Economy faces power play

By MICHAEL MOORE of the Missoulian

High electricity prices will keep Montana's growth in check, UM economist says

Montana's economic growth rate will slow because of ongoing problems with electricity prices, a University of Montana economist said Thursday.

Paul Polzin, director of UM's Bureau of Business and Economic Research, said economists have now factored in a two-year negative impact caused by soaring costs for electricity. Polzin predicted the state economy will grow 1.1 percent in 2001 and 1.6 percent in 2002, given current electricity prices.

The economist noted the closures, cutbacks and temporary shutdowns at mills and mines around the state, including Smurfit-Stone Container Corp., Montana Resources Inc. and Columbia Falls Aluminum Co.

Before electricity prices exploded last year, the BBER had predicted growth rates about a percentage point higher. While electricity prices have very nearly killed some manufacturing concerns, all is not lost in manufacturing. In fact, Billings-area refineries are doing quite well because of strong prices and demand for natural gas and oil, Polzin said.

"While energy is part of our problem, people have to remember that we are also an energy producer," Polzin said.

Plus, Montana is still seeing some growth in retail trade and service businesses, and growth at high-tech firms in Bozeman and Missoula. Transportation, both rail and over-the-road, also is prospering, Polzin said.

In general, Montana businesses are also benefiting from higher labor productivity. The state's productivity growth increased to 2.7 percent in recent years, a rise of 2.2 percent from the previous decade.

"It's computers and information technology that account for that," Polzin said. "If, for instance, you can do all your bookkeeping online, you can lower your personnel costs."

Polzin was unconcerned about any resulting job loss due to computerization, because the unemployment rate is so low.

"That rate is so low it's not really an issue right now," he said.

Even so, the state's economy faces an uncertain future. It's unclear when and if the electricity crisis will be solved. If prices begin to moderate, the current downturn shouldn't spill too heavily into other aspects of the economy, Polzin said.

"If they don't, we'll see some multiplier effect, where the damage spreads out further," he said.

Polzin said the overall slowdown in the U.S. economy is also affecting Montana, although the extent is not yet clear.

"First of all, we don't know whether there will be a recession," he said. "... Secondly, even if there is a recession, we'll have to wait and see what kind of recession it is before we can project its impacts here in Montana."

Polzin said the current problems in the Montana economy are focused on heavy manufacturing and automobile production, industries Montana doesn't have.

"Recessions don't come out of a cookie cutter," he said. "A lot of people besides professional economists are wondering just what condition the U.S. economy

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-- Martin Thompson (mthom1927@aol.com), April 20, 2001