Alaskanomics

Alaska LNG Project Application Files Available Online

(This update, provided by the Kenai Peninsula Borough mayor’s office, is part of an ongoing effort to help keep the public informed about the Alaska LNG project.)
 

The Alaska Gasline Development Corp.'s LNG project application and accompanying resource reports are available online at the Kenai Peninsula Borough website:http://www.kpb.us/mayor/lng-project/lng-project-updates/1028-lng-project-application-files-available-online.

The state corporation filed its application with the Federal Energy Regulatory Commission on April 17, 2017. The more than 140 files include the latest project overview, proposed construction and operational plans, environmental reports and maps for the North Slope gas treatment plant, 807-mile pipeline through the center of the state, and the natural gas liquefaction plant and LNG export terminal proposed in Nikiski.

Some of the files are large and download time will vary with your Internet connection speed.

The Kenai Borough later this week will distribute to its email list (and post to its website) a project update and summary of the application.

The state of Alaska has taken over management of the project from North Slope oil and gas producers ExxonMobil, BP and ConocoPhillips, with the intent of proceeding to a construction decision by 2019 and first LNG exports in 2024. In addition to FERC’s preparation of an environmental impact statement and regulatory decision, that schedule is dependent on the state corporation’s success in signing up investors and customers, securing financing for the multibillion-dollar project, and favorable global LNG market conditions.

A few of the appendices to the reports (mostly data sheets) are too large to easily accommodate on the Kenai Borough server. If you are interested in these documents, contact Larry Persily in the mayor's office at [email protected]. All of the reports also are available from the FERC website at http://elibrary.ferc.gov/idmws/search/fercgensearch.asp. Enter CP17-178 for the docket number.

Alaska Economic Update- Part 3

By: Mark Edwards – Senior Credit Officer & Bank Economist

We conclude our Alaska Economic Update today with a look at Gross Domestic Product, Income, Population and Employment.

Gross Domestic Product, GDP – U.S. GDP growth has been stagnate and below historical levels for the last decade.  Real GDP grew 1.6% nationwide in 2016 according to the U.S. Department of Commerce - Bureau of Economic Analysis.  Economic activity was driven by growth in personal expenditures, residential fixed investment, government spending, and exports.  This was partially offset by lower levels of commercial inventory and fixed investment and an increase in imports.  Optimism for future economic growth stems from potential tax cuts, deregulation, encouraging the repatriation of dollars to the U.S. for capital expenditures, and proposed increases in spending on domestic infrastructure.

Alaska’s gross state product (GSP) is only available through the third quarter of 2016.  The market value of all goods and services produced in Alaksa was measured at $51.5 billion. Alaska GSP declined 0.1% in 3Q ranking it 49 out of 50 states.  New Mexico was the only other state not to grow in any quarter of 2016.  Alaska’s GSP declined 0.6% in 2015.

Per capita income – Alaska’s per capita income in the third quarter of 2016 was $55,588.  This ranked 8^th best out of the 50 U.S. states. U.S. per capita income was $49,681.  Compared to the third quarter of 2015, Alaska declined 0.7%.  Total income in Alaska was $41.1 billion, down $331 million from the prior year.  Oil & gas, military and professional services were the sectors with the largest declines.  Health care and federal government showed the best improvement.  In contrast, U.S. personal income rose 3.4% year over year in 3Q 2016.

Population – Alaska’s population has remained virtually unchanged for the last three years.  The most recent Department of Labor estimate for Alaska's population is 739,828.  That is an increase of only 3,969 people in the last three years.  The natural increase of births minus deaths was 21,450 since 2014.  However, a net of in and out migration of residents resulted in a loss of 17,481 people over the same period. 

Employment – Alaska finished the year with a seasonally adjusted unemployment rate of 6.7% according to the State Department of Labor.  Preliminary data estimates a loss of 7,600 jobs or 2.4% when compared to the end of 2015.  Approximately 3,100 of those jobs were lost in Anchorage and 2,800 in the Northern region, principally due to Oil & Gas.  The Interior region saw a reduction of 700 jobs and Southeast had 600 fewer positions at year end.

By sector, Oil & Gas was hit the hardest, shrinking 23.5% or 3,100 jobs.  Construction declined by 8% or 1,200 jobs.  Professional and Business Services lost 4.6% or 1,300 jobs.  Total government jobs were down 1.6% or 1,300 resulting from a decline in State government positions.  Federal employment increased by 100.  Health care was again the leading growth sector, adding 900 jobs or 2.6%.

The graph illustrates the more volatile swing of U.S. unemployment rates in red over the last 20 years.  U.S. rates were as low as 3.9% and as high as 9.9%.  Whereas, Alaska stayed within a much tighter band in blue, reaching a low of 6.3% and a high of 7.9%.

Written by Mark Edwards, SVP Senior Credit Officer and Bank Economist with Northrim Bank. He was an adjunct professor of economics at Alaska Pacific University. Market served the State of Alaska as an Economist in the Department of Commerce and the Department of Revenue, and as the Director of the Office of Economic Development. He has a B.A. in Economics from the University of Virginia and a Master’s Degree in International Business from the Thunderbird School of Global Management.

Alaska Economic Update- Part 2

By: Mark Edwards – Senior Credit Officer & Bank Economist

In our last post we looked at interest rates and inflation. Today we discuss the housing market.

Housing market – Rising interest rates will impact a variety of industries.  Sectors that require more fixed asset investments and higher levels of financial leverage will see borrowing costs rise.  The impact will be most broadly felt in the housing market.  Alaska home purchases are financed, on average, with a 10% down payment and 90% debt.  A traditional mortgage loan is amortized over 30 years, amplifying the impact of interest expense over the life of a loan.  If per capita income is not rising, then people will either have to devote a larger portion of their monthly income to housing, reduce the price range of houses they qualify for, or the price of homes will have to compress in response to the lower buying power of the average customer in the market.

30 year conventional fixed interest rate mortgage loans have been getting less expensive for three decades.  In 1981 they peaked at 16.6% and have undergone a slow and steady decline ever since.  Last year they reached a low of 3.7% and have now begun to rise.  In March of 2017, 30 year conventional fixed rates have averaged 4.2%.  2017 will be an important year to determine if this is the start of an upward trend in rates or if they will remain low in this range, as they have for the last four years.

Building permits - According to the U.S. Census Bureau, the number of building permits for new, privately owned housing of 1 to 5 unit buildings remained relatively low for the 10^th straight year.  2016 saw an increase of 212 permits or 16% compared to 2015.  The 1,503 housing permits last year was still much lower than the prior decade, which saw an average of 2,781 permits per year.  About two thirds of the activity was from single family homes while roughly 20% was multifamily projects with five units or more.

Alaska Multiple Listing Service (MLS) shows the average sales price of single family homes in Anchorage grew for four consecutive years from 2011 to 2015.  In 2011, the average price was $321,958 and rose to $366,836 in 2015.  2016 average sales price was virtually unchanged at $366,080, down 0.2%.  The number of units sold was also down only 0.2% from 2,998 in 2015 to 2,940 in 2016, demonstrating stability in volume as well.

The number of low and middle income homes listed on the market in Anchorage still appears to be in short supply.  There is less than two months of inventory available in all price ranges below $500,000.  With an average of 245 home sales per month over the last two years, the current listings of 538 homes in all price ranges appears relatively low.   The market segments where inventory outweighs demand are in price ranges over $750,000.  There are 6.5 months of inventory for the $750,000 to $1 million range and 18 months inventory for homes over $1 million.

Foreclosure and delinquency – This graph of data from the Mortgage Bankers Association highlights the stability of the Alaska housing market for the last 25 years in blue.  The severity of the Alaska recession in the mid 1980’s is displayed on the left of the graph and its impact on the housing market.  Data through the end of 2016 does not show any uptick in foreclosure problems affecting the Alaska housing market. 

Alaska’s foreclosure rate at year-end 2016 was 0.6%, which was the 7^th best state in the country.  This is actually an improvement from 0.8% in 2014.  The comparable 2016 national average foreclosure rate last year was 1.53% in all 50 states.

The red line in the graph shows how stable the U.S housing market was for 25 years between 1982 and 2007.  Then, the national foreclosure rate stayed above 4% for 5 years when the worst aftershocks of the national recession set in during 2008.  On the far right of the graph you can see how the national rates have been improving consistently for the last three years as the foreclosures work their way to resolution.  The country is again comfortably under the 2% rate.

Alaska’s delinquent mortgage loans - greater than 30 days past due, but not yet in foreclosure – were 3.05% at the end of 2016.  This is 0.1% higher than the 2.95% reported at the end of 2014.  This ranked Alaska 7^th best of the 50 U.S. states and was 2% better than the national average of 5.07% delinquent mortgage loans.

Next week, we will post our final section on Gross Domestic Product, Income, Population and Employment numbers.

Alaska Economic Update- Part 1

By: Mark Edwards – Senior Credit Officer & Bank Economist

Each year, Northrim Bank publishes the Alaska Economic Update. It is an opportunity to review the past year as well as look forward to the current year in regards to oil prices, jobs and housing. We will break the report into three sections for the blog. Once all have been posted, we will post the full report in our ‘Resources’ section for your convenience.

The performance of the Alaska economy in 2017 will be impacted by a number of key variables.  There will be a short-term drag on the economy if the Alaska Legislature is able to create a sustainable budget by making difficult decisions on reduced spending levels, increased taxes and changes to the Permanent Fund.  However, a balanced budget solution will have long-run positive impacts through a return of business confidence and a stabilized climate for private capital investment.

We are closely monitoring the potential changes in interest rates and inflation, which have remained low for nearly a decade.  Potentially rising rates will impact a number of sectors, and could be most broadly felt in the housing market. 

The change in federal administration in 2017 has the potential to positively impact the government regulation of natural resource development in Alaska and is likely to increase the levels of military and domestic infrastructure spending.  The energy sector is starting to stabilize as the worst of falling oil prices and related cuts to employment and spending are likely behind us.

Improvements in the U.S. economy are expected to sustain the recent growth in Alaska tourism activity.  The health care industry continues to expand.  This sector has been the leading source of job growth in Alaska over the last decade.  Medical related construction and building improvements have also helped the economy.

A decrease of 2.4% in payroll jobs statewide was the most negative economic indicator in 2016.  A loss of 7,600 jobs in Alaska was driven by layoffs in the oil & gas industry, which impacted business and professional services, construction and state government.  As a result, population showed virtually no growth last year. Gross State Product and personal income statistics reported modest declines of less than 1%.

Interest rates - Current market expectations are for at least two short-term rate increases of 0.25% this year.  The Federal Reserve aggressively lowered overnight lending rates seven times in 2008 in response to the national recession.  Rates fell from 4.25% in December of 2007 to a target range of only 0% to 0.25% in December of 2008.  Overnight rates stayed unchanged for seven years until a quarter point increase in December of 2015.  The rate was increased 0.25% on December 15, 2016 and again on March 16, 2017 to the current target rate of 0.75% to 1%.   

The slope of the yield curve of longer-term rates up to 30 years is not directly proportional to the overnight rates, but the ranges of maturities does tend to move in tandem over time.  The graph of U.S. Treasury rates for maturities from 3 months to 30 years in duration demonstrates this correlation.  The roughly 75 basis point increase in overnight rates between March 17, 2015 and 2017 has been mirrored closely throughout the yield curve over the same time period.  3 month rates are 68 basis points higher than two years ago, while the 30 year rate is 50 basis points higher at 3.11%.

Inflation - Inflation expectations are rising after years of limited change in overall prices.  Anchorage is the only city in Alaska tracked by the Federal Bureau of Labor Statistics (BLS) for inflation.  The BLS reported that the consumer price index for Anchorage rose 0.9% in 2016, compared to a decline of 0.1% in 2015. The major components contributing to an increase were Medical Care +4.8%, Housing +1.4%, and Apparel +1%.  Year over year declines were measured in Energy -1.5%, Non-Durable Goods -1.1% and Food & Beverages -0.9%.  Stable prices have helped maintain consumer purchasing power during this period of slower personal income growth.

The next post will include updates on housing issues.