Recession may skip over Montana, expert says

By ERIN MADISON
Tribune Business Writer

Even if the rest of the country slips into a recession, Montana's economy will keep growing, according to economist Paul Polzin.

Polzin, who is the director of the Bureau of Business & Economic Research at the University of Montana, presented his predictions for 2008 Wednesday during the annual Montana Economic Outlook Seminar.

If the United States' current slowdown turns out to be a recession, which is defined by two consecutive quarters of negative economic growth, it most likely won't impact Montana's key industries, Polzin said.

In fact, he predicts a growth rate of about 4 percent per year from 2008 to 2011.

Montana's growth is determined more by worldwide factors than by national ones, he said.

The financial services industry is one area that will be impacted by a recession. However, that industry is mainly located in New York, Los Angeles, San Francisco and other major cities.

Until recently, Polzin thought Montana wouldn't feel any impact from the financial services industry. However, after Citi Bank announced it was closing its Great Falls operation, it appears that Montana will see some impact, he said.

Durable manufacturers, such as car companies, also will be hit, because people will be spending less, he said.

However, Montana isn't home to any car manufacturers.

Additionally, while manufacturing has been declining nationwide, the industry has grown in Montana.

Home building will slow in a recession and Montana will feel that because of the effect it will have on the state's timber businesses, Polzin said.

Montana also will feel the impact of a slowdown in construction, he said.

Some other factors that will keep the state's economy afloat, according to Polzin, are that Montana's metal and energy-related mining projects have grown and tourism is growing at a rate of about 2 percent annually.

Additionally, the federal government expanded its offices in Montana after the Sept. 11, 2001, terrorist attacks, and wheat prices have been ballooning.

"We have had strong conditions in a number of our basic industries," Polzin said.

Data about the effect high wheat prices, which peaked at around $10 per bushel, will have on the economy is still trickling in, so Polzin doesn't know the real impact yet.

Despite staying out of a recession, individual Montanans will still feel the impact of the nationwide foreclosure problems.

He added that Montana's foreclosure rate is higher than eight other states.

It's easy to see what happened with the U.S. housing market, Polzin noted.

Prices accelerated in 2004, reached a peak in 2006, and have been going down since, he said.

Montana housing prices haven't decelerated quite as quickly as the national average, Polzin said, but added they had hit a price bubble that is now bursting.

Within Montana there are some counties that have been hit harder by foreclosures than others.

The worst hit is probably Flathead County, Polzin said.

Still, Montana's foreclosure rate has held at 1 percent to 1.5 percent since 1997, said Scott Rickard, director of the Center for Applied Economic Research at Montana State University-Billings, who also spoke at the seminar.

In Montana, less than 10 percent of loans since 1995 have been subprime, which are more likely to lead to delinquency.

Nationwide, that rate is 14 percent, Rickard said.

Regarding the housing market, Rickard was optimistic about 2008.

"In general, we've got a fairly good year coming up in terms of compared to the rest of the nation," he said.

 

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