Midyear malaise strikes the economy again

Montanans wait all year for summer. And this year it arrived, in the West at least, right on schedule. For the past two years, a much less welcome event has also arrived on or around the first day of summer — a midyear global economic malaise.

The tendency of the still-fragile economic recovery to hit turbulence at the midyear point has many different causes, and its timing is probably more coincidence than anything. But the net result is depressingly familiar — a whiff of crisis somewhere on the globe, a slowdown in key economic indicators, and a loss of confidence on stock and financial markets. With it the questions grow louder: Are we heading for another economic downturn?

In Montana, an additional question must be asked, especially in the eastern part of the state. That is, does it matter? Millions of dollars are pouring into energy investments all along the Bakken and elsewhere, and Montana’s agricultural-dominated counties continue to benefit from beef and wheat prices.

With at least some signs of life in long-depressed housing and construction markets, the same funk that has descended over financial markets and places like Europe is harder to find here. Yet Montanans still should be concerned over the state of the global economy.

There are clear signs of improvement in the Montana economy as we approach the midpoint of the calendar year. Montana income tax withholding, a very good indicator of wage and salary growth, has been growing rapidly at an average annual rate of 11 percent since November last year.

The labor market, as measured by the number of Montanans who are receiving unemployment benefits, also has seen steady improvement. As of the beginning of June, about 2,100 fewer people were receiving claims statewide compared to the same time a year ago, which is a difference of about 18 percent.

Getting a read on economic activity within the state is more difficult with the data available. The latest available income data show a remarkable pattern of growth, with eastern rural and farm-belt counties seeing fast growth, and with the once faster-growing urban and western counties performing the worst. But the data are almost two years old, and no other comprehensive information on income growth for the recent period is yet available.

There are at last fragments of good news for the long-suffering construction industry in Montana. After a three-year stretch that saw home prices fall by 8 percent across the state, it appears that prices bottomed out last year and have begun at least a very modest recovery.

Home prices were 1.3 percent higher on average in Montana in the first three months of this year compared to year-ago levels, with Missoula (2 percent), non-metro Montana (1.5 percent) and Billings (0.7 percent) all registering price gains.

But not everything is rosy, even for Montana’s better-performing industries and counties. A lack of rain this spring is casting a shadow over the prospects for the summer wheat crop. The cratering of domestic natural gas prices has weakened the domestic market for Montana’s coal and brought new gas drilling to a halt.

And even though crude oil prices have remained reasonably high, state producers continue to be penalized by a lack of transport capacity, which has caused the discount Montana oil receives relative to the West Texas Intermediate benchmark price to approach $20 a barrel.

But the biggest concern in the state economy continues to be the specter of a national economic reverse, particularly if that event is triggered by a disorderly meltdown of the European Union. No one is satisfied with the recent anemic 2 percent growth rate of the U.S. economy in the wake of a deep, painful recession. But that sluggish rate of expansion is downright torrid compared to what many of our old world peers are experiencing right now. The European recession already has contributed to a marked slowing of Asian economic growth that should cause concern for Montana exporters and commodity producers.

And then there is the matter of the election. Big political decisions will have to be made in a hurry in Washington, D.C., if the “taxageddon” of automatic tax increases and across-the-board spending cuts scheduled for January 2013 is to be avoided. Will Congress wake up and take charge? It’s yet another challenge that lies ahead for all of us.

Patrick Barkey is director of the Bureau for Business and Economic Research at The University of Montana. He will speak on “Five Questions Montanans Should Ask About the Energy Boom” with Bureau director emeritus Paul Polzin at the Montana Chamber Foundation’s seventh annual Midyear Economic Update series. The series will be held in seven Montana cities and will kick off Thursday, Aug. 2, in Kalispell. For more information or to register, visit online at www.bber.umt.edu or call 406-243-5113.