13 14 15 16 2 4 6 10 11 12 13 14 15 16

4.4 1.9 6.1

Idaho Montana Washington

12.3 2.4 9.7

Idaho Montana Washington

Total Wage Growth, 2016, Percent Construction

0.9 1.9 10.6

Idaho Montana Washington

Information

18.4

• 0.2

4.4

Idaho Montana Washington

• Admin. Services

3.9 2.2 23.1

Idaho Montana Washington

Retail Trade

Source: Quarterly Census of Employment and Wages, U.S. Bureau of Labor Statistics

Montana Business Proprietor Income Saw Setbacks in 2016

Composition of Earnings, Montana, 2016

Wages 68% Other Labor Income 18% Propriet

• r

14%

Percent Growth, 2014-2016

• 12
• 10
• 8
• 6
• 4
• 2

2 4 6

Wages Other Labor Income Proprietors Earnings

2014 2015 2016

Source: U.S. Bureau of Economic Analysis

Comparison of Earnings Growth is Less Favorable to Montana

Percent Growth in Real Earnings, 2015-16 Earnings Growth 0.6 %

Collapse of Farm Earnings Shows Up in Overall Growth

Percent Growth in Real Farm Earnings, 2015-16 Montana Earnings Growth -71.2 %

What’s Driving Growth in Montana: Earnings Growth

• 300
• 200
• 100

100 200 300 400

Construction and Manufacturing Retail & Wholesale Trade Finance and Business Services Health Care Leisure & Hospitality Government Mining Other

2014 2015 2016

$ Millions

Source: U.S. Bureau of Economic Analysis

Note: Growth in Inflation-Corrected Earnings.

499.90 875.80

($ per troy oz.)

Palladium 860.50 1520.36 2845.55

($ per Metric Ton)

Zinc 2573.40 30.34 106.55

($ per Barrel)

Oil 45.16 Low High 4471.79 8470.78

($ per Metric Ton)

Copper 5719.76 Metals & Energy (as of June 20 17) 1.59 2.72

($ per Pound)

Beef 2.06 4.89 3.33 9.82

($ per bushel)

Wheat

4.62

2.56 5.63

($ per bushel)

Barley 3.07

370.69 [Current]

Materials & Foodstuffs (as of June 20 17) Low High 312.14 559.24

($ per Thousand BF)

Lumber 521.22 current

Select Commodity Prices June 2017 vs. 5-Year High and Low

Source: International Monetary Fund

4.28

200 400 600 800 1000 1200 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 2011 2012 2013 2014 2015 2016 2017

Small, But Measurable Recovery in North Dakota Oil Rig Count

Source: Baker-Hughes

Millennium Location

Millennium Bulk Terminals Longview, WA

Residential Construction Remains Restrained

1000 2000 3000 4000 5000 6000 7000 8000 9000 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Single Family Multi-Family

Housing Starts, Montana Source: Bureau of Business and Economic Research

Updating the Montana Economic Outlook

• Forecast of slower earnings growth in 2017 remains intact
• News could get worse for farmers and ranchers
• Western Montana continues to pace growth
• Construction is a wild card
• Where will the next growth spark come from?

Some Perspective on Infrastructure Investment

BNSF Railways Capital Spending in Montana Since 2014: $500 million

Three Caveats for Tax-Financed Infrastructure Spending

• Infrastructure spending does not always produce economic

growth [Erie Canal vs. California High Speed Rail]

• The Obama Stimulus taught us the limits of infrastructure

spending as a policy tool to help struggling economic areas [Depression era projects like the Triborough Bridge in NYC built in 4 years, Boston’s Big Dig took 25!]

• Paying for things with taxes guarantees political distortions

Questions?