Montana is expected to show the strongest economic growth in the Northern Plains region in 2006, according to a forecast by the Federal Reserve Bank of Minneapolis.

A survey of hundreds of manufacturers and other businesses across Montana and the Northern Plains as well as the Fed's own estimates shows the expectation of continued economic expansion throughout the region next year, according to a pair of economists.

In a conference call Thursday, Tobias Madden and Rob Grunewald said the economy may be slowed by higher energy and materials costs over the next 12 months, and home building and residential real estate may also slow.

But the labor market is tightening, and job growth and personal income growth are both expected to continue.

The Minneapolis Fed, which has a branch in Helena, encompasses Montana, the Dakotas, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan.

"The outlook for labor markets in 2006 is positive, reflecting expectations for increased economic growth in the district," the economists said. "The forecasting models and business outlook poll results point to increased employment, relatively low unemployment rates and moderate wage growth."

Thursday's presentation showed that Montana has made strong strides in personal income over the last several years, outpacing the rest of the region and nation.

Ranked 47th in 2000, Montana has averaged nearly 5 percent annual wage growth since then to vault to 41st nationally.

It's getting harder to find good help, the survey showed.

Thirty-three percent of respondents to the Fed poll expect to increase their number of employees next year, while just 14 percent expect a decrease.

Energy and materials costs remain a concern for manufacturers, most of whom said they have no choice but to pass those costs along to consumers.

Despite those higher costs, the economists noted that total personal consumption across the region increased by 3.8 percent over the last year.

Some of that was due to income growth, while some was attributed to increased borrowing.

The economists also noted that while residential home building is expected to decrease, that may be offset by an anticipated increase in commercial real estate and construction.

In the agriculture sector, the economists noted that while the widespread drought that had gripped the region for several years is mostly in the rear view mirror, higher energy and fertilizer prices will dampen some of the expected growth in that area.

The forecast was compiled based in part on surveys of 345 district business leaders, 474 manufacturers and 133 district agricultural lenders.

John Harrington can be reached at 447-4080 or helenair.com">john.harrington@helenair.com.