Overall economy predicted to continue to grow

The U.S. economy is in the midst of strong economic growth, bolstered by meaningful increases in middle income wages and business investment, Patrick Barkey, director of the University of Montana’s Bureau of Business and Economic Research, said Wednesday.

Barkey presented his data at the Bureau’s 43rd Annual Economic Outlook Seminar in Hensler Auditorium in Montana State University-Northern’s Applied Technology Center.

The Havre seminar was the last of nine stops across Montana, where economists talked about current economic conditions in Montana and in the U.S. and what to expect going forward.

The acceleration began in the second half of 2017 and has spilled over into 2018, Barkey said, fueled  by a surge in business investment and meaningful increases in the wages of middle income workers. Although interest rates are higher than last year, they remain low at around 2 percent and inflation remains tame.

Overall growth in gross domestic product, or GDP, has increased and analysts expect it will for the next two years, because people are spending money as well as producing and buying more goods.

Investment has improved after dropping in 2016 following the oil bust, he continued. That investment bounced back in 2017 and is expected to continue for the next couple of years.   

The growth is not confined to the U.S., but is part of a larger trend called synchronized global growth, Barkey said.

“And that is really helping the U.S. economy do better,” he said.

For the first time in a decade, he continued, none of the world’s major economies is in a recession. Although the U.S. has enjoyed a long period of economic growth since the end of the Great Recession, other economies such as Canada, Japan and the Eurozone have not.

The recovery from the Great Recession, when the economy resumed its growth, was slower and weaker when compared with others going back to World War II, Barkey said. .  

The big factor, he said, has been labor force participation, the fraction of the working age population that is in the workforce.

In the 1970s and 1980s, the labor force participation rate was adding to growth, as Baby Boomers and women began entering the workforce, Barkey said, That trend has leveled off  and now the labor participation rate has subtracted from growth in recent decades. In recent recessions, he said, people have lost their jobs and exited but not re-entered the labor force.

“And when they are not coming back, that is holding back growth,” he said.

That helped stymy growth and the group that is dropping out of the labor force are largely white men ages 25 to 44.

Why they are not returning to the workforce is something economists are still trying to understand, Barkey said.

Crude oil production has quietly resumed its growth since the oil bust of 2014 and is close to surpassing the production market before than. Oil production in Montana, though, has continued to level off, he said.

Overall, Montana has undergone tremendous job growth in recent years, Barkey said. Missoula, Flathead and other western counties have seen a surge in job growth due to an expansion in the tech sector and construction  industries. Growth has been slower in places such as Lewis and Clark, Yellowstone, Butte-Silver Bow and Cascade counties.

Montana’s agriculture industry have been hit by low prices, drought and wildfires this last year, he said. Montana’s real estate and financial institutions are performing well. Policy changes in Washington, D.C., are weighing on the health care industry within the state and in industries that use federally managed land. Labor shortages are also having an impact on construction.   

For Montana, commodity prices have been a mixed story, Barkey said.

He said commodity prices are tracked by comparing the most recent numbers available with the highest and lowest prices within the last five years.

Barkey also talked about the revenue shortage the state had to deal with that led to a special legislative session.

The declining state tax revenue came despite job growth, Barkey said.

“And the big story here is the income tax,” he said, adding that income tax is the state’s primary source of revenue.

Economic forecasters saw during the January-to-May period of 2017 that there was slightly more than a 5 percent increase in withholdings from the same time the year before, Barkey said.

The big story, he said, was the more than 10 percent drop from the previous year in final payments, the money actually sent to Helena. It was something that also happened in  other states with income taxes.

Refunds, money that taxpayers get back from the state, were also larger, he said, something that ultimately subtracts from the treasury.

“So you put these two surprises together and you actually saw a reduction in personal income collections,” he said.

In 2016, he said, there was a slowdown in personal income growth. Taxable sources of income earnings along with dividends were also down. The only source of income that rose was transfer payments, which are not taxable.

Barkey said that what threw forecasters off about collections in 2017 was that they had an abnormally high number of tax collections in the prior two years.