Alaskanomics

October Unemployment Remains Unchanged

The Department of Labor and Workforce Development released its October employment numbers earlier this month. Alaska’s seasonally adjusted unemployment rate remains unchanged from August and September and sits at 7.2 percent. The not-seasonally adjusted rate was 6.7 percent, one-tenth of a percent higher than September. Most boroughs and census areas saw an increase in their unemployment rates, especially those who rely heavily on tourism. Skagway and the Denali Borough have the largest increases.

Six boroughs had decreases in their unemployment rates, while two stayed the same. Each of the following areas had a decrease of approximately one half of a percent: The Nome Census Area, North Slope Borough, and the Northwest Arctic Borough.

Employment was down about 1.3 percent and had a loss of about 4,100 jobs. Oil and gas and construction had the largest decrease in jobs in October with a loss of 7.8 percent and 7.2 percent respectively. Job losses have slowed in 2017 and is better than the rates in the fall of 2016.

Full employment numbers can be found on the State’s website.

The 38th Annual Alaska Resources Conference

Last week, the Resource Development Council (RDC) hosted its 38^th Annual Resources Conference in Anchorage. The event is the chance for leaders from the tourism, fishery, oil and gas, mining, and forestry industries to come together and share highlights and frustrations from the past year and look forward to the coming year.

As was the case in 2016, presenters were cautiously optimistic about the future of resource development in Alaska. There is still major concern about the State’s fiscal situation. The continued lack of a sustainable plan has caused great frustration in the industry.

There was a bright spot in the first morning’s presentation when Senator Murkowski phoned in to say that the Senate Committee on Energy and Natural Resources released budget reconciliation legislation to open a small part of the non-wilderness portion of the ANWR, known as the ‘1002 Area’ to responsible oil and gas development. On the Senate Committee’s webpage, Senator Murkowski is quoted by saying, “This legislation is a tremendous opportunity for both Alaska and our country. The legislation I released tonight will put us on a path toward greater prosperity by creating jobs, keeping energy affordable for families and businesses, generating new wealth, and strengthening our security- while reducing the federal deficit not just by $1 billion over ten years, but tens or even hundreds of billions of dollars over the decades to come.”

This announcement was an encouraging start to the conference. An additional positive note was that for the 2^nd year in a row, there has been an increase in production on the North Slope and more oil in the pipeline. The increase has been small, but everyone agreed that any increase was good. There was also renewed excitement for the Alaska LNG project, after the announcement of the agreement between Alaska and China. Governor Walker noted that due to the fact that the project had support from the highest levels of government in China and the United States, he was optimistic that the project has new life and could move forward with renewed enthusiasm.

Many speakers noted frustrations that there was still no sustainable solution for the State’s fiscal crisis. Rather than focusing on the negative, presenters chose to focus on what they could do within their own industries to help encourage development across all sectors. Individual presentations highlighted the work that has been done in the past year, as well as plans for future development.

The conference highlighted work between different industries that will help grow the Alaska economy. All presentations, including videos of each session, are located on RDC’s website.

Alaska's Economy Then and Now

By Mouhcine Guettabi, Assistant Professor of Economics, Institute of Social and Economic Research, UAA

The Alaska economy is currently in the midst of the second year of a recession sparked by the decline in oil prices.  This decline has not only resulted in a reduction of private economic activity but has also resulted in sizable budget deficits given the state’s historical reliance on oil revenues to fund government.

Naturally, legislators and the public at large are concerned about the implications of this downturn on the future health of the Alaska economy and budget. Below, I explain how Alaska’s demographics, and quality of life make it better able to sustain the fiscal and economic stresses it is currently experiencing. I also provide a short overview of where things stand and how we see them moving forward.

-Quality of life

Alaska’s population used to be male dominated and young. Today the ratio of male/female is 1.06 and the median age has increased from about 26 in 1980 to 34 in 2010. Additionally, homeownership rates were at 58% in 1980 and are currently around 66%. These changes matter because age, marital status, and homeownership are significant determinants of migration decision. A smaller exit rate as a result of the slowdown would mean the state’s labor force would not shrink as much as in the 1980’s recession.

-Current status

This current recession is best thought of in phases. Phase one was in 2016 when Oil & Gas, State Government, and slightly later in the year Professional and Business Services shed the majority of jobs. Overall, the state lost 1.8% or 6,220 of its W&S jobs between 2015 and 2016. Phase 2 started in early 2017 when the initial effects described above spread to the rest of the sectors. In this phase, household spending dependent sectors such as retail, accommodation and food services started feeling the multiplier effects. These multiplier effects are essentially the ripples from investment, wage, and job losses. Given that declines in the basic sectors are continuing, we expect a reverberation of these effects into next year.

The initially affected industries have shrunk rather considerably since 2014. For example, employment in O& G in January 2017 was 78% of what it was in 2014, while state government is at 89%. The secondary sectors, while feeling the squeeze, are still holding steady relative to their pre-recession baselines.  

One positive indicator is that the rate of losses in Professional and Business Services have slowed. This sector is typically a leading indicator of economic conditions.

-Future

We expect employment losses by the end of 2017 to be more pronounced- around 2.3%- than they were in 2016. They will also be more evenly spread across sectors than they were in 2016.  In 2018, we also expect negative growth but a smaller year over year decline. These projections do not assume any further budget reductions or taxes.

 

While raising revenues through taxes imposes a negative shock on the economy, this short term pain is necessary for the future health of state.  Also, we anticipate the economy to be in a better position in 2018 to absorb the taxes.

Finally given the size of the budget deficit, use of the earnings reserve coupled with revenues generated through a tax seems to be a sustainable solution that restores consumer and business confidence.

Note:

This blog summarizes a presentation I gave in Sitka to the Alaska Chamber of commerce. You can find the complete presentation here:

http://www.iser.uaa.alaska.edu/Publications/2017-AKThenNow.pdf