Western Montana economy keeps on growing into new year

By PAMELA J. PODGER of the Missoulian

Western Montana's economy will continue chugging along in 2008, but the region's prospects will be tempered by national concern about a possible recession and widening fallout from the subprime mortgage crisis.

Newcomers who continue to move to the western part of the state, from the Flathead Valley to Bozeman, have fueled growth in construction, real estate and other sectors. But the pace will abate.

"For 2008, economically, it is going to be a good year but it won't be a fast-growth year," said Larry Swanson, regional economist and director of the University of Montana's O'Connor Center for the Rocky Mountain West. "The in-migration has slowed down and that means our economy is slowing down. That is translating in a whole variety of ways."

Western Montana continues to shift away from a rural, land-based economy to one that mirrors the nation's with myriad jobs in computers, health care, trades and other sectors, said Thomas Power, economics professor at the University of Montana.

"In western Montana, we've become a more complete economy with more diversification," he said.

As people gravitate to small cities, they will become more diversified and urbanized.

"The lower the in-migration is, the more manageable it is and keeps the place from becoming congested and the quality of life degraded. I'm not sure we should wring our hands over this - we will avoid becoming a California or a Puget Sound," Power said. "This way, we can grow and enjoy the amenities of the area."

What growth does occur in the Rocky Mountain West is more focused into fewer areas, especially those with recreational offerings and natural amenities of national parks, forests, lakes and rivers.

Swanson predicts population growth in 2008 of about 3 percent to 4 percent in the Gallatin Valley, which is near Yellowstone National Park. The Flathead Valley, with its easy access to Glacier National Park, will experience a 2 percent to 3 percent increase. Growth in the Bitterroot Valley is likely to slow to about 2 percent a year and the Missoula Valley, Helena and Billings area will drop to about 1 percent each. Other areas of Montana aren't seeing any population growth and many will have continuing declines, he said.

With about 426,000 payroll jobs in Montana, recruiting and retaining workers will remain a challenge next year. Western Montana's labor market has tightened more quickly than expected, Swanson said, as the baby boomers who moved into the region 15 years ago now make up an aging work force.

That aging population will affect construction, too, with greater demand for townhouses, condos and apartments instead of single-family homes.

Fewer new bodies and an older workforce are likely to mean rising wages. Montana has one of the lowest unemployment rates in the country, said Brad Eldredge, former chief economist for the Montana Department of Labor and Industry. He said the state's unemployment fell to an all-time low of 2 percent this past March, but crept up to a seasonally adjusted 3.1 percent by October.

"It is basically a seller's market for labor," Eldredge said. "You'd expect it to become a little tougher to recruit and you can see more bargaining power go to the workers."

Employers can attract and retain workers in creative ways, such as offering flexible schedules, generous health-care packages and opportunities for training, he said. Wages have "plenty of room for growth," as Montana ranks 49th in the nation, just ahead of South Dakota.

Western Montana has been relatively insulated from the subprime mortgage crisis, but there may be spillover in 2008. That's especially true if the country enters a recession and housing continues to slump.

Said Paul Polzin, director of the University of Montana's Bureau of Business and Economic Research: "People who think we will completely avoid that problem are probably incorrect. There are above-average mortgage foreclosures here, but it is less severe than Los Angeles, Florida, southeast Michigan" and elsewhere.

Cathy Swofford, broker and owner of Missoula Mortgage, said the fallout from the credit crisis includes more rigorous criteria for mortgage loans, such as verifiable income and assets. That plays out differently in Montana, where state officials say 20 percent to 25 percent of workers are self employed.

"I'm seeing a large number of self-employed people finding it more difficult to qualify under conventional loans," Swofford said.

She recently received notice that Fannie Mae will require higher credit scores for conventional loans. If an applicant's credit score doesn't meet those stringent requirements, then borrowers could face loans with substantially higher interest rates, she said.

Overall in 2008, "I think Missoula is going to be fine," Swofford said. "Things are not going to move as quickly as sellers like, but houses will move."

For more than 100 years, Montana's economy has been tied to logging, mining and farming, but those industries are no longer as dominant in western Montana's 14 counties.

Polzin is concerned by the "big negative" of what will happen next year in the timber and wood-related industries.

"Here in Missoula, the wood products industry accounts for roughly 13 percent of the economic base," Polzin said. "It's a major player in the local economy. A general rule is for every job lost in wood products, two other jobs are lost."

Steve Holland, director of the Montana Manufacturing Extension Center - which has worked with about 550 firms in the last decade, said sales continue to grow. Furniture, lumber and other wood-products businesses remain dominant in the western part of the state. Manufacturing statewide is clustered in four areas near Kalispell, Missoula, Billings and Bozeman.

He said prospects for 2008 in manufacturing in the state remain strong. "I think we're going against the national trend, where it has flattened, and Montana will continue to grow."

Commodity prices for oil and gas remain high, mainly benefiting eastern Montana. Experts said western Montana's economic base will continue shifting into high tech, service and health care jobs.

Following recent trends, "my projection is another 2.5 percent increase in the health care work force in 2008. That amounts to about 1,400 jobs," said Patrick Barkey, director of the health care research program at UM's Bureau of Business and Economic Research.

Swanson said a rear-view mirror is helpful in trying to determine what 2008 will look like after 15 years of economic expansion, personal income growth, high employment and a tightening labor market.

"As the influx slows, the question is do we have legs under us that will support the weight of a sustainable, prospering economy?" Swanson said.