What’s Going on in the What’s Going on in the Flathead?Flathead?

7th Annual Flathead Outlook7th Annual Flathead OutlookJanuary 2009January 2009

Center for Business Information and ResearchCenter for Business Information and ResearchFlathead Valley Community CollegeFlathead Valley Community College

What People Think MattersWhat People Think Matters

Household Confidence Vital for Household Confidence Vital for Healthy EconomyHealthy Economy

We spend and save according to:We spend and save according to: Our current disposable incomeOur current disposable income Our household wealth Our household wealth Expected Expected futurefuture income income

Smoothes spending out during bad yearsSmoothes spending out during bad years Expectations per inflationExpectations per inflation

For the Period Dec 07 to Dec For the Period Dec 07 to Dec 08:08:

Assessment of current financial situationAssessment of current financial situation Down 18%Down 18%

Anticipation of financial situation next 12 monthsAnticipation of financial situation next 12 months Down 6%Down 6%

Assessment of Montana business conditions next 12 Assessment of Montana business conditions next 12 monthsmonths Down 35%Down 35%

Assessment of Montana business conditions next 5 Assessment of Montana business conditions next 5 yearsyears Down 22%Down 22%

Next 12 months good time to buy car, appliance, Next 12 months good time to buy car, appliance, house?house? Down 18%Down 18%

Flathead County Unemployment

0

1

2

3

4

5

6

7

8

Dec

06

Dec

07

Unemployment NotSeasonallyAdjusted

Flathead UnemploymentFlathead Unemployment7.3% preliminary7.3% preliminary

Lagging indicatorLagging indicator Relative to….Relative to….

MontanaMontana 4.9%4.9% Gallatin Gallatin 4.6%4.6% Missoula Missoula 4.9%4.9% Big HornBig Horn 8.0%8.0% GlacierGlacier8.9%8.9% LakeLake 7.5%7.5% LincolnLincoln10.0%10.0% SandersSanders 11.7%11.7% MineralMineral 7.4%7.4%

Price trend, all itemsPrice trend, all items

Price trend, All Items, less food Price trend, All Items, less food and energyand energy

Flathead Unemployment Flathead Unemployment Insurance ClaimsInsurance Claims

Doubled CY 2007 to CY 2008Doubled CY 2007 to CY 2008 6,465 in 20076,465 in 2007 12,796 in 200812,796 in 2008

Emergency Unemployment Insurance ClaimsEmergency Unemployment Insurance Claims Began July 08 ends July 09Began July 08 ends July 09 4-13 additional weeks4-13 additional weeks 928 claims in 2008928 claims in 2008

Does Not Capture All HarmDoes Not Capture All Harm Independents without reported wages for first 4 of last 5 Independents without reported wages for first 4 of last 5

quarters ineligiblequarters ineligible 2006: 2006:

proprietor employment 30% of totalproprietor employment 30% of total proprietor wages 25% total wages and salariesproprietor wages 25% total wages and salaries

NBER Declaration of National NBER Declaration of National RecessionRecession

Recession = Recession = diminishingdiminishing economic economic activityactivity

Unemployment as indicator: lags Unemployment as indicator: lags activityactivity

Unemployment insurance: too much Unemployment insurance: too much noisenoise

Does everything have to be in Does everything have to be in decline?decline?

National RecessionNational Recession

Started December 2007Started December 2007 Recession declared one year later: Recession declared one year later:

December 11, 2008 by NBERDecember 11, 2008 by NBER Why the Lag?Why the Lag? If difficult for the nation, even more If difficult for the nation, even more

problematic at the local levelproblematic at the local level

Confusing Data Usually the Confusing Data Usually the CaseCase

Real GDPReal GDP Real GDIReal GDI 2007Q4 Down2007Q4 Down 2007Q4 Down2007Q4 Down 2008Q1 Up2008Q1 Up 2008Q1 Down2008Q1 Down

2008Q2 Up2008Q2 Up 2008Q2 Up2008Q2 Upto peakto peak

2008Q3 Down2008Q3 Down 2008Q3 Down2008Q3 Down

Using Rear View Mirror for Using Rear View Mirror for FlatheadFlathead

0505 06 06 0707Avg wage/jobAvg wage/job 28,94928,949 30,53130,531 31,90431,904

w/s employmentw/s employment 40,73640,736 42,83842,838 44,62344,623

w/s (000’s $)w/s (000’s $) 1, 179.31, 179.3 1,307.91,307.91,423.61,423.6

UnemploymentUnemployment 4.34.3 3.63.6 3.53.5

Economic Impact of Announced Economic Impact of Announced LayoffsLayoffs

Only possible to discern loss to Only possible to discern loss to economy, not NET effecteconomy, not NET effect

Top 20 EmployersTop 20 Employers 8 employment trend is downward8 employment trend is downward 9 employment trend is steady9 employment trend is steady 3 employment trend is positive3 employment trend is positive

Top 20 represent 7 of 20 possible Top 20 represent 7 of 20 possible NAICS sectors NAICS sectors

Layoff Impact-JobsLayoff Impact-Jobs

Direct Impact:Direct Impact: 615 manufacturing jobs615 manufacturing jobs Indirect impact: jeopardizes additional 1,428Indirect impact: jeopardizes additional 1,428

Who’s Most Affected?Who’s Most Affected? Health & Social ServicesHealth & Social Services 158158 Professional/Scientific/TechProfessional/Scientific/Tech 144144 Accommodation & FoodAccommodation & Food 135135 Retail TradeRetail Trade 125125 Transportation & WarehousingTransportation & Warehousing 9494 Other manufacturersOther manufacturers 8686

Layoff Impact-SalesLayoff Impact-Sales

Direct Impact:Direct Impact: $484 million$484 million Indirect impact:Indirect impact: additional $228 millionadditional $228 million

Who’s Most Affected? (000,000’s $)Who’s Most Affected? (000,000’s $) UtilitiesUtilities $41$41 Other manufacturersOther manufacturers $40 $40 Real Estate & rentalReal Estate & rental $19$19 Transportation & WarehousingTransportation & Warehousing $13$13 Ag, For, Fish & HuntingAg, For, Fish & Hunting $13$13 Professional/Scientific/TechProfessional/Scientific/Tech $12$12 Health & Social ServicesHealth & Social Services $12$12

Layoff Impact-Labor IncomeLayoff Impact-Labor Income

Direct Impact:Direct Impact: $79 million$79 million Indirect Impact:Indirect Impact: additional $62 millionadditional $62 million

Who’s Affected? (000,000’s $)Who’s Affected? (000,000’s $) UtilitiesUtilities $8$8 Health & Social ServicesHealth & Social Services $6$6 Professional/Scientific/TechProfessional/Scientific/Tech $6$6 WholesaleWholesale $4$4 Transportation & WarehousingTransportation & Warehousing $4$4 RetailRetail $4$4

Can Declining Wealth Affect Can Declining Wealth Affect Spending?Spending?

1990-2000: avg growth rate for real net worth for 1990-2000: avg growth rate for real net worth for American hh was 5.3% per yearAmerican hh was 5.3% per year Primarily houses and stocksPrimarily houses and stocks Savings rates declined to 2% from 8% of disposable incomeSavings rates declined to 2% from 8% of disposable income Disposable income could be virtually all consumedDisposable income could be virtually all consumed

Wealth accumulation took care of itself via stocks and real Wealth accumulation took care of itself via stocks and real estateestate

2000-2007: real net worth rose 2.29% 2000-2007: real net worth rose 2.29% With stocks and housing both falling: households now With stocks and housing both falling: households now

focus on wealth preservation and risk avoidancefocus on wealth preservation and risk avoidance Go from wealth enhancement to wealth preservation by Go from wealth enhancement to wealth preservation by

reducing consumption, increasing savingreducing consumption, increasing saving

Wealth Effect as a Driver of Wealth Effect as a Driver of ConsumptionConsumption

Controversial at BestControversial at Best For every $ decline in “wealth”For every $ decline in “wealth”

Spending decreases by $.04 or $.05Spending decreases by $.04 or $.05

Estimate $52 million as driverEstimate $52 million as driver Household Wealth onlyHousehold Wealth only 403(b) now 201(b) for most403(b) now 201(b) for most

Delayed retirementsDelayed retirements Adds to labor imbalancesAdds to labor imbalances

Bad for slowdownBad for slowdown Good for recoveryGood for recovery

Wealth Effect-HousingWealth Effect-Housing

Possible decline of 431 jobsPossible decline of 431 jobs Health & Social ServicesHealth & Social Services 104104 RetailRetail 8989 Accommodation & FoodAccommodation & Food 6161

Possible decrease of $44 million in SalesPossible decrease of $44 million in Sales Real Estate and RentalReal Estate and Rental $9 million$9 million Health & Social ServicesHealth & Social Services $8 million$8 million RetailRetail $6 million$6 million

Possible decline of $13 million Labor IncomePossible decline of $13 million Labor Income Health & Social ServicesHealth & Social Services $4 million$4 million RetailRetail $2 million$2 million Accommodation & FoodAccommodation & Food $2 million$2 million

To be a Cassandra or Not to To be a Cassandra or Not to be?be?

Ending on a positive note….Ending on a positive note…. Well diversified economyWell diversified economy Educated labor forceEducated labor force Community college for trainingCommunity college for training Amenities galore: real estateAmenities galore: real estate Retail trade center for areaRetail trade center for area

Agglomeration economyAgglomeration economy As global economy rebounds, Montana benefitsAs global economy rebounds, Montana benefits Stimulus Package: if provides rate of returnStimulus Package: if provides rate of return Low interest rate environmentLow interest rate environment Energy dividend at the pumpEnergy dividend at the pump Entrepreneurial spirit itself: markets do reboundEntrepreneurial spirit itself: markets do rebound