1. Whats Going on in the Flathead? 7th Annual Flathead Outlook January 2009 Center for Business Information and Research Flathead Valley Community College

4. What People Think Matters Household Confidence Vital for Healthy Economy Household Confidence Vital for Healthy Economy We spend and save according to: We spend and save according to: Our current disposable income Our current disposable income Our household wealth Our household wealth Expected future income Expected future income Smoothes spending out during bad years Smoothes spending out during bad years Expectations per inflation Expectations per inflation

7. For the Period Dec 07 to Dec 08: Assessment of current financial situation Assessment of current financial situation Down 18% Down 18% Anticipation of financial situation next 12 months Anticipation of financial situation next 12 months Down 6% Down 6% Assessment of Montana business conditions next 12 months Assessment of Montana business conditions next 12 months Down 35% Down 35% Assessment of Montana business conditions next 5 years Assessment of Montana business conditions next 5 years Down 22% Down 22% Next 12 months good time to buy car, appliance, house? Next 12 months good time to buy car, appliance, house? Down 18% Down 18%

9. Flathead Unemployment 7.3% preliminary Lagging indicator Lagging indicator Relative to…. Relative to…. Montana4.9% Montana4.9% Gallatin 4.6% Gallatin 4.6% Missoula 4.9% Missoula 4.9% Big Horn8.0% Big Horn8.0% Glacier8.9% Glacier8.9% Lake7.5% Lake7.5% Lincoln10.0% Lincoln10.0% Sanders11.7% Sanders11.7% Mineral7.4% Mineral7.4%

10. Price trend, all items

11. Price trend, All Items, less food and energy

12. Flathead Unemployment Insurance Claims Doubled CY 2007 to CY 2008 Doubled CY 2007 to CY 2008 6,465 in 2007 6,465 in 2007 12,796 in 2008 12,796 in 2008 Emergency Unemployment Insurance Claims Emergency Unemployment Insurance Claims Began July 08 ends July 09 Began July 08 ends July 09 4-13 additional weeks 4-13 additional weeks 928 claims in 2008 928 claims in 2008 Does Not Capture All Harm Does Not Capture All Harm Independents without reported wages for first 4 of last 5 quarters ineligible Independents without reported wages for first 4 of last 5 quarters ineligible 2006: 2006: proprietor employment 30% of total proprietor employment 30% of total proprietor wages 25% total wages and salaries proprietor wages 25% total wages and salaries

13. NBER Declaration of National Recession Recession = diminishing economic activity Recession = diminishing economic activity Unemployment as indicator: lags activity Unemployment as indicator: lags activity Unemployment insurance: too much noise Unemployment insurance: too much noise Does everything have to be in decline? Does everything have to be in decline?

14. National Recession Started December 2007 Started December 2007 Recession declared one year later: December 11, 2008 by NBER Recession declared one year later: December 11, 2008 by NBER Why the Lag? Why the Lag? If difficult for the nation, even more problematic at the local level If difficult for the nation, even more problematic at the local level

15. Confusing Data Usually the Case Real GDPReal GDI Real GDPReal GDI 2007Q4 Down2007Q4 Down 2007Q4 Down2007Q4 Down 2008Q1 Up2008Q1 Down 2008Q1 Up2008Q1 Down 2008Q2 Up2008Q2 Upto peak 2008Q2 Up2008Q2 Upto peak 2008Q3 Down2008Q3 Down 2008Q3 Down2008Q3 Down

16. Using Rear View Mirror for Flathead 05 0607 Avg wage/job28,94930,53131,904 w/s employment40,73642,83844,623 w/s (000s $)1, 179.31,307.91,423.6 Unemployment4.33.63.5

17. Economic Impact of Announced Layoffs Only possible to discern loss to economy, not NET effect Only possible to discern loss to economy, not NET effect Top 20 Employers Top 20 Employers 8 employment trend is downward 8 employment trend is downward 9 employment trend is steady 9 employment trend is steady 3 employment trend is positive 3 employment trend is positive Top 20 represent 7 of 20 possible NAICS sectors Top 20 represent 7 of 20 possible NAICS sectors

18. Layoff Impact-Jobs Direct Impact:615 manufacturing jobs Direct Impact:615 manufacturing jobs Indirect impact: jeopardizes additional 1,428 Indirect impact: jeopardizes additional 1,428 Whos Most Affected? Whos Most Affected? Health & Social Services158 Health & Social Services158 Professional/Scientific/Tech144 Professional/Scientific/Tech144 Accommodation & Food135 Accommodation & Food135 Retail Trade125 Retail Trade125 Transportation & Warehousing94 Transportation & Warehousing94 Other manufacturers86 Other manufacturers86

19. Layoff Impact-Sales Direct Impact:$484 million Direct Impact:$484 million Indirect impact:additional $228 million Indirect impact:additional $228 million Whos Most Affected? (000,000s $) Whos Most Affected? (000,000s $) Utilities$41 Utilities$41 Other manufacturers$40 Other manufacturers$40 Real Estate & rental$19 Real Estate & rental$19 Transportation & Warehousing$13 Transportation & Warehousing$13 Ag, For, Fish & Hunting$13 Ag, For, Fish & Hunting$13 Professional/Scientific/Tech$12 Professional/Scientific/Tech$12 Health & Social Services$12 Health & Social Services$12

20. Layoff Impact-Labor Income Direct Impact:$79 million Direct Impact:$79 million Indirect Impact:additional $62 million Indirect Impact:additional $62 million Whos Affected? (000,000s $) Whos Affected? (000,000s $) Utilities$8 Utilities$8 Health & Social Services$6 Health & Social Services$6 Professional/Scientific/Tech$6 Professional/Scientific/Tech$6 Wholesale$4 Wholesale$4 Transportation & Warehousing$4 Transportation & Warehousing$4 Retail$4 Retail$4

21. Can Declining Wealth Affect Spending? 1990-2000: avg growth rate for real net worth for American hh was 5.3% per year 1990-2000: avg growth rate for real net worth for American hh was 5.3% per year Primarily houses and stocks Primarily houses and stocks Savings rates declined to 2% from 8% of disposable income Savings rates declined to 2% from 8% of disposable income Disposable income could be virtually all consumed Disposable income could be virtually all consumed Wealth accumulation took care of itself via stocks and real estate Wealth accumulation took care of itself via stocks and real estate 2000-2007: real net worth rose 2.29% 2000-2007: real net worth rose 2.29% With stocks and housing both falling: households now focus on wealth preservation and risk avoidance With stocks and housing both falling: households now focus on wealth preservation and risk avoidance Go from wealth enhancement to wealth preservation by reducing consumption, increasing saving Go from wealth enhancement to wealth preservation by reducing consumption, increasing saving

22. Wealth Effect as a Driver of Consumption Controversial at Best Controversial at Best For every $ decline in wealth For every $ decline in wealth Spending decreases by $.04 or $.05 Spending decreases by $.04 or $.05 Estimate $52 million as driver Estimate $52 million as driver Household Wealth only Household Wealth only 403(b) now 201(b) for most 403(b) now 201(b) for most Delayed retirements Delayed retirements Adds to labor imbalances Adds to labor imbalances Bad for slowdown Bad for slowdown Good for recovery Good for recovery

23. Wealth Effect-Housing Possible decline of 431 jobs Possible decline of 431 jobs Health & Social Services104 Health & Social Services104 Retail89 Retail89 Accommodation & Food61 Accommodation & Food61 Possible decrease of $44 million in Sales Possible decrease of $44 million in Sales Real Estate and Rental$9 million Real Estate and Rental$9 million Health & Social Services$8 million Health & Social Services$8 million Retail$6 million Retail$6 million Possible decline of $13 million Labor Income Possible decline of $13 million Labor Income Health & Social Services$4 million Health & Social Services$4 million Retail$2 million Retail$2 million Accommodation & Food$2 million Accommodation & Food$2 million

24. To be a Cassandra or Not to be? Ending on a positive note…. Well diversified economy Well diversified economy Educated labor force Educated labor force Community college for training Community college for training Amenities galore: real estate Amenities galore: real estate Retail trade center for area Retail trade center for area Agglomeration economy Agglomeration economy As global economy rebounds, Montana benefits As global economy rebounds, Montana benefits Stimulus Package: if provides rate of return Stimulus Package: if provides rate of return Low interest rate environment Low interest rate environment Energy dividend at the pump Energy dividend at the pump Entrepreneurial spirit itself: markets do rebound Entrepreneurial spirit itself: markets do rebound