THE LOCAL NEWS OF THE MADISON VALLEY, RUBY VALLEY AND SURROUNDING AREAS

The Labor Day Report shows where Montana's economic situation has been and is headed.

A closer look at the Labor Day economic report

A closer look at the Labor Day economic report

HELENA – Every Labor Day, the state’s Department of Labor & Industry (DLI) produces a report on the performance of Montana’s economy during the past year, a barometer of the state economy. The report, the Labor Day Report (LDR), is worth a closer look because it says quite a bit about where the state’s economy is heading and what’s driving it. With those goals in mind, here is a closer look:

“Montanans can look forward to future economic growth and prosperity,” says DLI Commissioner Galen Hollenbaugh, in this year’s report. “With a strong, diversified, and constantly changing economy, Montana entrepreneurs and workers remain nimble enough to turn obstacles into opportunities and face future challenges. Continued partnerships between businesses and workforce training organizations will ensure that Montana’s economic future continues to be bright.”

Hollenbaugh justifies these statements by noting that Montana’s economy experienced growth over the last year, adding jobs and wealth for both businesses and workers: Real wages increased, DLI notes, with some 4,600 jobs created. Also Montana reported the fourth fastest wage growth among states during the last decade. In 2017-18, average wages increased by 3.2 percent to $42,045, and all regions of the state experienced wage gains. Wages topped the rate of inflation by 1.3 percent, according to Hollenbaugh. This allowed Montana families to achieve a higher standard of living with their earnings. 

 

The good news

Growing wages

Even when impacted by national inflation, Montana workers continue to find a better standard of living than in previous years due to real wage growth.

Tighter labor markets have resulted in fast wage growth for Montana families. 

Average wages posted strong gains in the last year, increasing by 3.2 percent to more than  $42,045.

With inflation increasing by 2.1 percent, real wages have grown by 1.1 percent. Real wage growth suggests that Montana workers have been able to afford more goods and services with their wages, increasing their standard of living. Montana has posted strong real wage growth for most of the last decade, with the fourth fastest wage growth among states from 2007-2017.

The average wage has increased by $9,800 since 2007.

 

Rising income levels

In addition to wage growth, Montanans have also benefited from growth in income from other sources: 

People earn income in a variety of ways – wages from a payroll job, profits from business ownership, or rents and royalties from property ownership. Nonwage income also includes government transfers (like Social Security).

Montanans tend to earn a larger portion of their income from nonwage sources than most Americans, with 23.4 percent of personal income coming from dividends, interest, and rents compared to less than 20 percent nationally. Montana ranks third in the nation for the highest share of personal income coming from dividends, interest, and rents.

 

Entrepreneurship

During the last year, more than 2,940 new businesses were created by Montana entrepreneurs. These new businesses have great importance to the state economy because nearly 15,000 Montanans work in businesses less than 2 years old and roughly 45,000 Montana workers are employed by businesses that have been created in the last five years.

Montana entrepreneurs are among the most successful in the nation at starting and developing new businesses: Nationwide, new businesses have about an 80 percent chance of staying in business for at least one year, a 70 percent chance of staying in business for two years, or a 63 percent chance of staying in business for three years.

While the one-year survival rate for new businesses in Montana is similar to the U.S. rate (79.8 percent compared with 78.6 percent), Montana entrepreneurs are more successful in the five-year and ten-year timeframes. The likelihood of keeping a business running for five years is 56.2 percent in Montana, compared with 48.6 percent in the U.S. The ten-year survival rate is 39.6 percent compared with the U.S. rate of 33.5 percent.15

A large share of personal income from proprietor’s income, dividends and rents is another indication of Montana’s high level of entrepreneurialism: 9.8 percent of personal income comes from proprietor income, ranking Montana the 11th highest among states. Also, Montana has the highest rate of business ownership among households, with 21 percent of state households reporting income from a business or a farm.

 

GDP growth

Montana’s real Gross Domestic Product growth during the 2007 - 2017 timeframe outpaced the nation, adding 1.3 percent per year (roughly $513 million) compared to 1.2 percent in the U.S. Montana’s total GDP in 2017 was $48 billion in nominal terms; real GDP was $41.8 billion in 2009 dollars.

Much of the growth during the last 10 years has been in healthcare and real estate. During the last five years, manufacturing also experienced strong growth: Montana was the fastest growing state for manufacturing GDP in 2016. This slipped in 2017, declining 5 percent, but still added more than $100 million in GDP during the last five years. Montana’s manufacturing sector had the third fastest growth among states during the last five years.

 

Southwest region growth 

Much of Montana’s recent economic growth is happening in the more populated areas of the state, the LDR says, especially in the industries of healthcare, construction, professional services and finance and real estate. These industries had strong gains from 2016 – 2017, resulting in strong job growth in western Montana, where these industries are concentrated.

The Southwest region in particular posted payroll job gains of 2,100 for 1.6 percent growth; the Northwest region added 2,250 payroll jobs in 2017 for 1.7 percent growth. By contrast, the Eastern region posted strong growth exiting the recession, but has since lost nearly 600 jobs over the last year, down 1.9 percent. The central region had little change in payroll employment.

The Southwest has been the fastest-growing region since 2007. Currently, the Southwest is 14 percent higher than its 2007 employment level or 20 percent higher than their recessionary low.

The manufacturing sector in the Southwest has grown steadily, adding 230 jobs in the last year and 1,130 over the last ten years. Construction added added 2,500 jobs for annual average growth over 6 percent. Healthcare added 440 jobs in 2017. Yet the largest payroll job gain in the Southwest was tourism, with the leisure activities adding 3,400 jobs in the last five years.

 

Diversity 

Diversity in industries remains one of Montana’s greatest assets, the LDR says, allowing the state to withstand changes in the economy. While the mining and agricultural industries have lagged, other industries are doing well.  For example, the healthcare industry grew by $251 million in personal income in the last year, contributing over $4.4 billion total to the economy and more than offsetting the losses in mining, utilities, and agriculture. All other industries also posted gains, with construction growing more than $102 million in personal income from 2016-2017. Financial activities also experienced growth in the last year that exceeded 4 percent.

 

Labor

Montana has been facing a tight labor market for some time, with unemployment rates at 4.3 percent or lower since the beginning of 2015. Strong wage growth and slower employment growth suggest that Montana’s labor markets are tightening, that workers are in high demand. Increased labor force participation among older workers and among those under 35 has prevented further tightening of the labor market for the last two years.

However, with steady growth in employment and Baby Boom generation retirements continuing – some 100,000 workers are expected to retire in the next 10 years, almost a fifth of the state’s current labor force – Montana’s labor market is expected to tighten in 2018 and beyond. 

Labor growth in the next five years will be sustained by people aged 25 - 44. The labor force in the next five years is also expected to expand by roughly 3,200 workers per year; while employment is projected to grow by 4,200 jobs per year, pushing unemployment rates even lower.

After 2022, the labor force should expand more quickly – the Baby Boomers will be mostly retired. From 2022 - 2027, the labor force is projected to grow by about 4,000 workers annually. Because this labor force growth is higher than the expected job growth of 3,500 per year, labor constraints should ease. 

 

Not so hot news

 

Low wages

Despite the growth in wages, Montana wages remain lower than in many other states. At $40,045, Montana’s wage ranks 48th in the nation. “Montana is catching up to the national average,” LDR claims.

Part of the low wage rank is because Montana has a high share of part-time jobs, 32.9 hours per week per job, among the lowest in the nation. 

This low number of hours worked is not because Montana has fewer full-time jobs – 48 percent of working age adults in Montana work full-time jobs – LDR says, it’s because Montana has more people working part-time jobs instead of not working. Nationally, 25 percent of the working age population did not work, compared to only 20 percent in Montana. This high share of part-time jobs pulls down Montana’s average annual wage per job. When comparing hourly wages, Montana’s rank improves to 37th in the nation, averaging $23.10 per hour for private payroll jobs. 

 

Agriculture, mining

Crop and livestock prices are down for ag producers, and changes have threatened Montana’s energy industry, particularly for coal and coal-fired power plants. Several communities in the southeast corner of Montana are highly dependent on the tax revenues and income from coal-related industries. While coal production increased in 2017, long-term demand remains uncertain while low natural gas prices provide a cheaper alternative for power generation.

 

National inflation risks

There are several national inflation concerns taking place:

• Tight employment markets can increase inflationary pressure as businesses increase prices of goods to cover rising wages. High national unemployment rates kept national wage growth fairly anemic until recently. Now that the national unemployment rate has decreased, inflation is a greater concern.

• Tax cuts and additional government spending are further driving up inflation concerns.

• Tariffs and other trade barriers implemented to protect certain industries have the negative effect of increasing input prices for other industries and putting upward pressure on consumer prices. 

These influences have increased the U.S. inflation risk, making it difficult for Montana families to stay ahead of rising prices.

Although still relatively low in historic terms, the Consumer Price Index, the most commonly used measure of inflation, has increased by 2.9 percent during the last year. Montanans see inflation in rising gas, food and housing prices. 

During the last year, gas prices are up more than 24 percent, slowing tourism and putting pressure on workers’ paychecks. Montanans already spend a high share of their budgets on gas – the average resident spent $1,323 on gasoline in 2016, the 8th highest in the nation.

Homebuyers are also facing rapid increases in housing, both from inflation and rising interest rates. As inflation builds, the Federal Reserve must increase interest rates to keep it under control. This drives up the loan interest rates. First-time buyers especially have more trouble affording a home: Montana median home value in 2016 was $217,200, the 19th highest among states, but still a level allowing many to afford a home. But some regions have much higher prices. The median value of an owner-occupied home in Flathead County is $247,800, while Gallatin County’s median home value is $347,900. If Gallatin County’s median home value was compared to other states, it would be the 5th highest in the nation, between Massachusetts and New Jersey.

Rising home prices may benefit homeowners, but high costs for first-time homebuyers make it difficult for some communities to recruit and retain younger and low-wage workers.

 

Labor 

Workers are in short supply. Businesses are addressing this shortage through public-private partnerships to recruit young people into work-based learning programs. DLI helps with Registered Apprenticeship, HELP-Link, and other workforce programs. Montana employers and policy makers are also pursuing several methods to increase the availability and quality of labor.

One solution is increasing in-migration. Montana already has about 6,300 people becoming residents annually, a figure higher than most neighboring states thanks to high employment rates, high quality of life, and access to natural amenities. This is the 15th fastest population growth in the last five years among states. However, this is not enough to meet all worker needs. 

 

To see the full LDR visit lmi.mt.gov.

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The Madisonian

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