Recession 2008:

What Will be the Montana Impacts?

Paul E. PolzinPaul E. PolzinThe Bureau of Business and Economic Research, The Bureau of Business and Economic Research, The University of Montana-MissoulaThe University of Montana-Missoula

What Caused the 2008 Recession?

• House price bubble bursts

• Rising interest rates lead to mortgage defaults

• Credit crunch. Flight to quality

• $100/barrel oil

Foreclosure Activity- November 2007

Source: www.realitytrac.com

Foreclosure Activity

0

5

10

15

20

25

30

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

Index of Single-Family Home Prices,

Annual Percent Change

U.S.

MONTANA

OREGON

WASHINGTON

Source: U.S. Office of Federal Housing Oversight

• Nonresident Travel• Mining• Manufacturing

-Wood and paper• Agriculture

Federal Gov’t (Incl. Military)

90%90%

Montana’s Economic Base

U.S. Industries Likely to be Impacted by 2008 Slowdown/Recession

-Financial Services

-Durable manufacturing

-Automobiles

-Home building (wood products)

-Construction

0123456789

10

'05 '06 '07 '08 '09 '10 '11

Actual Projected

Actual and Projected Change in Nonfarm Labor Income, Montana, 2005-2011

4.4

5.9

4.54.1 4.0 4.14.0

Causes of Montana’s Boom• Mining / oil and gas. High commodity / energy

prices

• Manufacturing. High-tech recovery, oil refinery upgrades

• Nonresident travel- steady two percent growth

• Federal government. Post Sept. 11 homeland security

• Agriculture. $8/bushel wheat

Percent

No D

ata

Montana Nonfarm Labor Income (Percent Change)

Source: U.S. Bureau of Economic Analysis

-2-10123456789

10

'40

'42

'44

'46

'48

'50

'52

'54

'56

'58

'60

'62

'64

'66

'68

'70

'72

'74

'76

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

75

125

175

225

275

325

375

425475

525

575

2003 2004 2005 2006 2007

Oil Zinc

LeadCopper

Index

Wheat

Source: International Monetary Fund.

Commodity Prices

1990-2005 2006 2007f 2008f

WTI Oil ($/barrel)

26 66 66 60

Nymex Natural Gas ($/mmbtu)

3.32 6.99 7.50 8.00

Copper ($/lb) 1.01 3.05 2.70 2.25

Zinc ($/lb) .50 1.49 2.00 1.40

Nickel ($/lb) 3.64 11.00 13.50 18-20.00

Source: Scotiabank Commodity Price Index.

60

7.65

3.10

1.70

20.00

69

6.95

3.30

1.52

17.35

70

6.95

2.95

1.35

13.50-14.50

Commodity Price Forecasts

0

1

2

3

4

5

6

7

8

Source: World Bank

Developing Countries

Developed Countries

World GDP (Percent Change)

0

5

10

15

20

25

30

35

40

45

50

Percent manufacturing

China

MalaysiaIndonesia South Korea

IndiaU.S.

Percent Manufacturing

Source: Economist

Summary

-Continued statewide growth of 4.0 percent or more

-Small 2008 slowdown/recession impact (unless something goes wrong)

-Risks

-Global geopolitical events

-Construction nosedives

-Bumper wheat crop

A Final Montana Impact

• Montana tax revenues– Dividends, interest and rents– Capital gains– Corporate profits

QUESTIONS?