It was exactly a year ago that forecasters at UM's Bureau of Business and Economic Research gave the Montana economy a thorough examination - and pronounced it sound. We said that the state would enjoy another above-average year in 2008, even as it appeared certain that the national economy was heading for recession.
It was a perfectly plausible scenario. With its strong natural resources and agricultural base, and with sky-high prices still prevailing for oil, minerals and wheat, the state looked well-positioned to ride out a national economic storm that was then largely confined to housing and financial services industries in other parts of the country.
That rosy forecast has now unraveled with surprising speed. As recently as last July, we were still on track for at least a respectable year of growth. But the events of the early fall not only changed the trajectory of the national economy, they have also halted or reversed some of the trends that have helped Montana outperform the rest of the country in recent years. The unfortunate outcome is that we as a state are now confronted with a recession worse than anything we've seen in 20 years.
The national recession widened in two disturbing ways when the financial crisis deepened on Wall Street last fall, each with profound implications for Montana. The first is that the downturn spilled over from housing and financial services to become a full-fledged consumer spending freeze. With asset prices of all types in free fall and with once-solid investments like money market accounts suddenly looking insecure, the response of consumers has been to save more and spend less.
Some would say we should have been saving more all along, and they certainly have a point. But the sudden collapse of consumer spending - something not seen in the national economy since the early 1990s - has spread pain and hardship to nearly every industry and every state in the country.
Even more important for Montana, in the fall of last year we learned that this would be a global recession. It is now apparent that all of the industrialized economies, taken as a whole, will experience negative growth in 2009, while fast-growing economies in places like Russia, China and India will experience an equally painful downward correction in growth.
It's likely to be a longer, deeper recession than anything we've experienced in Montana for quite a while, and there are few parts of the economy that will escape it. But our state's pain may be a bit less than some other parts of the country, for several reasons.
As least we managed to post a fairly good first half of 2008. Aside from construction, which began to slide in the spring, most Montana industries started the year in fairly good health, and as recently as September the state was one of only a handful nationwide that still enjoyed positive job growth. There is reason to believe that energy and commodity prices may have over-corrected, and a future rebound would help state producers. And the foreclosure glut that has left real estate markets in some regions crushed with overhangs of unsold homes has largely missed our state.
But 2008 marked the end of a four-year boom in the Montana economy. And with the recovery not kicking in until the end of this year, it may be some time before we start another one.
Patrick Barkey is director of the Bureau of Business and Economic Research at the University of Montana in Missoula.