By MATTHEW BROWN

Associated Press

BILLINGS, Mont. (AP) -- Oil drilling and high prices for crops and livestock are boosting the economy in rural eastern Montana while urban areas to the west are lagging, University of Montana economists reported Tuesday.

The state's overall rebound from the Great Recession has been helped by an improving job market, investment in energy development and strong income growth, according to the mid-year economic outlook from the university's Bureau of Business and Economic Research.

However, the rebound in worker earnings has been slower than previously forecast, and economic indicators point to a sharp disparity between the eastern and western regions of the state.

Rising energy demand is a major economic driver for counties in and around the Bakken oil field of eastern Montana and western North Dakota. Strong prices for barley, beef and wheat also have helped boost rural counties, the economists said.

"I've been doing this 45 years and never have I seen the situation where in general the urban areas are growing slower than the rural areas," said Paul Polzin, director emeritus of the bureau.

The bureau's Patrick Barkey warned that a worsening drought could offset some of the rural gains if crop yields are low as a result.

Other economic uncertainties in play range from the fiscal crisis in Europe to the political deadlock in Washington, D.C., leading up to the November election.

Meanwhile, the east-west gap is expected to continue growing. Only two urban counties -- Yellowstone and Gallatin -- are projected to see increases in worker earnings during the next several years that will outpace the statewide average. Billings is in Yellowstone County. Bozeman is in Gallatin County

The counties that contain Butte, Missoula, Great Falls, Kalispell and Helena are all expected to fall short of the statewide average earnings increase of 2.2 percent a year.

Workers in northwest Montana's Flathead County, for example, won't see their average wage return to pre-2009 levels until 2015. For Missoula County it will be 2013. By contrast, most eastern Montana counties saw their wages recover within a year or two of the end of the recession.

The booming Bakken oil field gets much of the credit for a doubling of the number of drilling rigs in Montana over the past year, to about 20. In the first six months of 2012, the state issued 225 new drilling permits -- almost as many as in all of 2011.

Though oil and gas production levels remain down from their peak in 2006 and 2007, a steady decline in recent years has been halted by new wells coming into production, said Tom Richmond of the Montana Board of Oil and Gas Conservation.

There are some bright spots for the western half of the state.

Housing prices have begun to recover from their low point of late 2010 and early 2011. Tourism numbers are picking up, although those visitors aren't spending as much as they used to, said Webb Brown, president of the Montana Chamber of Commerce.

Polzin said higher state tax revenues from the proposed development of Arch Coal Inc.'s Otter Creek mine south of Ashland could help pay for future government infrastructure projects across the state. In addition, there's speculation that a second oil boom could be in the works in north-central Montana along the U.S.-Canada border, an area sometimes called "Little Bakken."

Barkey said it remains to be seen if that area will be extensively developed. He added that there are limits on how much the booming counties to the east can be expected to contribute to western Montana's economy.

Most cities in the west are not geared for the oil infrastructure work that has been pouring into Billings in recent months, as the state's largest city capitalizes on its relative proximity to the Bakken.

"We're not looking for eastern Montana to propel the west in that sense," Barkey said.

Copyright 2012 The Associated Press.

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