Forecasters see mixed future for economy

"Good but not great": that is how Patrick Barkey described U.S. economic performance in 2015.

Barkey is director of the University of Montana's Bureau of Business and Economic Research at the School of Business Administration.

The remarks were made to area elected officials, and other community stakeholders Wednesday morning in Montana State University-Northern's Hensler Auditorium in its Applied Technology Center as part of the 41st Annual Economic Outlook Seminar, a traveling economic forum put on by the bureau.

Each year, the bureau travels throughout the state, holding its seminar and speaking about the economic outlook for Montana and the United States. It comes to Havre every other year.

Information about the broader economy and specific sectors related to the U.S. and north-central Montana economy was presented.

Speakers versed in different sectors of the economy including energy, agriculture and health care, among others, spoke at the seminar.

"Consumers are feeling good about the economy even if oil producers and wheat farmers are not," Barkey said.

The national unemployment rate is 4.9 percent, and Montana's is 4.1 percent. Consumer spending is up and credit has become more accessible.

Still, that growth has not come in the form of a massive boom. Rather he said it has happened at a slow but consistent pace, since late 2009 when the recession was at its worst.

One peculiar attribute of the growth the economy is now undergoing Barkey said, is the role of consumer spending.

Barkey said there is a reinforcing cycle at work. He said job growth is bringing about an increase in spending, which is causing businesses to expand, which is then leading to additional hiring.

In other words, spending is no longer the result of a stronger economy but a driver of that economic growth.

Barkey said credit has become more widely available and consumers more willing to access it, a contrast to the early years during and immediately after the recession.

He said this is evidenced in the borrowing for purchases of cars and home improvements.

The continued increases in employment and economic growth, Barkey said, comes despite more troubling trends. These trends, he said, will have implications for energy and agriculture rich north-central Montana.

Exports have received a one-two punch in the form of rising prices of commodities and a U.S. that has grown stronger while many other currencies have grown weaker.

Barkey said those countries that use the euro, for example, now pay 8.6 percent more than they did a year ago.

Canada, which is only 45 miles from Havre, pays 19.3 percent more than nearly a year ago.

The result, said Paul Tuss, executive director of Bear Paw Development Corp., who spoke later in the seminar, is fewer Canadians coming down to the Hi-Line to shop and spend money.

Tuss said that he often looks at the licence plates on cars in the Havre area. In the past he said he would come across many from Saskatchewan and Alberta.

"And you just don't see as many of those," Tuss said.

That, he said, can be significant to the Hi-Line economy.

Tuss said two or three years ago, Bear Paw conducted a survey of Havre area businesses about the effect of Canadian economic activity on those businesses.

He said some said that business from north of the border made up nearly 50 percent of their bottom line.

Decreasing grain and commodity prices might be good for consumers, but in Montana, particularly the Hi-Line, the decrease of profits that the local economy depends on has an adverse affect.

George Haynes, a professor and agricultural specialist at Montana State University in Bozeman, spoke about the state's economy as it relates to agriculture.

For local ranchers, he said, the picture has not been great.

Exports are down substantially, though Haynes said exports are not as important to the beef industry as they are to grain farmers who sell a larger share of their product on the world market.

An influx of Australian beef imports have also hit the beef market. Haynes estimates they compose 40 percent of all beef imports coming into the U.S.

The picture for grain farmers looks more grim, he said, with prices falling dramatically in 2015.

In June prices began to fall from about $6 to below $5 a bushel, he said.

"Maybe it's not such a big deal for some of the more efficient producers out there, larger producers that are in the market, but for the small guys, this is bad news." Haynes said.

He said data shows that around the world, grain production has jumped, and the strong U.S. dollar is "wreaking havoc" when it comes to grains.

Barley has declined the least but grain prices have been on a downward trajectory, Haynes said.

Pulse crop production, which includes lentils, dry beans and peas, is up.

He predicted that grain prices will be below historical averages, while Livestock prices will be lower, but will remain above historical averages.

On the energy front, Terry Johnson, director of Natural Resources and Energy Research at the Bureau of Business and Economic Research, said 2015 was "definitely not a very good year."

"And I am not really anticipating that 2016 is going to be much better," he said.

Despite a February stay issued by the U.S. Supreme Court, temporarily halting its implementation, the Clean Power Plan, an EPA rule that aims to curb CO2 emissions for power plants, is still on the minds of Montana's coal industry.

Johnson said under the rules Montana coal plants would have to cut emissions 47 percent below the 2012 baseline rates by 2030. That percentage is higher than for any other state.

"As a state where targeted coal facilities make up more than 95 percent of fossil fuel electric energy production, easy options for compliance do not exist," he said.

Oil prices dipped in 2015 to below $40 a barrel, documents Johnson provided show.

He said there has been a larger drop in the oil rig counts in 2015 than there was in 2008 and 2009.

Despite this, he said, those numbers are still higher than they were in 2008 and 2009.

"So in 2008 and '09, because of the great recession, we had a drop off in total U.S. production but when you jump ahead to 2015 we have not seen that drop off in production," Johnson said. "So we actually haven't seen the substantial declines in production like we did in 2008 and 2009."

He said much of this likely has to do with advances in technology and methods of energy extraction, such as horizontal drilling and hydraulic fracking, and the mobility of oil rigs.

Natural gas prices have remained low, but prices, demand and usage have increased, according to data provided by Johnson.

The trends for coal, however, are the opposite, with exports, production and consumption down.

Renewables, which include hydroelectric power, wind, solar, biomass and an assortment of other sources, comprise 9.81 percent of energy use in the U.S. However, despite the increase in the use of renewables, the overwhelming amount of energy, 81.57 percent is still generated using traditional fossil fuels.

The remaining 8.46 percent is generated using nuclear power.

For Montana, Johnson said that the future seems to be one of declining production and stable but upward trending prices. Coal production, he said will likely continue to decline, with prices falling. Natural gas prices will likely remain low with production continuing to rise.