Economists slightly optimistic about economy

HELENA (AP) – Lawmakers facing a $250 million deficit in the next Legislature got a whiff of optimism Monday when economists said the nation and Montana can expect continued slow economic recovery over the next few years.

Billings Gazette

Paul Polzin, director for the Montana Bureau of Business and Economic Research, said his agency has increased the state’s predicted job growth for this year and next. Estimates of 1.2 percent and 1.7 percent have been revised to 2.2 percent and 2.5 percent, respectively, he said.

He said the bureau’s forecast for 2004 and 2005 will be issued in mid-January.

Andrew Hodge, representing a national economic forecasting company called DR-WEFA, predicted national growth of 2.4 percent this year will improve to 3 percent in 2003 and 4 percent the following year.

While the health of the national economy is plagued by risk – particularly the sagging stock market and possible war with Iraq – the outlook is for slow growth, he said.

"We do see the direction as up, although we have taken some punches," Hodge added.

Hodge and Polzin made their comments to the Revenue and Transportation Committee, which will start work next month on developing a government revenue estimate that the 2003 Legislature will use in preparing a new two-year budget.

Rep. Ron Erickson, committee chairman, said he was pleased with Polzin’s revised numbers and Hodge’s predictions.

"It’s an encouraging look at the revenue stream" of income taxes that is dependent on growth in wages, said the Missoula Democrat.

Hodge sees a one-in-four chance of a second recession, but said those odds will increase if the stock market plunges another 20 percent.

Such back-to-back recessions are rare, he said. "Once you have a correction and make the turn up, it’s very difficult to kill the economy."

He said the economic effects of possible war already have taken their toll on consumer sentiment and spending, oil prices and stocks. The uncertainty over if and when an attack on Iraq will come can cause more havoc than a speedy and successful war, he said.

Hodge said oil prices should not skyrocket if a war starts, because the United States can find more of its supply within its own borders and other non-Mideast nations such as Russia.

Construction and manufacturing, travel, medical care and the federal government are sectors of the economy on a slow rebound, Hodge said. The housing market has remained strong because of sharp cuts in interest rates, he said.

However, he said the recovery has not caused increased employment, as the jobless rate is expected to remain near 6 percent next year.

While the Montana economy is doing better than the rest of the nation, that does not mean the state could avoid the decrease in income and capital gains that has led to the big budget deficit, Polzin said.

The economic outlook is optimistic, but the government’s finances are not, he added.

Polzin said Gov. Judy Martz’s plan to deal with the money shortage solely through spending cuts could create added financial problems for the state if the cuts reduce Montana’s ability to get federal funds.

Polzin estimated that a $150 million loss of federal aid would be a $300 million blow to the economy.

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