Tax cuts and increased spending have helped fuel a long expansion of the U.S. economy, driving gains in personal income while shoring up Montana’s state budget, a panel of economists said Friday.
But the ride isn’t expected to last forever and global signs of an economic slowdown are looming on the horizon, holding implications for the state’s economy and the sectors that drive it.
“The U.S. expansion is getting very long,” said Patrick Barkey, director of the Bureau of Business and Economic Research at the University of Montana. “We cut taxes and increased spending, and we’re getting the benefits of that in higher growth. We’re seeing bigger deficits as well. We don’t think it’s going to last forever.”
Barkey opened the 44th annual Economic Outlook Seminar in Missoula on Friday, saying Montana as a whole recorded strong revenue growth in 2018, aided largely by gains in individual income taxes and business spending.
Part of that growth was driven by the Tax Cuts and Jobs Act of 2017. While it provided a boost to the economy as a whole, Barkey said, it also drove up the deficit, and the stimulus it provided could begin to slow starting next year.
“We think growth is going to slow down, and we think growth is going to slow down significantly, out through 2022,” Barkey said. “We see the global environment slowing down. We see the tax stimulus coming from D.C. wearing off.”
In 2018, Gallatin County overtook Missoula County as the state’s second largest economy, though the news wasn’t all bad for Missoula. The city finally emerged from the lingering effects of the recession, and it now stands “in the middle of the pack” among Montana cities.
Gallatin County continues to stand as Montana’s growth leader, driven by nonfarm earnings, a booming technology sector and Montana State University’s strong enrollment. Missoula remains hampered by enrollment struggles at the University of Montana and low wages.
For both cities, housing remains a challenge.
“These higher than necessary housing prices have a lot of negative implications,” Barkey said. “They squeeze budgets – there’s not a lot of money left over for other things. You have medium-paying jobs, which are difficult to recruit for, because the people you want to bring in look at the housing costs and your salary and can’t make it work. It reduces the pool of available labor.”
Though housing remains a challenge for most Montana cities, Missoula has seen healthy growth in its technology sector. It ranks third in the state for tech-related jobs and tech wages, and second in its number of tech-related businesses.
But Missoula’s per-capita income of $46,800 continues to lag behind other cities, including Bozeman, Billings, Butte and Helena. Health care remains the largest contributor to Missoula’s income growth.
Despite certain headwinds, Grant Kier, director of the Missoula Economic Partnership, sees positive indicators in Missoula. He cited the city’s improved national ranking in the Milken Institute’s annual study of job creation and economic expansion.
Missoula climbed from 43rd to 31st in the 2018 report.
“We’re seeing ourselves move up that ladder, but we need to tackle workforce right now – that’s one of the big limiting factors – and housing as well,” said Kier. “What we see is a community that’s creating jobs, but we need a community that’s preparing our young people to take those jobs on for the future.”
Rep. Greg Gianforte, who offered brief opening remarks on Friday, declined to discuss the 2018 economic report, saying questions should be passed through his communications team.
Friday’s panel of economic experts warned that a number of outlying factors could impact Montana’s economic growth in the coming years, including tariffs and worries over a global recession. While Missoula isn’t inoculated from those threats, Kier believes area businesses remain optimistic.
“Everything we see locally is tempered by national trends that might provide better indicators,” he said. “But what we’ve seen from the companies we’re talking to in Missoula and their plans to grow right now, they’re optimistic that there’s a demand for their products and services, and they see themselves growing consistently in the future.”
Barkey said the real estate and banking sectors are performing well in Missoula, and technology continues to grow nine times faster than the state’s overall economy.
Worries over tariffs and international trade are holding back other sectors of the state’s economy. From pulse crops to lumber, the Trump administration’s tariffs continue to raise concerns.
“There’s a lot of hope the situation with China will still improve,” said Kate Fuller, an assistant professor at MSU. “But the truth is, once we damage those trading relationships, these other countries are more than willing to fill in for us. Going down the road, we’ll need to be more careful in maintaining some of those relationships.”