1/28/2002

KUFM / KGPR

T. M. Power

Which Way Is Up? Puzzling Over the “Failing” Montana Economy

The widely shared conventional wisdom is that the Montana economy is in a state of collapse, left behind many years ago by the national economy because the state broke faith with its past and abandoned the natural resource industries on which the original European settlement of the state was based. The Governor has set up a new agency and recruited a high-paid hired gun to rebuild the economy and reverse this past drift away from our “natural resource base.”

It is a bit disorienting, then, to see headlines popping up that suggest something quite different from economic collapse.

First came news from the Flathead Valley, one of the areas that we are told was hit the hardest by the dramatic decline in federal timber harvest during the 1990s, that the unemployment rate in 2001 was the lowest in the last third of a century. Given that the nation fell into a recession early in 2001, this is all the more startling.

Trying to correlate the unemployment rate with the level of harvest from the National Forests is more than a little problematic. Timber interests have trumpeted the accusation that reductions in timber harvest have been destroying our communities in Western Montana. But in 1988 when the Montana timber harvest reached its all time peak, the unemployment rate in the Flathead was over 50 percent higher than it was last year when the harvest from the Flathead National Forest was only a tenth of what it was in 1988. During the 1990s as a whole, when harvests were a fraction of what they peaked at in the 1980s, the unemployment rate was 20 percent lower and falling for most of the decade. Flathead County was also one of the most rapidly growing counties in the state. Clearly someone has been blowing a lot of economic smoke our way, trying to scare us into making desperate choices when we were not desperate at all.

The relatively high unemployment rate in the Flathead Valley over the last 30 years seemed strange given the ongoing growth taking place there. The unemployment rate in the Bozeman area, another of Montana’s fastest growing counties, is typically 60 percent below what it is in the Flathead Valley. When the unemployment rate in the Flathead recently was 8 percent, it is 3 percent in the Gallatin Valley. Part of the explanation for this is that what is usually assumed to be a blessing, high wage industries, actually leads to relatively high unemployment rates. The Flathead had several companies that pay well above average wages, including Columbia Falls Aluminum and several forest products manufacturing facilities. When workers are laid off at these facilities either because of cyclical declines or technological displacement, the workers stick around, hoping to be re-employed because no other local business pays wages as high. In the Bozeman area, there are no such large, high-paying industrial facilities. Because of that, workers more quickly adjust to layoffs, taking other jobs rather than waiting around hoping to be re-employed. As a result, they remain unemployed a shorter period of time. In at least that sense, the higher unemployment rate in the Flathead was not a sign of a failing economy, but a sign of an attractive feature of the local economy: the presence of unusually high-paying firms.

There was other relatively good news on the performance of the Montana economy recently. For the State of Montana as a whole during the middle of 2001, wage and salary income grew almost three times faster than it did in the nation as a whole. Total personal income grew almost 70 percent faster than the nation. Looking back over a 12-month period, our incomes also grew faster than the nation as a whole. Of course, this isn’t primarily because Montana was doing spectacularly well, but rather because the rest of the nation had slowed dramatically, falling into a recession, while the Montana economy continued to grow modestly. Still, it says something about the resilience of the Montana economy.

Then there are the job growth projections for the coming year reported earlier this month. Although the job growth projections for Montana represent a slow down from what we experienced over the last two years, the projections are that job growth in Montana will be one of the highest in the country. Only two states are expected to do better. While jobs in the nation will decline by about a half percent, they are projected to expand by one percent in Montana, adding about 5,000 jobs. Interestingly, the other states in the nation that are projected not to join the national recession and lose jobs but instead continue to generate new jobs are the other “low income” Mountain West states of Idaho, Wyoming, Utah, and New Mexico.

Montana also dodged the recession bullet back in 1991. The explanation for this resistance to mild national recessions is tied to the very economic structure that is usually decried as impoverishing us. Montana is not heavily industrialized and, as a result of industrial restructuring during the early 1980, Montana’s primary industrial operations, metal mining and smelting and logging and forest products manufacturing, shrank significantly while the rest of the state economy expanded. Nationally oriented manufacturing operations, whatever can be said about the wages they pay, are very vulnerable to fluctuations in the national economy. Export-oriented firms are both the conduit by which income is injected into the Montana economy and the conduit by which national recessions are imported into the state. Because we are no longer as dependent as we once were on a few export-oriented industries, we are partially insulated from national recessions.

These positive Montana economic indicators despite a steady stream of negative economic characterizations coming from Helena suggest that there is more to the Montana economic story than we are usually told. But, then, most of us already know that, since we have not yet packed up our belongings and headed for Chicago, Los Angeles, or Dallas-Forth Worth.