Is Montana Headed Towards a Major Economic Recession?

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In recent days, turmoil in global markets, caused by the unwinding of the yen carry trade, has blown up the U.S. stock market.

What does this mean? Investors have been borrowing cheaply in yen to invest in higher-return assets, like U.S. tech stocks. However, as the yen's value rises due to Japan's interest rate hikes, this strategy has backfired and led to a shift in the market. Investors are facing margin calls, leading to a mass sell-off in stocks and other assets, causing significant market disruptions. The situation is ongoing, with the unwinding process still far from complete.

But what does all of that financial gibber gabber mean for the average citizen, specifically for us here in Montana? Well, as the national economy grapples with signs of a potential downturn, Montana—with its unique economy and influential factors—faces both risks and, as always, opportunities. While Montana's economy has shown resilience in recent years, several factors suggest that the state may not be immune to the broader economic challenges looming on the horizon.

Slowing Growth Amid National Concerns

Within the past few years, Montana’s economy has seen impressive growth—particularly in industries such as retail trade, real estate, and agriculture. In the third quarter of 2023, Montana’s real GDP growth rate was a strong 4.2%, driven by a significant boost in retail trade, which grew by 25.4% annually. However, this robust growth comes with caveats.

Nationally, concerns are rising about a potential recession, driven by consumer spending slowdowns and labor market challenges. Also, as recently reported, Montana has been experiencing a slowdown in transplants; good news for those who dislike the high population increase, bad news for those who want Montana's economy to improve.

These issues—and their consequences—could ripple through to Montana, especially as the state’s economy is smaller and more susceptible to national trends, whether we like it or not.

The Labor Market and Migration Trends

Montana’s unemployment rate remains low (3.1% as of June '24) which is better than the national average (4.3% as of June '24). However, as seen throughout history, a tight labor market could become a double-edged sword. As the Federal Reserve’s interest rate hikes begin to bite hard, consequently slowing consumer spending and investment, Montana has a higher potential to see a reduction in job creation and a potential increase in unemployment.

Also, as mentioned above, the post-pandemic influx of new residents—which previously bolstered the state’s economy—is beginning to cool. This slowdown in migration could exacerbate labor shortages in critical sectors, further hampering economic growth; though this could also return Montana's economy to pre-pandemic stability.

Indicators to Watch: The Sahm Rule and Consumer Spending

National economic indicators like the Sahm Rule, which signals recessions when the three-month average unemployment rate rises by at least 0.5 percentage points, are beginning to flash warning signs. While this rule hasn’t yet triggered a recession alert for Montana, it remains a crucial barometer as the state navigates the coming months of global market variability.

Additionally, with consumer spending accounting for a significant portion of economic activity, any decline in national spending could have detrimental effects in Montana, particularly in the retail and hospitality sectors. And that's before the agriculture sector sees more and more farmers leaving Montana in favor of cheaper land costs.

The Energy Transition and Long-Term Outlook

To get a little more optimistic among talks of economic depression, Montana’s transition towards green energy presents challenges—and huge opportunities. As the state moves away from fossil fuels, new industries may emerge, offering a buffer against potential economic downturns. However, the transition will require careful management to avoid short-term disruptions in traditional energy sectors, which have historically been significant contributors to Montana’s economy.

Conclusion: Cautious Optimism or An Early Warning?

While Montana is not currently in a recession, the state’s economic outlook is intertwined with broader national trends that could lead to a downturn. Key indicators such as GDP growth, labor market conditions, and consumer spending will need to be closely monitored. Montana’s smaller, more specialized economy means it could experience the effects of a national recession more acutely, making it imperative for policymakers and businesses to prepare for potential challenges ahead.

Whether Montana can navigate these challenges without slipping into recession remains to be seen, but the state’s resilience and adaptability offer reasons for cautious optimism.