P A T R I C K M . B A R K E Y A N D P A U L E . P O L Z I N

B U R E A U O F B U S . & E C O N . R E S E A R C H T H E U N I V E R S I T Y O F M O N T A N A

Economic Outlook Fall 2012

Another Mid-Year Economic Malaise

Very weak consumer spending brings U.S. growth below 2 percent in second quarter

European recession, prospect of currency crisis hangs over global economy

Western states doing better

Inflation remains a non-issue

Housing is healing

Faster Growth Postponed Again

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1 2 3 4 1 2 3 4 1 2 3 4

January

September

Forecast Actual

Percent

Growth in U.S. Real GDP, percent, Actual and Forecast

2011 2012 2013

0

5

10

15

20

25

30

35

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Introduction of Euro Lehman bankruptcy

Yields on 10-year Government Bonds

Greece

Portugal

Ireland

Italy Spain

France Germany

Percent The Rise and Fall of Europe

U.S. Housing Price Appreciation Closer

-6

-4

-2

0

2

4

6

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

10-city

20-city

Percent Change in Case-Shiller Composite Housing Price Index, 3 month moving average

Montana’s Current Status: The Good and the Bad

Income growth looks strong

Job market is healing

Housing prices beginning to recover

Energy investment is robust

Spring/Summer has been very dry

Retail remains very weak

Global economic concerns affecting energy and commodity prices

Income Tax Withholding 12-month totals

640

650

660

670

680

690

700

710

720

730

740

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Income Tax Withholding 12-month totals

640

650

660

670

680

690

700

710

720

730

740

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

11% rate

986.17 3722.61 ($ per Metric Ton)

Lead 1881.48

1112.90 3546.30 ($ per Metric Ton)

Zinc 1847.75

39.15 133.93 ($ per Barrel)

Oil 87.89

Low High

3105.10 9880.94

($ per Metric Ton) Copper

7584.26

Metals & Energy (as of August 2012)

1.04 1.94 ($ per Pound)

Beef 1.80

4.29 11.97 ($ per bushel)

Wheat 9.41

4.62

2.25 5.42

($ per bushel) Barley

5.42

370.69 [Current]

Materials & Foodstuffs (as of August 2012)

Low High

321.65 430.78

($ per Thousand BF) Lumber

388.17 current

Commodity Prices: Favorable to Montana?

0

10

20

30

40

50

60

70

80

90

100

Energy, 14%

Mining, 5% Wood Products, 5%

Other Manufacturing, 12%

Transportation, 11%

Agric. & Related, 11%

Fed. Military, 9%

Travel & Tourism, 9%

Fed. Civilian, 23%

Percent

Labor Income and Basic Industries, Montana

-10

-8

-6

-4

-2

0

2

4

6

8 19

91

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

Percent Change

Nonfarm Earnings and Nonfarm Basic Earnings Montana, 1991-2010

Nonfarm Earnings Nonfarm Basic

-4

-2

0

2

4

6

8

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

Percent Change

Nonfarm Earnings, Actual and Projected Montana, 1995-2011

Actual Projected

0

10

20

30

40

50

60

70

80

90

100

Energy, 14%

Mining, 5% Wood Products, 5%

Other Manufacturing, 12%

Transportation, 11%

Agric. & Related, 11%

Fed. Military, 9%

Travel & Tourism, 9%

Fed. Civilian, 23% Mild Declines

Unknown

Recovering

Mixed

Weak Recovery

Flat

Prospects

Strong Growth

Percent

Labor Income and Basic Industries, Montana

Better Than Feared

Change in Nonfarm Earnings,

Montana, 2009-2015

-2.0

0.9

2.6

-3.3

1.0

1.8

2.4 2.2 2.1 2.3

-4

-3

-2

-1

0

1

2

3

'09 '10 '11 '12 '13 '14 '15

Actual Projected

Annual Percent Change In Nonfarm Earnings (in Constant Dollars)

4.7 4.4 3.2 3.1 2.8

1.5 1.3

-3.1

13.6

9.1

6.7 6.4

11.7

8.4

6.5

4.2

-4

-2

0

2

4

6

8

10

12

14

16

Gallatin Silver Bow Cascade Yellowstone Flathead Ravalli Lewis & Clark Missoula

2009-2011

2002-2004

2.2

1.5 1.8

2 2.1 2.1 2.1

3 3.3

0

0.5

1

1.5

2

2.5

3

3.5 Percent

Projected Annual Percent Change In Nonfarm Earnings (in Constant Dollars) 2012-2015

Recovery Year for Real Wages

Questions?