By Mark Edwards, EVP - Chief Credit Officer & Bank Economist
2020 was an unprecedented year in just about every economic measure. Wild swings in unemployment resulting from government mandated business closures were then supported by trillions of dollars in assistance programs in an attempt to counteract the negative economic impact of these health policies.
Employment data from the State of Alaska is available through November. Total payroll jobs were 293,500 for November 2020, down 7.4% compared to the same period in 2019. Leisure and hospitality was the hardest hit, down 22% year over year, a loss of 7,000 jobs. Transportation, Warehousing and Utilities declined 14.9% or 3,100 since last November. Direct Oil and Gas jobs fell 29.9% or 2,900 jobs. Professional and Business Services has also been negatively impacted, down 8.1% or 2,200 jobs over the last 12 months.1
Alaska’s annualized and seasonally adjusted gross state product (GSP) was $50.4 billion in the third quarter of 2020, compared to $54.5 billion in the third quarter of 2019, according to the Federal Bureau of Economic Analysis ("BEA") in a report released on December 23, 2020. Alaska’s real GSP increased by 0.7% in 2018 and 0.6% in 2019. 2020 has been very erratic due to COVID. Alaska’s GSP declined 6% at a seasonally adjusted annualized rate in the first quarter of 2020 and declined 33.8% in second quarter. However, in the third quarter the GSP in Alaska improved 32.2% at an annualized rate. This is very similar to the nationwide averages for the U.S. which saw a decline of 5% in the first quarter of 2020, a loss of 31.4% in the second quarter and a positive improvement of 33.4% in the third quarter. In the third quarter of 2020 in Alaska, the largest improvements came from Transportation and Warehousing, Government, Health Care and Accommodation and Food Services.2
Alaska’s seasonally adjusted personal income for the third quarter of 2020 was $48.6 billion compared to $46 billion in the third quarter of 2019, according to a report released by the BEA on December 17, 2020. In a typical year, the majority of personal income is derived from wage earnings. Additionally, some people receive government transfer payments, such as social security, Medicare and Medicaid. Personal income is further supported by earnings from dividends, interest and rents.
In the second quarter of 2020, Alaska’s personal income rose by $2.6 billion compared to the prior year as government transfer payments rose by $4.9 billion, mainly from COVID stimulus money. This was somewhat offset by a $2.2 billion reduction in wage income and a $139 million decrease in investment and rental income. In the third quarter of 2020, these two major segments of income reversed. Wage earnings improved by $2.6 billion and government transfer payments decreased by $3.5 billion compared to the prior quarter. Investment and rental income was relatively unchanged, down $55 million. The net effect of all this movement is personal income is $2.6 billion or 5.6% higher in the third quarter of 2020 in Alaska than where it was in the third quarter of 2019.
This is similar to what has occurred across the country. Government transfer payments in the U.S. increased $2.45 trillion in the second quarter of 2020, while wage declines were a much smaller $920 billion. Then there was a reduction of government transfer payments in the third quarter of $1.3 trillion, somewhat offset by an improvement $814 billion in wage earnings in the U.S. In the U.S., personal income is $1.3 trillion or 7.1% higher than the third quarter of 2019.3
Alaska North Slope (ANS) crude oil had monthly averages in 2018 and 2019 ranging from $58.86 to $80.03 a barrel. ANS began 2020 in January at $65.48. Prices fell quickly at the beginning of the year, responding to fears that COIVD would devastate the global economy and reduce the demand for travel. The low month was April when ANS averaged $16.54 a barrel. However, by June the oil markets stabilized and for the last six months the average monthly price remained between $40.42 and $43.55. The November monthly average was $42.91. ANS daily prices rose above $50 a barrel on December 10th and finished the year on December 31, 2020 at $52.19.4
Alaska’s crude oil production averaged 485,300 barrels per day (bpd) in fiscal year (FY) 2020, which ended in June. This was a decrease of 4.8% compared to the previous FY end. Total output declined 1.2% in FY 2018 and 4.5% in FY 2019. The State Department of Revenue forecasts production on the North Slope to increase by 0.7% in FY 2021 to 488,900 bpd.
Alaska’s home mortgage delinquency and foreclosure levels continue to be better than most of the nation. According to the Mortgage Bankers Association, Alaska’s foreclosure rate was 0.49% at the end of the third quarter 2020, an improvement from 0.71% a year ago in 2019. The comparable national average rate was slightly higher at 0.59% in the third quarter of 2020, but also improved from 0.84% for the same period in 2019. The survey reported that the percentage of delinquent mortgage loans in Alaska was 6.78% at the end of September 2020, up from 3.16% for the third quarter of 2019. The comparable delinquency rate for the entire country was higher at 7.6% in the third quarter of 2020, also higher than 4.09% for the same period in 2019.6
According to the Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $396,918. This is following increases of 0.5% and 2.3% in 2019 and 2018 respectively. Average sales prices in the Matanuska Susitna Borough rose 10% in 2020, continuing a decade of price gains. These two markets represent where the vast majority of the bank’s residential building activity occurs.
The number of units sold in Anchorage was up significantly in 2020 by 19.3%, climbing from 2,719 homes sold in 2019 to 3,244 last year. The main difference was a record number of sales occurred in the last quarter of the year, when sales activity typically declines in the winter. The Matanuska Susitna Borough also had strong sales activity, up 9.5% in 2020 to 2,131 units sold.7 They also had stronger than normal sales in the second half of the year. The low interest rate environment has been a major factor. According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U.S. is at all-time record lows. Rates began 2020 at 3.72% in the first week of January and have fallen more than a percent to 2.67% in the last week of December 20208.
Sources:
- State of Alaska, Department of Labor and Workforce Development, Research and Analysis Division, http://almis.labor.state.ak.us/
- U.S. Department of Commerce, Bureau of Economic Analysis, Gross Domestic Product by State https://www.bea.gov/
- U.S. Department of Commerce, Bureau of Economic Analysis, Personal Income, https://www.bea.gov/
- State of Alaska Department of Revenue http://www.tax.alaska.gov/programs/oil/prevailing/ans.aspx
- State of Alaska Department of Revenue, Revenue Sources Book Fall 2019 http://www.tax.state.ak.us/
- Mortgage Bankers Association, https://www.mba.org/
- Alaska Multiple Listing Services https://www.alaskarealestate.com/MLSMember/RealEstateStatistics.aspx
- Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/series/MORTGAGE30US
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