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Revenge of the Resource Economy

For years now, talk in the Mountain West has been about the “amenity” economy displacing natural resources as the key to prosperity. But as the housing downturn marches across the region and commodity prices soar, the old standbys have returned as key economic pillars.

Clearly, the industry powering much of the growth in the Mountain West over the past decade — growth itself — is limping. Residential real estate, while healthier than much of the country, continues to weaken, especially in larger cities like Boise and Salt Lake and in resort markets like Big Sky. The luxury second-home sector is also taking a hit, with high-profile projects like Tamarack Resort in Idaho and Promontory in Utah seeking refuge in bankruptcy.

Yet still-tight labor markets, continued job growth and commercial construction — all of which are at least partly related to the natural resource boom — have kept the overall economy in positive territory.

Commercial construction is so hot in Colorado that there has been no decline in construction jobs, even as the housing market dries up. Take-up rates for commercial real estate remain good and rents are rising, says Mark Schweitzer, a Denver-based economist for the Federal Reserve Bank of Kansas City.

Utah continues to lead the nation in job creation and population growth. In 2007, the Beehive State was the national front-runner in the home-price-increase category at 9.3 percent (though the market slowed dramatically at the end of the year). Boise has struggled with perhaps the worst housing market in the region, but the North Idaho economy has surged as record metals prices have mines operating around the clock, and as commercial building and population growth continues, says Idaho economist Kathryn Tacke.

The Mountain West used to be a land of economic monocultures. Not anymore. Another driver is tourism, led by Canadians, who vacation and buy big-ticket items like washing machines and refrigerators made cheap by the anemic U.S. dollar. Tacke expects to see Europeans and Asians this year, also lured by the trade imbalance.

Wyoming’s housing market ranked second in the nation, with energy-related activity and strong agricultural markets pushing single-family home prices up 8.3 percent last year. Montana’s median single-family home prices rose 6.9 percent last year. Idaho’s rose 4.6 percent.

High wheat and oil prices, nonstop operations at Montana mines and ongoing, although slower, construction in the Western mountains has regional economist Tobias Madden of the Minneapolis Federal Reserve Bank forecasting 2 percent growth this year for the Big Sky State. Personal income is rising at about 5 percent, but costs are up, too. Just about everything is more expensive. “In the last couple of years in Montana, it was ‘Rah, rah, rah! Now it’s kind of so-so,” Madden says.

In eastern Colorado, sky-high commodity prices have pushed farms and ranches into profitability, but Wray State Bank president Pete Wilson says input costs, also at all-time highs, have kept a lid on the euphoria. And the bigger paychecks won’t ease water worries, he says, and he expects commodity prices to fall before fuel and fertilizer. Still, the cash this year is nice. “Farmers are spending a little bit of money. They get to do that every five to seven years,” he says. Natural gas wells in the area, almost three hours’ drive northeast of Denver, have padded other pocketbooks.

The region seems to have no shortage of big capital projects. Hospitals are expanding from Denver to Coeur d’Alene. Two major rail projects are underway in Casper and Cheyenne, complete with spur lines and switches.

In Coeur d’Alene, Tom Messina of Messina Construction develops a fair number of his own commercial properties: single-story strip malls and the like. Foremost in his mind is keeping the end price down. “What’s it going to cost? What will it return, in terms of rents?” he says. “People are asking $12 a square foot. I’ve got to get it down to $8 or $9.”

In western Montana, regional design engineering firm WGM Group has begun to chip away at its 18-month backlog, projects like bank branches and apartment buildings, says CEO Brent Campbell. On Missoula’s western edge is a development that would seem to be in a vulnerable position: a golf community with homes and sites in the mid-six-figure to low-seven-figure range. The “equity refugees,” those boomers who sold their Oregon or California home and moved to the mountains, are thin on the ground, but house lots continue to sell, says owner John Powers, unlike most of 2007 when sales were stagnant. Twelve homes are under construction since January, and five buyers are kicking tires. “It’s like somebody hit the switch,” he says. All the buyers this year have Missoula zip codes.

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One comment

  1. I don’t understand how this headlines as “Revenge” of the resource side…because rig counts are up and ag people are actually spending money?
    Commercial real estate for retail, as indicated by Messina’s smart push to keep his per-SF number down, is not “resource” production, but on the transfer-payment-economy side — servicing the equity refugees already here.
    I’d like to see what total employment is in the resource sectors, the revenues in constant dollars from, say, a 1980 baseline, and then we’ll see if anyone is getting “revenge.”