Alaskanomics

Alaska's Current Economy - Spring 2024 presentation

Northrim Bank hosted its annual Community Summits in Nome, Soldotna, Homer, Anchorage and Fairbanks this past week. At these events, this economic update presentation was given by Mark Edwards, Chief Credit Officer and Bank Economist. 

2016 Economic Forecast Events

Tis the season for forecast luncheons throughout Anchorage. One of the largest business events of the year is the AEDC Economic Forecast Luncheon, held on Wednesday, January 27. The format was like past events, with an introduction from the Anchorage Mayor, the Anchorage Economic Forecast from AEDC President and CEO Bill Popp, and a keynote address.

Mayor Berkowitz kicked off the presentations by saying that he has two sets of responsibilities in Anchorage, foundational and aspirations. He continued by sharing his vision for Anchorage in the coming year. He said the municipality will focus on public safety by working to increase the number of police officers from 350 to 400 officers. He also wants to help make Anchorage attractive for investment that will help the state as a whole. The Mayor said that we need big thinking to fix the affordable housing issues in Anchorage and address the issue of homelessness in our city. The Mayor concluded with a list of how his administration has managed resources well and decreased the budget to a level that is sustainable.

The focus of the luncheon was Bill Popp’s presentation of the 2016 forecast. The complete forecast is at aedcweb.com. Population is expected to go down approximately 2,200 people, which is higher than the loss of 1,500 seen in 2015. As was the case last year, many of those individuals will move out of Anchorage to the Mat-Su Valley to find a break in housing costs and availability. There could also be significant losses if there is a troop reduction at JBER. We will know later this spring if that will occur.

The jobs forecast also shows a reduction, but less than the population decrease. Anchorage is predicted to lose 1,600 jobs during 2016. The largest reductions will be seen in Oil and Gas (-600), Government (-500), Construction (-400) and Professional and Business Services (-400). The biggest winner will be Healthcare, which is predicted to add 300 jobs this year. The industry has added 5,000 jobs in the past ten years. The loss of 1,600 jobs is about 1 percent of the Anchorage job market.

Popp continued with the Business and Consumer Confidence Index reports and the reports illustrated how the state’s fiscal crisis was beginning to erode the faith of local Anchorage business leaders and the public. The composite of the index is at its lowest point since the survey was started in 2009. The composite index is at 48.8, down 7.2 points from 2015. Business leaders are now pessimistic when it comes to the Anchorage economy. The most significant change in this year’s report was the index that reflects the Anchorage economy. It was down from 46.9 in 2015 to 32.8 this year. Business leaders are mildly confident in their own business but are pessimistic about the state situation. 89 percent believe that it is a barrier to growth in the coming year.

The presentation concluded with the message that there is an upside to the forecast. Anchorage has the ability to invest in ways to improve the lives of residents and the work climate in the city. It is also possible to fix the fiscal crisis this year, which would go a long way to rebound the confidence of business leaders and individuals.

The Associated General Contractors of Alaska hosted their annual Spending Forecast event and released the 2016 Alaska’s Construction Spending Forecast on Thursday, January 28. Like many other sectors, spending in the construction industry is predicted to be down in 2016. The drop will bring the industry back to the levels of a few years ago before there was a bump in spending in 2014 and 2015. The bright spot in the forecast is that federal spending will increase, mainly due to Department of Defense spending. Tourism, fishing and air cargo is also likely to increase. These industries are aided by the low oil prices and the state will benefit from increased activity.

The short term outlook for construction spending will be challenging, but many feel that the industry will get through the rough patches and will be better off in the long term. The full report is located at agcak.org

Anchorage Chamber Lunch with Senator Lisa Murkowski

(Photo Credit: Anchorage Chamber of Commerce)

Today, the Anchorage Chamber hosted US Senator Lisa Murkowski at its weekly, Monday Forum. The Senator shared that there was a large number of high ranking visitors that we have seen in the state this month and how the visits were important to the political climate. In August, the Chief of the US Forest Service, Administrator of the EPA, the acting Under Secretary of Commerce for NOAA, the Air Force Chief of Staff, the Commandant of the Coast Guard  and the Secretary of the Interior have all visited, or will visit, Alaska and learned how their respective agencies work within the Alaskan environment.

Senator Murkowski continued by discussing the importance of the military in regards to Alaska’s economy. Alaska has strategic military value and the Pentagon is beginning to realize the potential across the state.

The Senator spoke in depth about economic concerns and the Affordable Care Act (ACA) and how each affected the State of Alaska and its residents. She noted that even though we don’t know a specific date, we will bump up against the debt ceiling in the coming months. The Senator feels it is important to figure out a solution to the problem before it is too late and feels that Congress can do a better job of finding ways to fix the current budget. She stated that the sequestration does not provide solutions to the problem of the $16.9 trillion debt that the US currently holds.

The final subject that the Senator addressed before taking questions from the audience was the Affordable Care Act (ACA). Senator Murkowski agreed that the US needed healthcare reform but did not feel that the ACA addressed the true problems of needing increased access and decreasing the cost of healthcare. She believed that defunding the act was not the solution because it would leave the law on the books and would burden individuals and families. Senator Murkowski agreed that there were good parts to the new law, including the provision to allow dependents to remain on a parent’s plan until age 26, as well as the changes to insurers being able to limit coverage to individuals with pre-existing conditions. She stated that change will come when there is a reduction in cost of healthcare to individuals and families.

Senator Murkowski wrapped up her presentation with a note that she felt that it was time for the Congress to start governing. Too much time was being spent on messaging and working to secure votes for the next election. She wanted Congress to lead the way and start to create laws that would make a difference, rather than blaming the other side for the Nation’s problems.

Senator Murkowski is the first Alaskan born senator and the 6^th to represent Alaska in Congress. She was re-elected in 2010 and holds a number of committee positions, including being a ranking member of the Committee on Energy and Natural Resources.

Don’t Confuse Alaska’s State Government Budget with the Alaska Economy

If you listen to the rhetoric in Juneau, the focus appears to be on the State government budget and legislators working to maximize the dollars that flow to Juneau.  That amount has been growing significantly over the past several years and has led to large spending increases that seemingly put government budgets on an unsustainable path.  Oil production continues to decline and the high production tax rates at the current high prices are leading companies to invest more elsewhere.

It’s important to not confuse the State government budget with the Alaska economy.  The State and Federal budget only account for under 10% each of our total gross state product, and the private sector accounts for about 81%.  We need to broaden our focus so that we are not looking through the prism of Juneau, rather what’s best for the overall economy.  This includes high-paying jobs in the private sector, opportunities for construction and service-based industries, and infrastructure development projects. 

Capital investments from the large natural resource companies are what drive our economy, and our largest industry is oil and gas.  Uncompetitive tax structures may bring in large State revenues in the short term, but dampen private sector investments in the long run and hurt the largest part of Alaska’s economy.  Government revenues are a result of a successful economy; not its purpose.  If the private sector is thriving, there will be plenty of options for the government to obtain the revenues it needs for operations.

We recently spoke at Northrim Bank’s annual economic luncheons in Fairbanks and Anchorage with an update on our economy and the opportunities before us.  We were joined by Bob Heinrich of ConocoPhillips who presented their challenges and opportunities in Alaska.  Click Here to view the presentation on Alaska’s economy.

Video: 2013 Alaska Construction Spending Forecast

Associated General Contractors Executive Director John MacKinnon and Economist Scott Goldsmith from UAA’s Institute of Social and Economic Research discuss expected Alaska construction spending in 2013 during the recent Associated General Contractors annual Alaska Construction Spending Forecast.

According to the forecast, construction spending in Alaska in 2013 is estimated to be about $8.4 billion, up 8 percent from spending in 2012. Increased spending in the oil and gas sector will account for most of this growth. Spending in this sector is expected to be up 13 percent, from $3.2 billion last year to $3.6 billion in 2013. Also adding to expected growth, a large state capital budget for fiscal year 2013 and $453 million in general obligation bonds that voters approved for transportation projects in the November 2012 election.

 

Click here to download the full construction spending forecast.
Research and printing underwritten by Northrim Bank.

Alaska's payroll job count increased by 5,300 in 2012, a 1.6% improvement over 2011

The total number of payroll jobs, not including uniformed military and the self-employed, is about 335,000.  It is important to note this is a preliminary estimate by the Alaska Department of Labor using nine months of actual data from employer tax returns and three months of estimates.  The final numbers will be revised in March of 2013.

2012 saw the largest improvements from Health Care (+4.8%), Professional and Business Services (+4.8%), and Oil and Gas Extraction (+4.6%). The biggest surprise came from the Construction sector, which had a 4.4% increase after declining for the last six years.  This is attributed to an enormous $3.4 billion State capital budget, an additional $454 million in voter approved bond packages, continued investment in older oil fields, and an uptick in residential housing construction.  This was somewhat tempered by a reduction in Federal spending on the military and through the Army Corps of Engineers.

Health Care is benefiting from a demographic situation where Alaska has both an aging baby boomer population and a young, under 20 generation.  People require the most health care at the beginning and end of their lives.

The largest declining sectors in the Labor Department figures were Federal Government (-4.1%) which lost 700 jobs.  Financial Activities decreased by 2% or 300 jobs and Information Services fell 1.6% or 100 jobs.

The State Labor Department is forecasting 4,200 new jobs or 1.2% growth in 2013.  They predict a continued job loss of 300 Federal positions, which will be more than offset by a gain of 600 total government jobs at the state and local level.  Other than a 1% contraction in Financial Activities jobs, they foresee growth in every other sector of the economy in 2013.  Health Care, Oil and Gas and Professional Services are again expected to lead the expansion of job opportunities in Alaska.

The complete report can be read in January issue of Alaska Economic Trends at: http://labor.state.ak.us/trends/home.htm

The Future of Oil and Gas Investment in Alaska

Alaska Governor Sean Parnell has proposed changes to Alaska’s tax regime designed to increase the global competitiveness of the state.  The Consumer Energy Alliance (CEA) – Alaska, recently testified at a Senate Special Committee hearing on this issue. An important point outlined is that oil production has declined from a peak of over 2 million barrels a day to about 500 thousand barrels a day – and continues to fall at the rate of 5-7% per year – all while oil prices remain high.  The Alaska Department of Natural Resources has, since the Alaska’s Clear and Equitable Share (ACES) tax regime became effective, reduced by 600 million barrels its projected Alaska oil production for the ten year period ending in 2020.     

• 30% of Alaskans are dependent upon oil and gas exploration and development for employment.
• More than 80% of state revenue used to provide services to the people of Alaska is derived from taxes on oil production.

The tax rates and progressivity structure of Alaska’s current tax regime serve as a disincentive to attracting risk capital to the state.  We can see this evidence by declining oil production during a time of high oil prices.  Included in CEA's tesimony is a telling chart showing the decline of oil production while state spending has increased. 

The increased prices in oil and gas have resulted in large increases in production in other regions, but not in Alaska, and not because more oil is not available.  Alaska’s unique remoteness from the markets, arctic climate, high labor and logistical costs make the case for a more competitive tax and regulatory structure. 

The Consumer Energy Alliance (CEA) is a nonprofit, nonpartisan organization that supports the thoughtful utilization of energy resources to help ensure improved domestic and global energy security and stable prices for consumers.

Federal spending in Alaska more than $10 billion annually; third highest per capita spending in the country

A new report by UAA's Institute of Social and Economic Research (ISER) analyzes federal spending in Alaska. For the last five years, base spending has been about $10 billion per year, but in 2009 and 2010 Alaska received additional funds from the stimulus package - the American Recovery and Reinvestment Act - that added $2.2 billion in additional federal funds.

Defense is the largest category of spending, at 36% of the total, followed by grants to state and local governments and nonprofits at 29%. Direct payments to individuals are about 22% of the total, and spending by civilian agencies was 13%.

• Defense spending was $3.42 billion, with just over half for procurement and just under half for wages.
• Alaska received $2.7 billion in federal grants, with just over half for formula grants (like Medicaid) and just under half for project grants.
• Direct payments to individuals totaled $2.04 bilion, with two-thirds for federal retirement programs and one-third for other direct payments (including Medicare, unemployment compensation and more).
• Civilian agency spending was $1.27 billion, with two-thirds for payroll and one-third for procurement.

In 2008, the year before the additional stimulus spending, per-capita federal spending in Alaska was $13,700 - the third highest in the U.S. and 52% higher than the U.S. average. The report notes that the Alaska differential in per capita spending was once as high as 82%.

Information from "Federal Spending in Alaska: Running Out of Steam?" by Scott Goldsmith. The report is part of ISER's "Investing for Alaska's Future" research initiative, funded by a grant from Northrim Bank.

Video Clip: Defense spending is not the bright spot for Alaska in the future

Federal defense spending cuts are discussed by Associated General Contractors’ (AGC) Executive Director John MacKinnon at the AGC Alaska Construction Forecast in February 2012. Click here to view the full report. 

Alaska Leads Nation in Per Capita Federal Spending; total spending was $12.6 billion in 2010

In the February issue of Alaska Economic Trends, Alaska Department of Labor economist Neal Fread reviews the latest U.S. government data on federal spending by state. For 2010, Alaska received $17,762 per person from the Federal Government, followed closely by Virginia and Maryland. The U.S. average is $10,460.

Federal funds spent in Alaska have grown significantly in the past 20 years, from $3.3 billion in 1990 to $12.6 billion in 2010. Wages and salaries are 32% of federal spending, with more than 17,000 federal civilian jobs and more than 23,000 uniformed military members in Alaska.