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 Percent 6 5 4 3 2 1 0 All Jobs Construction Health Care Manufacturing 2014 2015 2016 Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages

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

Spring Was Cruel to the Montana Treasury Percent Change Jan-May 2017 vs. Jan-May 2016 -15 -10 -5 0 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% 2.4% -7.3% 5.1% 5.4% -6.1% -2.8%

Trajectory of Wage Growth Different in Montana Growth in Real Wages, Percent, 2010-2016 Montana Idaho Washington Percent 6 6 6 4 4 4 2 2 2 0 0 0 10 11 12 13 14 15 16 10 11 12 13 14 15 16 10 11 12 13 14 15 16 Source: U.S. Bureau of Economic Analysis

Construction Admin. Services Total Wage Growth, 12.3 18.4 Idaho Idaho 2016, Percent 2.4 -0.2 Montana Montana 4.4 Idaho 9.7 4.4 Washington Washington 1.9 Montana Information Retail Trade 6.1 Washington 0.9 3.9 Idaho Idaho 1.9 2.2 Montana Montana Source: Quarterly Census of Employment and Wages, U.S. Bureau of 10.6 23.1 Washington Washington Labor Statistics

Montana Business Proprietor Income Saw Setbacks in 2016 Percent Growth, 2014-2016 Composition of Earnings, Montana, 2016 Propriet 6 or 4 14% 2 0 Other Wages Other Labor Proprietors Earnings -2 Labor Income Income -4 18% -6 Wages 68% -8 -10 -12 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 0 100 200 300 400 $ Millions Construction and Manufacturing Retail & Wholesale Trade Finance and Business Services Health Care Leisure & Hospitality Government Mining Other 2014 2015 2016 Note: Growth in Inflation-Corrected Earnings. Source: U.S. Bureau of Economic Analysis

Select Commodity Prices June 2017 vs. 5-Year High and Low Materials & Foodstuffs Metals & Energy (as of June 20 17) (as of June 20 17) Low High Low High Copper Lumber 370.69 [Current] 5719.76 521.22 current ($ per Metric Ton) ($ per Thousand BF ) 4471.79 8470.78 312.14 559.24 Barley Palladium 4.62 860.50 3.07 ($ per bushel ) ($ per troy oz.) 499.90 875.80 5.63 2.56 Beef Zinc 2.06 2573.40 ($ per Metric Ton) ($ per Pound) 1.59 2.72 1520.36 2845.55 Oil Wheat 45.16 4.89 4.28 ($ per Barrel ) ($ per bushel) 30.34 106.55 3.33 9.82 Source: International Monetary Fund

Small, But Measurable Recovery in North Dakota Oil Rig Count 1200 1000 800 600 400 200 0 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 Source: Baker-Hughes

Millennium Location Millennium Bulk Terminals Longview, WA

Residential Construction Remains Restrained 9000 8000 Single Family 7000 6000 5000 Multi-Family 4000 3000 2000 1000 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 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?