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Montana and its region.

This year, our usual focus on Montana's economy will be extended to nine adjacent states and three Canadian provinces. This comparative analysis allows us to view Montana from a broader perspective, and to systematically identify trends and factors that affect the entire region.

Our analysis proceeds in three steps. First we examine general economic indicators to determine overall trends in Montana and other areas. Then we identify causes of the trends; in most cases, that means probing basic industries. Finally, we look at forecasts for the future.

General Economic Indicators

Most people have heard newscasters discuss such economic measures as the Gross National Product (GNP) and the Index of Leading Economic Indicators (ILEI). While the GNP and ILEI have been useful in gauging performance and trends in the overall U.S. economy, they don't provide much help understanding the conditions in a given state or local economy. So when analyzing overall performance and trends at the local level we turn to three other indicators: Population, per capita income, and nonfarm labor income.

These three measures quantify parts of a local economy. They may suggest conflicting directions for any given period, but taken together they provide an accurate overview of local economic trends.


Fig. 1 shows the 1990 population for our sample region's ten states and three provinces. These figures permit rough comparisons of relative size. Note that Washington is the most populous entity in our sample region, with almost 5 million people, followed fairly closely by Minnesota at 4.4 million, and not so closely by Colorado at 3.3 million.

Of the Canadian provinces surveyed, British Columbia has the largest population at about 3.1 million; it is the fourth most populous entity overall. Oregon, Alberta, Utah, Idaho, and Saskatchewan occupy the mid-range, with populations between almost 3 million and 1 million. With about 800,000 people, Montana has the fourth smallest population among our 13 states and provinces.

Population changes over the last twenty years provide good indicators of the relative performance of the states and provinces. Table 1 shows average annual compound growth rates from 1970 to 1980 and from 1980 to 1990 for each state and province, and for the U.S. and Canada as a whole.
Table 1
 Population, Average Annual Growth Rate
 1970-1980 1980-1990
 Wyoming 3.58%
 Utah 3.29%
 Idaho 2.84%
 Colorado 2.72%
 Oregon 2.32% Washington 1.68%
 Washington 1.97% Utah 1.62%
 Montana 1.25% Colorado 1.27%
 United States 1.10% United States 0.94%
 Minnesota 0.69% Oregon 0.80%
 North Dakota 0.57% Minnesota 0.72%
 South Dakota 0.35% Idaho 0.63%
 Montana 0.13%
 South Dakota 0.07%
 North Dakota -0.28%
 Wyoming -0.50%
 Alberta 2.99% British Columbia 1.61%
British Columbia 2.28% Alberta 1.45%
 Canada 1.22% Canada 0.42%
 Saskatchewan 0.19% Saskatchewan 0.42%
Sources: Bureau of Economic Analysis, U.S. Department of
Commerce; Statistics Canada.

Note that between 1970 and 1980, the number of Montanans increased about 1.25 percent per year, while the U.S. average was 1.10 percent per year. Overall for that decade, seven in ten states experienced annual population growth rates greater than the national average. Wyoming (3.58 percent) and Utah (3.29 percent) headed the list. In Canada, Alberta grew at more than double the national rate and British Columbia was not far behind. Saskatchewan increased at less than the nationwide figure.

The next decade virtually reversed these population patterns, especially in the United States. Between 1980 and 1990, population growth rates decelerated in all ten states. Moreover, growth rates fell below the national average for seven in ten states. Montana's population rose a scant 0. 1 3 percent per year from 1980 to 1990, compared with the national rate of 0.94 percent per year.

Population growth also declined significantly in British Columbia and Alberta, but remained greater than the Canadian national average. Saskatchewan's slow pace improved somewhat, but still was below the nationwide 1980-1990 rate.

Overall, population trends were remarkably similar across the region during the 1970s and the 1980s. Specifically, almost all the region's state and provincial populations grew faster than their respective national average during the 1970s. In the 1980s, however, growth rates decelerated; many states and one province's population growth fell below national averages.

Interestingly, our other general economic indicators suggest a similar pattern. Between the 1970s and 1980s, almost all the thirteen states and provinces experienced decelerating growth - and many dropped from above to below their respective national average.

Per Capita Income

Per capita income is equal to total personal income from all sources divided by population. It includes labor income (from participating in the production of goods and services); transfer payments (which include social security benefits); and dividends, interest, and rents. A measure of economic well-being, per capita income shows how well off the average person is. And it suggests the "purchasing power" a typical person in the area has at their disposal.

Figure 2 shows regional 1990 per capita incomes. For clearer comparison, we've converted each state and provincial per capita income to a percentage of its national average. This tactic also eliminates problems caused by different currencies.

The striking feature of Figure 2 is that no state or province in the region significantly exceeded its national average. Washington (102 percent), Colorado (101 percent), and Minnesota (100 percent) hovered close; so did British Columbia (102 percent) and Alberta (99 percent). Per capita incomes were lowest in Utah (76 percent), Saskatchewan (80 percent), and North Dakota (81 percent). Nationwide comparisons of 1990 figures show that eastern states and provinces fared best: Connecticut at 136 percent, New Jersey with 135 percent, and Ontario at 113 percent.

Per capita income is an even more obvious indicator than population of the region's decelerating growth rates. As Table 2 shows, only Utah's per capita income growth rate fell below the national average during the 1970s; the other twelve states and provinces grew faster. But from 1980 to 1990, the exact opposite occurred: South Dakota grew faster; all the rest grew slower.
Table 2
 Per Capita Personal Income, Average Annual
 Growth Rate (Constant 1990 Dollars)
 1970-1980 1980-1990
 Wyoming 3.99%
 North Dakota 3.06%
 Colorado 2.69%
 Washington 2.46%
 South Dakota 2.43%
 Oregon 2.31%
 Montana 2.28%
 Minnesota 2.23%
 Idaho 2.04% South Dakota 2.01%
 United States 1.95% United States 1.81%
 Utah 1.79%
 Minnesota 1.69%
 Colorado 1.25%
 North Dakota 1.24%
 Idaho 1.23%
 Utah 1.11%
 Washington 1.06%
 Oregon 1.02%
 Montana 0.83%
 Wyoming -0.90%
 Saskatchewan 6.03%
 Alberta 5.47%
British Columbia 4.53%
 Canada 4.07% Canada 1.88%
 Saskatchewan 1.11%
 British Columbia 0.80%
 Alberta 0.71%
Sources: Bureau of Economic Analysts, U.S. Department of Commerce;
Statistics Canada.

Here in Montana, 1990 per capita income was 82 percent of the U.S. average - ahead only of Utah, Saskatchewan, and North Dakota. Back in 1980, though, Montana's per capita income was about 90 percent of the nationwide figure. From 1980 to 1990, Montana's per capita income rose only 8.7 percent; except for Wyoming, that was the region's slowest growth rate.

Nonfarm Labor Income

Nonfarm labor income is equal to wages and salaries; proprietors' income; and other labor income of all employed persons except farm and ranch workers. It gauges a state's overall economic activity in much the same way Gross Domestic Product now measures the overall U.S. economy. Gross Domestic Product is available for the Canadian provinces, and will be used here. As with per capita income, inflation effects have been eliminated by converting nonfarm labor income and Gross Domestic Product figures to constant dollars.

During the 1970s, nonfarm labor income and Gross Domestic Product increased at a fairly rapid clip throughout the region. As Figure 3 shows, growth in all thirteen states and provinces exceeded nationwide rates. With an average annual increase of 8.55 percent per year, Wyoming grew fastest. In Canada, Alberta was the leader, increasing 6.18 percent per year. Montana's nonfarm labor income rose an average of 3.72 percent per year, well above the U.S. figure of 2.46 percent per year.

Focused on the 1980s, Figure 4 clearly shows the region's decelerating economies. All thirteen states and provinces experienced slower growth. Among the states, only Utah exceeded the U.S. average; Saskatchewan almost equaled the Canadawide figure.

Montana's nonfarm labor income declined an average of 0.4 percent per year over the 1980s. Although the state experienced some slow growth late in the decade, its economy (as measured by nonfarm labor income) was smaller in 1990 than in 1980. North Dakota and Wyoming also experienced overall declines between 1980 and 1990.

Focus on Montana

Annual data for nonfarm labor income also can provide a more detailed picture of Montana's economic trends. During the 1970s, for instance, the state experienced almost continual growth. Two brief decelerations - 1969-70 and 1974-75 - coincided with national recessions. However, the 1980s told a different story. Beginning with a growth peak in 1979, we can identify four distinct periods over the 1980s:

* 1979 to 1982, significant declines; nonfarm labor

income dropped by 10 percent.

* 1983 and 1984, declines ended; nonfarm labor income

stabilized, even increased slightly.

* 1985 to 1987, smaller declines; nonfarm labor income

turned down again, but not as sharply.

* 1988 to 1990, very slow growth; Montana's so-called

"fragile recovery."

Montana's Basic Industries

Montana's economic growth is largely determined by basic industry activity. Generally, basic industries depend on out-of-state markets or are otherwise influenced by factors beyond state borders. Labor income from workers in the basic industries represents new funds injected into an economy. New funds create additional income as they are spent and respent in the state.

Montana's basic sector primarily depends on natural resource industries (agriculture, mining, wood and paper products). But other industries also satisfy the basic definition - including nonresident travel (tourism), the federal government, railroads, and certain types of manufacturing. Derivative industries, by contrast, primarily serve local populations; examples include retail trade, services, and local government.

Basic industries are best analyzed in terms of labor income rather than employment, output, or production because the amount of basic industry labor income earned and spent in a local area more profoundly affects that economy than the number of basic workers, the board feet of timber, or the ounces of gold produced. Moreover, because aggregate new dollars are what count here, it makes little difference whether $30,000 of basic labor income represents the salary of one worker, or the incomes of two workers each earning $15,000.

Changes in basic industries may have driven recent trends in Montana's economy. But these changes don't provide a complete explanation for each blip and squiggle in the state's growth rate, nor are they the only cause of changes in the derivative industries, National factors rather than local changes may affect some of the derivative industries. For instance, Montana's health care industry appears to be growing independently of basic industry trends in local economies.

One more caution: Our analyses are based on the best available data, but are not necessarily accurate to the last cent. Also, complete information was not available for some basic industries, so we were forced to make a few "ballpark" estimates.

Figure 5 shows the extreme volatility of agriculture, Montana's largest basic industry. Easily identifiable are Montana agriculture's very good years in the early 1970s, and the back-to-back drought years of 1984 and 1985. Also visible in the state's labor income for nonfarm basic industries is the mirror image of trends outlined above. Specifically:

* The 1970s - Montanans first heard of the energy crises and braced for runaway growth built on coal resources. In reality, the more traditional basic industries increased. Due to wheat exports and high cattle prices, for example, agriculture had several consecutive years of unprecedented profitability early in the decade. (The impact of peak agricultural profits on derivative industries tends to spread over several years, and may not be identified easily in the graph.) Also, the wood products industry expanded late in the decade; new processing plants were built and mills generated output as national demand rose.

* 1979 to 1982 - widespread declines among all basic industries drove nonfarm labor income down by 10 percent. Two factors were at work: the country's worst postwar recession, and permanent shutdowns. Cyclic declines were exacerbated in Montana by Milwaukee Railroad's shutdown, by the closures of refineries in Anaconda and Great Falls, and by other events. The long awaited energy boom happened - but in oil and gas exploration, not coal mining; this helped moderate declines in other basic industries.

* 1983 and 1984 - the U.S. economy recovered and began a period of sustained growth which ended only with the 1990 recession. In Montana, declines ended and basic industries stabilized; wood and paper products experienced sizable increases. But oil and gas turned downward as the energy boom waned.

* 1985 to 1987 - overall declines were relatively small. Only two Montana nonfarm basic industries declined: railroads, and oil and gas. Most remained stable.

* 1988 to 1990 - a fragile recovery took hold due to sizable increases in nonfuel minerals (primarily precious metals) mining and nonresident travel (tourism). Certain types of manufacturing and the military (a new tanker wing at Malmstrom AFB) also enjoyed modest increases.

Trends in Nearby States

As Figures 6 through 14 show, other states in the region experienced conditions roughly similar to those in Montana. Namely, the 1970s brought almost uninterrupted growth, while the 1980s saw periods of decline and stability; when and where it occurred, economic growth was slower. We lack the local knowledge to explain each state's situation. But some regional trends are:

* The 1980-82 recession's impact was strong regionwide (as compared to the current one). All nearby states except Utah and Colorado experienced significant declines during 1980-82.

* As the U.S. economy recovered, so did the region's populous states: Colorado, Utah, Minnesota, Oregon, and Washington renewed their relatively rapid growth.

* Beginning in 1983, Idaho and South Dakota experienced overall increases, but at relatively modest rates.

* During the mid- and late-1980s, North Dakota's economy was stable while Wyoming experienced significant declines.

Nonfarm Basic Industries Regionwide

Most of the region's economic trends may be explained in terms of nonfarm basic industries. Generally, in the 1970s nonfarm basic labor income grew rapidly; it declined in 1979-82; and renewed growth through the 1980s. Nonfarm labor income also reflects most of the basic industries' significant turning points.

Here as elsewhere, though, the explanation isn't always complete. Sometimes nonfarm labor income trends diverge from basic industry trends for certain periods - perhaps because our knowledge is incomplete. We've analyzed Montana's economy for years and are confident important basic sectors aren't left out; our expertise for other states isn't at the same level. We analyzed the same basic industries in each state, and may not have accounted for something uniquely important - major metropolitan areas, for instance, and their stature as centers of national and international commerce. With these constraints in mind, some state-specific highlights follow:

Colorado: The data reflect a late 1980s growth spurt in nonfarm labor income, yet the nonfarm basic industries declined during the period. This apparent anomaly may be due to basic activities in Denver and other major metropolitan areas which are not identified in the graph. Diversified manufacturing was the major cause of growth in the 1970s, while an oil and gas boom fueled increases in the 1980s.

Idaho: Expanded manufacturing activity, mostly around Boise, drove Idaho's growth in the late 1980s.

Minnesota: Basic activities connected with the Twin Cities area and not specified on the graph, may account for the divergence between nonfarm and basic labor income in the late 1980s. Much of the electronics industry is located near Minneapolis-St. Paul.

North Dakota: This economy is most similar to Montana in terms of overall trends in the 1970s and 1980s. The data clearly shows good farm years in the early 1970s, and the oil boom and bust.

Oregon: The wood products industry's cyclic impact, and its effect on nonfarm labor income is clear in the data.

South Dakota: Increases in the late 1980s are due to manufacturing growth. A national financial processing center's recent relocation is not identified in basic industry data.

Utah: Salt Lake City's emergence as a world class metropolitan area may explain recent increases in nonfarm labor income.

Washington: Despite the growing national and international stature of Seattle, basic industries seem to account for all significant increases in nonfarm labor income. Boeing dominates the transportation equipment category.

Wyoming: The figures for oil and gas exploration and mining - which includes coal mining - illustrate the energy boom and bust.


While our analysis of nearby states is qualified, our analysis of Canadian provinces is even more so. We're unfamiliar with the economies. And the data are different. We'll use Canada's Gross Domestic Product (GDP) - not labor income - to examine overall trends and basic industries. Canadian GDP measures value of production, and may exaggerate the importance of high value products such as petroleum.

General Trends

Both British Columbia and Alberta experienced consistent growth throughout most of the 1970s and 1980s, as did their more populous American counterparts Minnesota and Washington. Alberta's population is smaller by a third than British Columbia's, but its GDP is roughly equal - perhaps because of its dependence on petroleum.

British Columbia felt the 1974-75 recession; Alberta did not. Both provinces experienced the 1980-82 recession. A mid-1980s oil bust affected Alberta's economy, but slowed GDP growth for several years only.

Saskatchewan's economy remained roughly stable throughout the 1970s and 1980s, and was largely unaffected by recessions. It also seemed immune to the dramatic changes in overall trends felt in adjacent Montana and North Dakota where growth rates decelerated sharply between the decades.

The Basic Industries

Because of our unfamiliarity with Canadian local economies and data, we present basic industry GDP figures for one year only. We've chosen industries which are roughly consistent with those in the U.S. data. What follows is a general look at industries important to each province's economic base.

In British Columbia, the wood and paper products industry dominates. Next most important to the economic base are manufacturing and mining (primarily nonfuel minerals).

Oil and gas extraction and refining is Alberta's largest basic industry by far. Next comes manufacturing, and then agriculture.

Tied for first among Saskatchewan's basic industries are agriculture and mining (which includes oil and gas as well as nonfuel minerals). Manufacturing is a distant third.

Recession Scorecard

Before we turn to regionwide forecasts, let's quickly examine the current recession's impact in the U.S. and Montana economies.

U.S. Economy

The economy decelerated during the first three quarters of 1990, then slid into a recession during the last quarter of 1990 and first quarter of 1991. The recession was short and mild, but recovery stalled in late 1991. Slower than expected growth in 1991 was caused by:

* slower employment growth

* depressed consumer sentiment

* slow durable goods purchases

* national defense spending cuts

* stagnant investment in nonresidential construction

* less spending by state and local governments

A moderate recovery is projected to begin in mid-1992 because:

* consumer confidence will rebound; recent record-breaking

plunges do not reflect fundamental weaknesses in the


* inflation remains low

* low interest rates will encourage investment by business

and individuals

* low interest rates will weaken the dollar and encourage


* consumer services will continue to grow

Montana Economy

As expected, the 1990-91 recession has been milder in Montana than in the United States as a whole. The Montana Index of Consumer Sentiment, however, paralleled U.S. trends and declined in late 1991. Consumer sentiment deteriorated in all regions of the state, even those not usually affected by

the business cycle.

After the U.S. economy begins recovery, growth in Montana will once again lag behind the rest of the nation.

Forecasts of the Future

The last step in our analysis is to look at the future. It's difficult to find a consistent format for comparison, though, when analyzing projections derived by many different local experts. Projections are prepared by those who know the local economic characteristics and conditions. And they're prepared to suit local needs. Consequently, we may find employment forecasts for one state, tax revenue projections in a second, and other variables emphasized elsewhere.

For the states in our region, we present forecasts of nonfarm labor income based on a framework developed by the U.S. Bureau of Economic Analysis. This approach provides an advantage: namely, we can focus our forecasts on a single important variable that is derived using a common methodology. The disadvantage is that forecasts do not incorporate the best local knowledge. We emphasize long-run trends by presenting forecasts for the 1990-97 period; this does minimize the impact of the immediate situation. Unfortunately, there are no similar projections for the Canadian provinces.

Washington, Utah, Oregon, and Minnesota are projected to have nonfarm labor income growth above the national average between 1990 and 1997. All four have populations greater than the national average, and relatively low natural resource dependence.

Three states will experience moderate growth in nonfarm labor income for 1990-97: Colorado has low resource dependency and a large population; Idaho and South Dakota are relatively small and their economies highly resource industry dependent.

Montana and North Dakota will grow slowly from 1990 to 1997. Both experienced overall nonfarm labor income declines in the 1980s. These two states have relatively small populations and are moderately dependent on natural resource industries.

Only Wyoming is projected to have declining nonfarm labor income between 1990 and 1997. This continues its overall trend of the 1980s, but decreases will be at a slower rate. Wyoming has the region's smallest population and its economy is highly dependent on resource industries.

Paul E. Polzin is director of the Bureau of Business and Economic Research and professor of management, School of Business Administration, The University of Montana, Missoula, Montana.
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Title Annotation:The Montana Economy within a Regional Context
Author:Polzin, Paul E.
Publication:Montana Business Quarterly
Date:Mar 22, 1992
Previous Article:Ten elements of a good business plan.
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