A Year of Strong Growth
By Patrick M. Barkey, Bureau of Business and Economic Research at the University of Montana
The state of Montana turned in a strong revenue growth performance for the fiscal year 2018, which ended in June of last year. The 13.7 percent increase in general fund revenues over the previous year’s totals was aided by strong growth in the individual income tax, which accounts for more than half of the general fund total. There was also vigorous growth in corporate income taxes and in a wide variety of natural resource and tourism-related revenues.
The Tax Cuts and Jobs Act signed into law by President Donald Trump in December of 2017 appears to have provided a positive shock to Montana businesses and households as lower tax rates and more generous expensing rules took effect.
Finished lumber prices had a tumultuous year, rising by 35 percent over year-ago levels during the summer, before tumbling to their lowest levels in two years in the late fall. Declines occurred as conditions that boosted prices, including wildfire and tariff-related declines in Canadian imports and bottlenecks in rail transport, were resolved. Montana wood producers face a more uncertain outlook for demand in 2019.
Interest rates rose significantly in 2018 as the Federal Reserve’s steady ratcheting up of its policy rates was finally reflected in markets. Of particular note was the increase in mortgage rates for 30-year conventional fixed rate notes, which crested 5 percent at the end of the year, 1.5 percentage points higher than the low in mid-2016.
The steady rise in crude oil prices into the fall of last year produced the first uptick in Montana oil production since 2014. North Dakota production, where most Bakken development is found, has risen by 25 percent since the beginning of 2017. The crash of oil prices at the end of last year, with the West Texas Intermediate benchmark plunging below $50 per barrel, put the continuation of those gains in doubt.
Northwestern Energy has committed to joining the Western Energy Imbalance Market (EIM), a regional organization of electric utilities in 10 U.S. states and one Canadian province, by year 2021. Linking the large California market to those throughout the western portion of the country, the EIM ultimately gives member producers flexibility in trading power within each hour to meet the challenges and opportunities presented by the greater presence of intermittent generation sources like wind and solar.
Preliminary data released in November of last year showed that Gallatin County’s personal income surpassed Missoula County’s to become the state’s second-largest economy by that measure in 2017. The announcement that the Billings Clinic would develop and expand their presence in Bozeman on a 54-acre site near the 19th Street and I-90 interchange capped off a year of expansions and new developments in the state’s fastest growing urban area.
Home prices continued their rapid growth in many Montana markets, particularly in the western third of the state. Statewide prices in 2018 were 5.7 percent higher than year-ago levels and 20.4 percent higher than they were in 2015. Non-metro counties statewide, which are dominated by the very active Bozeman, Kalispell and Ravalli County markets, saw home prices rise by 7.9 percent in 2018.
Montana labor markets remained very tight with unemployment rates falling below 4 percent at the midpoint of last year. Reports of a scarcity of qualified workers continued, particularly in skilled trades and construction, with project delays or even cancellations often the result.
A Year of Strong Growth