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Wyoming Economic Forums - 1996
 

The Wyoming Economy:
Where Is It Headed?

Mark Drabenstott Vice President & Economist
Federal Reserve Bank of Kansas City

  Wyoming appears headed for solid economic growth in 1997, marking its tenth straight year of expansion. The state's economy slowed to a growth rate well under the nation's this year, extending a slowdown that began in 1995. In the year ahead, a strong service sector should keep Wyoming's long-running expansion rolling. Construction, manufacturing, and energy also will contribute to solid growth overall. Wyoming agriculture is expected to have a better year in 1997, although ranching will probably be slow to recover from its current slump.

Before looking more closely at where Wyoming's economy is headed, it is worthwhile to examine where it has been. Following two severe recessions in the mid-1980s, the state began an economy recovery in 1987 that now has spanned nine years. The best indicator of Wyoming's durable expansion has been growth in total employment, which has grown steadily from 1987 to the present. Growth began to slow down in 1995, and that trend has continued into 1996. For the 12 months ended in July, the most recent month for which data are available, Wyoming jobs grew 0.2 percent compared with 2.2 for the nation. Thus, while the Wyoming expansion rolls on, it may be showing a few signs of tiring.

The slowdown in the Wyoming economy is also apparent when the state's performance is compared against the other seven states in the Tenth Federal Reserve District. Wyoming's slight gain in jobs over the past year was the weakest in the region. New Mexico remains the district front-runner, posting job growth of nearly 5 percent over the past year.

Looking ahead, the course of Wyoming's economic expansion will depend on the outlook for the key segments of the state's economy. Among these sectors, services will probably lead the way in fueling continued growth. Jobs in the service sector have risen a robust 2.7 percent during the first seven months in 1996, down from even faster growth the previous two years. Solid gains in tourism and continued migration to the state have both boosted service growth in Wyoming. The state's many scenic amenities promise to keep the tourists and new residents coming in the year ahead, marking another good year for service companies.

Wyoming's construction sector also appears headed for another good year in 1997. After rapid growth in 1994, Wyoming's construction activity has slowed to a more sustainable pace the past two years. Housing remains strong across the state, while commercial and nonbuilding projects are growing more slowly. Bolstered by the influx of new residents, Wyoming could see more new homes built in 1996 than any other year of the nine-year-old expansion. Though home building may cool in coming months in a delayed response to the run-up in mortgage rates this year, the underlying fundamentals remain solid. Wyoming's mountains and lifestyle remain a magnet for new residents.

Wyoming's important energy industry looks forward to limited gains in the year ahead. Coal remains the strongest segment of the energy sector, posting an 11 percent jump in production in 1995. Demand for Wyoming coal continues to grow at a rapid rate. The growth in oil and gas production, meanwhile, has been mixed. Oil prices have risen in recent weeks due to strong demand and jitters over the Iraqi situation, but many market participants believe that prices may come back down in the longer term. Natural gas prices have been soft recently, and market participants do not expect a strong rise in the near future. The soft prices will postpone Wyoming's considerable potential to expand production.

Finally, Wyoming agriculture should have better fortunes in 1997 after a tough year in 1996. The cattle industry, the biggest part of the state's farm sector, is just starting to climb out of a deep slump. Cattle feeders should move to profitability in the year ahead as beef supplies fall more in line with demand. If past trends hold, however, ranchers will probably be the last to share in the profit rebound. Grain prices will remain strong in the coming year due to continued tightness in world inventories. If weather is normal, prices could come down as next year's crops develop.

On balance, the Wyoming economy should grow at a solid rate in 1997, marking ten straight years of expansion. The rate of growth will probably be somewhat slower than the nation due to limited gains in energy and a slow recovery in Wyoming's important ranching industry. A strong service sector promises to remain the primary source of strength, while construction and manufacturing will also contribute to a generally favorable economic picture.

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