Alaskanomics

Video Clip: Alaska's Gross State Product

Northrim Bank Economist and Commercial Loan Officer Mark Edwards takes a look at Alaska's Gross Domestic Product and discusses the oil and gas industry's impact on the different sectors of the state's economy.

The 1/3 Rule or What Drives the Alaska Economy?

by Scott Goldsmith, Institute of Social and Economic Research

The Alaska economy depends on 14 sectors or drivers that bring new money into the state and account for all the jobs and income of Alaska households and businesses.  These 14 sectors can be aggregated into 3 groups, each of which accounts for about 1/3 of the total.

The first group—Petroleum—includes all activities related to production, the revenues collected by state and local governments, and the Permanent Fund.

The second group—Federal Spending—includes the dollars that flow into Alaska from both military and civilian government activities.

The final group includes all Other Drivers, both the natural resource sectors of fishing, timber, mining, and agriculture, as well as tourism, air cargo, miscellaneous manufacturing and services, retiree spending, non-earned income.

The other economic sectors, like construction, finance, health care and state government, are important for the health of the economy, but they recycle the money that the drivers bring in.  Without the drivers there would be no money to recycle and no role for these other sectors to play.

A new study by ISER (Institute of Social and Economic Research) of the University of Alaska Anchorage, funded through a gift from Northrim Bank, quantifies for the first time, the contribution of each of the drivers of the Alaska economy.  The knowledge that comes from understanding what the drivers are, their relative importance, and their future prospects, is critical for planning for Alaska’s economic future.

This table summarizes the share of economic activity attributable to each driver.  All the jobs and income are accounted for in this table.  So, for example, some finance jobs are attributed to petroleum, some to federal government, and some to the other drivers.

Economic Impact of Alaska’s Visitor Industry

The State of Alaska, Department of Commerce, Community and Economic Development recently released their annual report on last year’s tourism industry.  It was prepared by the McDowell Group.  They report that overall the industry has a $2.1 billion direct impact on the Alaska economy, provides 36,000 direct and indirect jobs and contributes $209 million to state and local taxes.

In 2009, there were a total of 1.6 million out-of-state summer visitors, a 7.3% reduction from 2008 levels.  836,500 people or 65% of the total came by cruise ships, a decline of only 6,000 cruise travelers in 2009.  However, there is a projected decline of 140,000 cruise ship passengers in 2010 (-17%), due to fewer ships arriving as the industry is redeploying their assets to other destinations.

Other forms of transportation were down significantly in 2009 including Air (-15%), Ferry (-16%) and Highway (-8%).

Further statistics demonstrating the impacts of reduced summer visitors and spending in the second and third quarters of 2009 include:

13% decline in land tour packages from cruise ships
22% decline in Anchorage bed tax, 10% Mat-Su, and 30% Sitka
23% decline in car rental tax
16% decline in non-resident sports fishing licenses

49% of the employment generated by summer tourism is in the southcentral region and $512 million in spending was reported here.  29% of jobs were created in the southeast, but this region benefited from nearly comparable levels of spending at $510 million. 17% of the jobs were in the Interior region which received $193 million in spending. The largest spending categories include: Gifts/Souvenirs ($306M), Tours/Activities ($272M), Lodging ($220M), Food/Beverage ($194M), Transportation ($123M), with Other accounting for the remainder. The report also covers the Fall/Winter period between October of 2008 and April of 2009.  The total number of out-of-state visitors during this time was 242,500, a 2% decline compared to the prior season.  95% of these travelers exited by air, while only 5% by ferry or highway.  In this season 65% of the spending was in South central, 19% in the Interior and only 7% in the Southeast due to no cruise ship activity.  Gifts/Souvenirs only account for 16% of winter spending, whereas Lodging becomes the largest category at 34% and Food/Beverage is second at 26%.

Click here for the full report