Alaskanomics

Cost of Living in Alaska

Throughout Alaska’s history, the cost of goods has been much higher than the rest of the country.  As noted in the July issue of Alaska Economic Trends, during the Klondike Gold Rush a pound of canned butter was $5, or $142 in today’s dollars. While the price of butter has improved, the cost of living, especially in rural Alaska, remains a significant challenge for many. Alaska Economist Neal Fried explains that there are two ways to measure the cost of living. One is to examine the differences between places at a single point in time, and the other is to look at price changes in a single place over time.

Anchorage is the only city in Alaska with its own Consumer Price Index (CPI), and therefore is the only true measure of cost over time. This can be tricky because cost in Anchorage often does not reflect cost in other communities, but the measurement of price change is usually close to that seen in other communities. In relation to price changes, 2014 was a good year. It was the second-smallest increase in the past ten years. Price changes can only be used to compare prices in the same place over time. You cannot compare a Consumer Price Index between cities. Anchorage is the smallest city, of 27, to have its own CPI, and is used as the de facto measure of inflation in Alaska.

It should come as no surprise that Anchorage residents spend the bulk of their monthly budget on housing. Anchorage residents typically spend over 40 percent of their budget on housing and in 2014 the average cost increased by 2.7 percent. Housing price does include the cost of energy and is therefore more volatile. The Anchorage cost is likely much different from communities outside of Southcentral Alaska because many Anchorage residents use natural gas to heat their homes. The price of natural gas is far more complex than the price of heating oil and gasoline, which is used outside of the Southcentral region.

Housing prices in Alaska vary widely depending on the region. Anchorage has the highest average cost for a home at $360,965, while the statewide average is $306,042. Rent for a two-bedroom apartment is the highest in Kodiak, where the average is $1,420 a month. Anchorage is second with $1,331 per month.

Health care does not comprise a large part of the index, but has seen significant increases in the past decade. The cost of health care in Anchorage increased by 3.2 percent in 2014, the largest increase in all categories in the index. Alaska has the highest health insurance premiums in the nation. This is because of higher hospital costs, much higher physician reimbursements, and the higher cost of doing business in Alaska.

Alaska cities are expensive, but not the most expensive in the nation. 11 cities topped Alaska’s most expensive city, Kodiak, in 2014. According to the Council for Community and Economic Research (C2ER), Manhattan and Honolulu are the most expensive cities to live in. Alaska ranked fourth in states with the highest cost of living, behind Hawaii, Connecticut and New York. A few examples of how Alaskan cities compare to others in the nation are:

• National average for a pound of banana $.59, Anchorage $.88, Kodiak $1.26
• National average for a pound of coffee $4.49, Anchorage $5.87, Kodiak $6.09
• National average for a doctor’s visit $105.03, Anchorage $169.40, Fairbanks $173.50
• Cheapest Quarter Pounder Pittsfield, MA $1.99, Anchorage $4.65, Most Expensive Hilo, HI $5.02

The cost of living is a large factor for many when choosing where to live. Anecdotally, Alaska is very expensive, but we can see that it is not the most expensive location in the nation. While Pittsfield, MA may have cheap Quarter Pounders, you can bet that they do not have to share their drive thru with moose and bears as you can in Anchorage.

For more information on the cost of living in Alaska and other cost measures, visit: http://labor.alaska.gov/trends/

Alaska Unemployment at 6.8 percent in June

In the past two years, the unemployment rate has been relatively stable and remained close to the 10-year average. June’s rate increased one-tenth of a percent from the revised May number. Nationally, unemployment is at 5.3 percent, down from 5.5 percent in May.

During June, the more urban areas in Alaska saw increases in not-seasonally adjusted rates because their economies are typically less seasonal and do not rely on tourism and/or fishing seasons. Bristol Bay Borough and Denali Borough have the lowest rates with 3.7 and 4.3 percent, respectively. Bristol Bay’s economy is dominated by the seafood industry and Denali relies on tourism in the summer months. The highest rate of unemployment continues to be the Kusilvak Census area at 25.7 percent. This area was recently renamed from Wade Hampton Census Area.

For full employment information and statistics, visit http://live.laborstats.alaska.gov/

Anchorage's Economy for the Past 100 Years

As Anchorage is in the middle of its Centennial Celebration, it is important to look back over Anchorage’s economy over the past 100 years. Local economist Neal Fried compiled the history of Anchorage’s economy for a recent issue of Alaska Economic Trends. Anchorage got its start with the decision by the federal government to build a railroad somewhere in the Alaska territory. Anchorage’s tent city began to sprout up, well before the official announcement of the Alaska Railroad route was made. From that tent city grew a well-planned town with schools, sidewalks, utilities, roads, and more amenities than most frontier towns had. The first spike for the railroad was placed in April 1915 and Anchorage’s economy took off. In two years, Anchorage had over 1,300 buildings and 162 businesses, including three banks.

World War I broke out and caused problems for the Anchorage economy. Fried notes that WWI was the only war that the United States engaged in that was harmful to the Anchorage economy. The town’s workforce and population declined but work on the railroad continued. President Harding drove the golden spike to signal the completion of the railroad in 1923. Between the completion of the railroad and World War II, Anchorage took over control of the city government from the Alaska Engineering Commission. Population in 1939 was over 4,200 and school enrollment tripled from 1915 to 1930.

Natural resources have always been a large contributor to the Anchorage economy, but according to Terrance Cole, Alaska historian, it was not natural resources that kept Alaska strong, but from 1945 to 1965, it was Alaska’s strategic location at the top of the world that fueled the economy. Troops began to arrive in Anchorage in the summer of 1940 and peaked at 152,000 in 1943. When Fort Richardson and Elmendorf were built the population in Anchorage grew significantly. The population grew from 4,200 in 1939 to over 82,000 in 1960. The military was not the only reason for the economic growth in Anchorage, after WWII. Tourism began to grow and Anchorage was beginning to surface as the commercial and service hub in Alaska.

The discovery of oil in Cook Inlet brought a new driver to the Anchorage economy. Anchorage became the headquarters for the oil industry in Alaska. The 1964 earthquake also helped move the Anchorage economy in the fact that it made Anchorage the major port in Alaska. Prior to the earthquake, most goods were shipped to Alaska through Seward and Whittier. After the quake, Anchorage became the port of preference for Alaska. Anchorage now had access to roads, rail, air and sea. It was the economic powerhouse for all of Alaska.

During the mid-1970s, construction of the Trans-Alaska Pipeline drove the Alaska economy. Paychecks were high and many raced to Anchorage to grab their share of the fortune. In only five years, payroll jobs doubled, going from 40,000 to 80,000 between 1970 and 1975. The US was in the midst of a recession and many came north to find economic opportunities. Completion of the pipeline did not cause an economic bust as predicted. The early 1980s were a good time in Anchorage. Oil revenue was driving the economy, Anchorage continued to grow, and private sector jobs doubled between 1980 and 1985.

The boom was short lived as oil prices plummeted and Anchorage lost more than 14,000 jobs from 1985 to 1988. The first bank closure since the Great Depression occurred in Anchorage in 1986. Nine more banks closed by 1988.

In the past 25 years, there has not been a single event that has driven the Anchorage economy. The oil industry has grown and declined, as have other natural resources such as fishing, mining and timber. Health care and tourism have remained strong in the past twenty-five years. Between 2000 and 2013, health care jobs have nearly doubled in Anchorage, going from 9,700 to 18,100 in 13 years.

Time will tell what Anchorage will look like over the next hundred years. Will it have the same level of growth as the first hundred? Will it see the same growth as it did going from a tent city of 4,500 to a thriving city of over 300,000? Not likely, but surely it will be an interesting ride on the edge of the wilderness.