12/1/2003
KUFM / KGPR
T. M. Power
How Others See the Montana Economy:
Not So Negatively
Earlier this month the New York Times ran an article in their
business section that discussed “Winners and Losers, Economically Speaking.” It
reported on how the fifty states had done since the most recent recession was
supposed to have ended. Any Montanans
reading that article
would have been shocked. The article concluded that “since 2000, no state looks
better than Montana.” The economic
rankings of the states were based on a half-dozen economic indicators including
unemployment, job creation, income growth, poverty rate, health care coverage,
and bankruptcy filings that the national AFL-CIO thought were the most relevant
economic indicators for working families.
Actually, Montana would have looked even better if the October
unemployment figures had available. Unemployment in Montana dropped almost a full percentage point between
September and October, giving Montana an unemployment rate of 4.2 percent compared to the
nation’s 6 percent. In Missoula
the unemployment rate was 2.8 percent, less than half that of the nation.
For the nation as a whole, the
economic index was -5.1 indicating significant deterioration in economic
conditions despite the fact that the recession is supposed to have ended and
the economy is supposed to be recovering. Montana was the only state in the nation with a positive
ranking, indicating actual improvement.
The improvement was very modest, 0.7, but substantially better than almost
all other states.
What’s going on here? We are regularly told by our political
leaders that Montana has one of the worst economies in the nation and
that drastic measures are needed so that we can be more like the rest of the
nation.
Actually, this is not the first time
that Montana has done better than most of the nation during a
recession. During the 1990-91 recession,
Montana’s economy hardly blinked as job and income growth
continued upward while the national economy temporarily stalled.
Montana’s economy used to be described, with a bit of
exaggeration, as being “recession proof.”
The reason for this is tied to what usually is described as one of Montana’s economic weaknesses, its very limited
manufacturing base. Montana’s economy has always been one of the least
industrialized economies in the nation. Most of our manufacturing was
associated with either the forest products industry or metal smelting with a
small amount of food processing. Even with that specialization, a relatively
small percentage of our workforce was employed in manufacturing facilities.
That often led to the
characterization of the Montana
economy as being “under-developed” since the symbol of a modern economy once was
heavy manufacturing. But manufacturing activity
that feeds national and international markets is also the conduit through which
national recessions are imported into the local economy. As the demand for
manufactured goods withers, new orders fall, and manufacturing is one of the
first sectors to begin laying off workers. With limited manufacturing in Montana, our economy is not jerked around as much by that
economic connection with the national economy. Of course that also means that
when the national economy is booming we do not get pulled upward as rapidly
either.
Our specialization in wood products
and agriculture also tended to insulate us from the normal national business
cycle. During recessions, interest rates usually fall, stimulating the demand
for housing. That increases the demand for wood products in a way that tends to
offset the economic decline. The demand
for food is relatively stable even during recessionary periods. As a result, national recessions do not have
a major impact on that sector of our economy either. That is not to say that
wood products and agriculture are not cyclical industries. Earnings in both of
these industries fluctuate widely, but those fluctuations are usually
independent of national business cycles. That usually keeps a lot of economic
bad news from hitting Montana
all at once. But sometimes that does happen, as in the “depression” Montana and other rural states faced in the first half of
the 1980s.
If there is a moral to this economic
tale, it is that it is not easy to tell a simple economic story about Montana. Some of our purported weaknesses often have been
the source of our economic stability. Some of the things we dream would happen
here might actually increase our economic instability. Finally, what goes up,
usually comes down: A more stable economy at times will appear to be a poorly
performing economy until the decline or stagnation sets in.
In any case, over the last several
years, we Montanans have had some economic good news to be thankful for, even
if our political leaders will not admit it.