What’s Next for Montana?
By Evelyn Pyburn
The state’s economy is in a state of “extreme fluidity”
The declaration was in response to the question, “Where are we Now and What’s Next?”
It was the theme question posed by economist Pat Barkey, Director of the Bureau of Business and Economic Research at the University of Montana, in a virtual version of the annual program “Montana’s Economy at Mid-Year,” last week.
“We are starting to get used to where we are but where are we exactly?” posed Barkey, adding that because of the uncertainty, “We have shortened our horizons and are more concerned about next week and next month.”
“This is a situation of active management for a considerable period of time.” But, “Montanans are capable of adapting.”
Not all of the news is bad, said Barkey, explaining that much of the data they need to understand what is going on is slow in coming. “We are certainly in a second phase, he said, “In terms of economy we are grappling with the challenge. ..it is a fluid situation but we are getting more clarity. We are looking at steep declines, strong bounce backs and persistence in going forward.”
The US Economy has “turned in one of the worst performances ever recorded.” GDP (Gross Domestic Product) dropped by 33 percent (as an annual rate).
“You have to go all the way back to the 40s to have this kind of hit to the economy …it is of a different order of magnitude than any other decline in history.”
Despite the decline, the “bounce back in jobs and consumer spending since then has also been impressive,” said Barkey.
The current forecasts call for a 17 percent growth in GDP in the third quarter.
There is going to be some permanent changes as a result of COVID impacts.
Why did it happen? “Because consumer spending was in free fall.” Consumer spending saw a 25 percent decline in the second quarter – another fact that is without precedent, a description that Barkey conceded everyone is probably “sick of hearing.”
While data is slow in coming for updates as to the state of Montana’s economy, much about Montana’s economy is similar to other areas of the country where there is more data, which allows researchers to draw some parallels.
Data from credit card transactions in Montana, shows there was a “huge hole in spending in late March and early April – a 8 percent spending decline.
Consumer spending seems to have cratered mostly in accommodation services and health care.
At the same time, “consumer income rose and it rose strongly… primarily because of transfers from federal government.” Also, more people are saving more… the aggregate spiked from single digit to 25 percent.” Barkey further noted that “it is not just that consumers are reticent about spending, they couldn’t” – they were on lockdown and many stores were closed.
“The US forecast is very much a moving target.” While it was a strong bounce back, it is not going to take us back to the economy of before – nor will it in Montana.
“There is more optimism about 2020 than there was several months ago, but trends in infections is lowering expectations for 2021 and 2022.” A July revision puts more pessimism into the speed of a come back. It will take months if not years to recover.
“We are going to see very, very low interest rates for the next couple of years.”
“We are going to have negligible inflation and a weaker dollar.”
One impact of the virus that is not being talked about much is the collapse of international trade, said Barkey, which dropped by 50 percent and is one reason why some products – such as bicycle or pharmaceuticals “aren’t on the shelves.”
There has been a huge influence by Congress and the Federal Reserve, said Barkey, going on to say that one of the best things to have happened was the rapid response in getting money dispersed to the American people and businesses.
“The one mistake they didn’t make was to dawdle about it.”
“I think the actions of Congress have been quite helpful, but let’s not have false hope that we can spend our way out of here.”
The extraordinary actions taken by Federal Reserve have quietly revolutionized what management of the economy means,” said Barkey, while the US is $2 trillion more dollars in debt, distribution of money to businesses and citizens “has stabilized and normalized markets.”
“It sent an extreme message that we are going to have an ordinary economy… and the panic and fear is gone in the financial markets.”
“The first quarter for Montana was pretty good, according to Barkey. Initially, “We thought we were in a recession that would be twice as large as the Great Recession.”
“Unemployment data says it is a very seismic event, but state tax collections don’t agree,” he said. The state General Fund suffered a mild revenue decline of 1.6 percent. In fact, individual income taxes had a slight increase, but other categories declined, not least of which was oil and natural gas production which declined 29.2 percent.
Some studies indicate that the economic activity across the state stabilized through June.
Business openings which fell 40 percent because of forced closures, “are returning to early March levels… we are coming close to having all businesses open.”
There’s a lot to be worried about in energy markets, said Barkey. Bakken oil production has seen a record fall. The spot price of crude oil went negative for one hour one day. All of which is important for Billings and points east.”
“Grocery store spending is amazing.” There has been a huge shift in consumer spending away from restaurants to grocery stores.
The hospitality industry, restaurants and hotels, have taken “a major hit” with spending down by 45 percent.
Housing prices haven’t changed much – “they are going up just like before the down turn.” There’s definitely “a lot of heat in the housing market.”
About people moving in great numbers to Montana, Barkey was dubious. “You have to convince me that someone who has lived in New York all their lives is going to move to Montana and be happy, in enough numbers to be significant.”
While there is much anecdotal information about the number of out-of-state vehicles seen traveling through the state, Barkey said the credit card data says they aren’t spending as much. And, he further noted that businesses that cater to tourism are not reporting booming business and many have not bothered to open for the tourist season at all.