Alaskanomics

AEDC Annual Forecast Lunch Recap

The Anchorage Economic Development Corporation (AEDC) hosted its annual Economic Forecast Luncheon on Wednesday. The event is a chance to review the economic situation of the past year and look to the current year and what to expect for the future.

AEDC President & CEO Bill Popp started his presentation with interesting facts about Anchorage’s economy compared to the rest of the state. In round numbers, Anchorage contributes $25 billion to Alaska’s $50 billion GDP. 2017 had a 4.3 percent increase after four years of decline. Logistics is our number one industry in Anchorage, contributing about $3.8 billion, while real estate was the 2^nd largest industry at $2.8 billion. This past year, Anchorage had an inflation rate of 2.1 percent, which was only slightly lower than the national average of 2.5 percent.

A quick recap of 2018 provided encouraging numbers that Anchorage was heading out of the recession that has been felt throughout Alaska for the past couple of years. In 2018, Anchorage lost an estimated 1,200 jobs, which is a 0.8 percent loss over 2017. The biggest loser of jobs this past year was retail. Many of these jobs were lost because of national reasons and were not specifically related to the Anchorage economy. National retailers such as Sear and Sam’s Club left the state. On a positive note, healthcare continues to grow, adding 600 jobs in 2018, and other sectors have begun to grow as well. Growth was seen in construction, transportation and accommodations in the past year.

The Consumer Confidence Index  continued to be more positive than in the early years of the recession. The overall confidence was 56.9 which was slightly lower in Q4, but the survey was taken directly after the November 30 earthquake and Popp believes that the earthquake played a role in some people’s lower confidence in the last quarter of the year. Confidence in the local economy was 54.1, personal financial confidence was 66.2 and future confidence was 53.7.  All great numbers considering where the consumer confidence was a couple of years ago.

Business Confidence is also growing. The most recent report shows that confidence in the Anchorage economy is now at 57.5. The first time that it has been over 50 since 2014. Included in the survey were questions regarding barriers to growth and what was the most important thing for Anchorage’s economy. As has been the case for the past few years, business leaders are concerned about the stability of the State’s economy. The cost of health insurance ranked second, while the next three barriers all dealt with having a hard time hiring quality employees. For the fifth year in a row the item that was most important to business leaders was the need for a sustainable state budget, with 85 percent of respondents ranking that as a concern. Safety was the second highest response, with 73 percent.

Popp continued with the Anchorage Economic Forecast. AEDC is predicting that 2019 will be the year that Anchorage comes out of the recession. While the end is not recovery, it is a start. Population is predicted to remain flat and employment is expected to gain 300 jobs in 2019. More sectors are expected to move into the growth category or at least remain flat, rather than lose jobs.

Anchorage has a long way to go before we can consider ourselves recovered from this recession, but there are positive indicators in the above reports that show that business leaders and consumers are more confident in the economy than they have been in a few years. Only time will tell if 2019 is the year that Anchorage and the rest of the state are able to get out of the recession, but many experts believe that this is the year.

Alaska LNG Update

The US Department of Energy has given conditional approval for liquefied natural gas (LNG) exports from the proposed terminal at Nikiski. Alaska received approval to export to nations without a free-trade agreement with the United States on May 28, 2015. Approval to export to free-trade nations was given in November 2014.

This approval is significant because it allows Alaska to export to countries who make up a major portion of the LNG market, including Japan, Taiwan, China, India and other Asian nations. Allowing Alaska to export LNG to non-free trade nations illustrates the Department of Energy’s belief that Alaska exports will not diminish the amount of gas available for Lower 48 consumers. Alaska LNG is stranded from domestic and international markets and the planned project is extremely expensive. Alaska will need to be able to export to more than free-trade nations to be successful.

Progress is being made on the plans for the gas pipeline with a proposed plan for the 800-mile route from the North Slope to Cook Inlet. There are many spots where the gasline would cross existing transportation projects as well as natural transportation routes. Crossings include the trans-Alaska pipeline (12 times), the Dalton Highway (22 times), the Parks Highway (12 times), Alaska Railroad (four times) and the Elliott and Kenai Spur highways (one time each). Natural transportation corridors include the Nenana River (four times) and Yukon River (once), as well as nearly 450 waterbody crossings. The crossings range from small rivers and creeks to almost 30 miles across Cook Inlet.

Many discussions were held to find the most efficient way to move gas through the 800-mile pipeline. Teams also assessed the value of above ground vs. below ground pipe. Not only would the pipe cross many transportation routes, it would also be near the Denali Fault line, which produced a 7.9 magnitude earthquake in 2002. The trans-Alaska pipeline near the fault was not damaged due to its elevated support structure.

The summer of 2015 will bring more field-testing in preparation for the environmental reports in early 2016. More than 30,000 acres of land are scheduled to be mapped this summer, which will bring the total mapped to almost 200,000 acres. The project could see its final Environmental Impact Statement (EIS) and Federal Energy Regulatory Commission decision by fall 2018, with possible first gas delivery in 2024 or 2025.

Commonwealth North Annual Assets Review

Commonwealth North hosted its 9^th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle and former Lt. Governor Mead Treadwell presented the performance review.

A bit of a history lesson on the reason Alaska has the wealth of assets that it does. During the statehood debate, it was recognized that the state’s population would likely never have the critical mass to finance government through conventional means employed by other states, primarily per capita taxation. In recognition of the need for Alaska to have means to produce its own revenue, the state was granted 104 million acres of land and mineral rights to significant acreage on federal lands. From this, it was felt that Alaska could build and sustain an economy and pay for necessary government services. The annual program tracks the performance of Alaska’s assets, including natural resources, financial assets and enterprises.

The full report and presentation can be found at www.commonwealthnorth.org. A few highlights of the discussion are below.

Alaska's natural resources are abundant and a large part of Alaska's economy.

• The tax revenue from fisheries has increased and the industry is strong, but there is a potential challenge ahead because not all of last year’s harvest has been sold.
• Within the Division of Mining, Land and Water, Alaska’s land position is strong. The state had 100.4 million acres in FY2014, which does not include the 65 million acres of submerged land acquired at Statehood.
• There are five area wide oil and gas lease sales a year. At the most recent sale in November 2014, 300 tracks were leased for $60 million. There is encouraging development occurring on the North Slope and in Cook Inlet.

Financial assets are an important topic of discussion because of the budget issues being seen in Alaska.

• The Permanent Fund Corporation is strong. In FY2014, the fund saw a 15.5% return, which was only slightly lower than the 15.7% benchmark. There are many investment opportunities that are doing well and the corporation is looking to expand into real estate outside of the United States.
• The Constitutional Budget Reserve is one of the options that could be used to bridge the budget gap. It currently holds $12.8 billion.
• Alaska Mental Health Trust Authority is utilizing their land well and making dividends. The state is served well by their investments.
• Alaska Industrial Development and Export Authority has paid $350 million in dividends to the state since its inception.
• Alaska Housing Finance Corporation paid $30 million in dividends to the state during FY2014. Energy and low income housing programs have benefitted Alaskans around the state.

The state’s enterprises are facing challenges, but are working to stay strong.

• The Alaska Marine Highway operates in the red, but is essential for Southeast Alaska.
• Alaska Energy Authority is also operating at a loss but the situation has not changed significantly in the past few years.
• The Alaska Railroad shows a small net revenue, but is facing some major challenges in federally mandated safety regulations. Its income from freight is strong and will continue with increased activity on the North Slope and in Cook Inlet.
• The International Airport System faces challenges, but the fact that Anchorage has the fourth largest cargo airport in the world helps add revenue.
• The Alaska Aerospace Corporation is also challenged, but lawmakers understand its strategic importance and will continue to fight for its survival.
• The University System has a strong endowment and the investment is doing better than recent years. The system has some challenges ahead but will continue to be a priority because additional human capital is necessary to grow Alaska.

To wrap up, Alaska is challenged, but it is also well funded and well endowed. Many people are working on ways to find solutions to the state’s fiscal problems. Commonwealth North has produced a report for Alaska’s leadership. This report highlights some opportunities to work through the fiscal problems and ways to fix the budget gap. This report, Alaska’s Operating Budget: Critical Crossroads, Choices and Opportunities will be presented in Anchorage on February 25 at a lunch hosted by Commonwealth North.

AEDC Economic Forecast Luncheon

Anchorage Economic Development Corporation (AEDC) hosted its annual Economic Forecast Luncheon on February 5^th. The sold-out crowd of 1,600 business professionals heard from Mayor Dan Sullivan about the upcoming Centennial events in Anchorage. Bill Popp, President and CEO at AEDC then gave his 2015 Anchorage Economic Forecast presentation.

A survey of business leaders in Anchorage found that most were still optimistic about parts of Anchorage’s economy, but overall confidence in the economy had dropped and was slightly pessimistic as compared to years past. This year was the first time the confidence had dropped below 50 percent since 2010. The barriers for growth come as no surprise, with 77 percent of respondents saying the state economy is as large barrier for economic growth. Availability of a professional/technical workforce is also a large barrier, as well as the national economy. The changes to health insurance laws and the cost of labor round out the top concerns for local business leaders. In short, businesses feel good about where they are and what they are doing in 2015, but do not have the same optimism for the economy as a whole.

A brief recap of the 2014 jobs situation outlined that counter to predictions, Anchorage saw a net decrease of 400 jobs in the past year. There may be some revisions of the final numbers, but 2014 was definitely not what was predicted for jobs.

The prediction for 2015 is as follows:

• Oil and Gas- decline -100
  • There are still 15,000 statewide oil and gas industry jobs and the small decline does not reflect projects being cancelled, only a shift from 2014 staffing
• Health care- growth +300
  • continues to be a growing field in Anchorage
• Transportation- flat +0
• AEDC feels there could be a small bump in transportation in 2015 because of air cargo, but will wait to see if the climate remains positive for Alaskan transportation
• Professional and business services- flat +0
• Construction- decline -100
• there has been positive growth in Anchorage construction, but capital projects are decreasing, which will have an effect on the overall construction jobs number
• Leisure and hospitality- growth +100
• Retail trade- growth +300
• continues to be strong due to national retailers entering Anchorage as well as local businesses increasing their footprint
• Financial activities- decline -100
• Government- decline -500
• we will continue to see a decline in Federal jobs in Anchorage, but state government will account for a good portion of the decrease predicted
• Other sectors- growth +100
• Overall- flat +0

Everyone in the room was well aware of the issues with the state’s budget but as both Mayor Sullivan and Bill Popp noted, Anchorage’s economy is strong and this drop in oil prices is much different from the crash in 1986. Anchorage will not see a significant drop in jobs and in fact, the private sector should increase by 500 jobs this year.

We all know that much depends on oil prices and future production as well as the 2016 state budget. Alaskans need to understand that there is a lot of work to be done to build the state economy and that difficult decisions will need to be made by Governor Walker and the Legislature. This is a serious issue, but solutions for increasing revenue and curbing spending are out there. The solutions are long-term strategies and require a good, hard look at the state’s budget process for both revenue and spending.

A midyear look at the employment numbers will be provided at AEDC’s summer luncheon. For the full reports and slide show from the forecast luncheon, visit http://aedcweb.com/2015-economic-forecast-luncheon-reports-available/

Alaska Airlines 10th busiest in nation for first half of 2012; Anchorage Ted Stevens International ranks 59th

The U.S. Department of Transportation Bureau of Transportation Statistics (BTS) released airport and airline statistics for the first seven months of 2012.

Alaska Airlines ranked 10th among U.S. airlines, with 9.7 million enplaned passengers, up 5% from the previous year. Alaska Airlines had a 64% share of departing and arriving passengers at Anchorage's Ted Stevens International Airport from January through July 2012.

Of the 849 airports the BTS tracks, 300 are in Alaska. Alaska's top airports, with rankings by passenger enplanements for January through July, 2012, include:

• Anchorage Ted Stevens International Airport, 59 in arrivals and departures
• Fairbanks International Airport, 120 in arrivals and 121 in departures
• Juneau International Airport, 150 in arrivals and 151 in departures
• Ketchikan, 212 in arrivals and 215 in departures
• Kenai, 222 in arrivals and departures
• Sitka, 240 in arrivals and departures
• Nome, 255 in arrivals and 256 in departures
• Kotzebue, 257 in arrivals and 255 in departures
• Barrow, 277 in arrivals and departures
• Deadhorse, 280 in arrivals and 279 in departures

October 12 summary of recent economic news for Alaska

In energy news, Alaska Governor Sean Parnell issued a press release October 3 outlining progress by Alaska's three major oil producers in advancing an Alaska LNG project. The letter from the producers and TransCanada estimates total project costs at $45 to $65 million. The news received extensive coverage, from Bloomberg, Reuters and others. Meanwhile, Cheniere Energy in Louisiana made a deal to sell LNG at Henry Hub pricing, which undercuts potential long term LNG contracts based on the price of oil. Shell, which started drilling in the Chukchi Sea in early September, began drilling in the Beaufort Sea on October 3. Baker Hughes released September rig count data showing Alaska with 6 land rigs and 1 offshore rigs working, one more than the August count. Golden Valley Electric (GVEA) and the EPA signed a consent decree to allow GVEA to restart the Healy Clean Coal Plant. GVEA's timeline to restart the plant is 18-24 months. On October 4, Alaskans received a total of $567 million in Alaska Permanent Fund dividends. Yesterday, Alaska Airlines ordered 50 new Boeing aircraft worth $5 billion.

Anchorage Inflation Rises 3.6% in 2011

According to the Federal Bureau of Labor Statistics, the Consumer Price Index (CPI) in Anchorage rose 3.6% in 2011.  By comparision, the change for the entire U.S. was 3% for the year.  Anchorage is the only "urban" community in Alaska that is tracked for these national statistics due to its population. 

Anchorage's 10-year average inflation rate has been 2.7% per year.  Average prices have not shown much volitility during the decade reaching a high of 4.6% in 2008 and a low of 1.2% in 2009.  The slightly higher than average inflation in 2011 can mostly be attributed to higher energy prices. 

Energy prices in 2011 were 10.1% higher than the previous year.  Gasoline prices were 14.8% higher and electricity climbed 9.6%.  Food also increased 4.8% in 2011.  After removing these two highly volitile categories, the remainder of the index rose 2.6% over the last 12 months.

The other categories with the largest price increases were seen in Apparel (6.7%), Medical Care (5.8%), Transportation (5.3%), and Housing (2.9%). The price of Recreation showed no change and a decline was measured in Education and Communications (down 0.7%).

Nationwide, inflation has also been most impacted by rising energy costs, up 6.6% in 2011.  Food prices rose 4.7% on average and the U.S. Medical costs rose 3%.  However, housing costs climbed only 1.3% across the county compared to 2.9% in Anchorage.  Housing accounts for the largest share of personal monthly expenses.

Going Forward, the Alaska Economy will be Reliant on Increased Investment in Education and Infrastructure

Investment in education and infrastructure will propel Alaska to an economic leadership position according to Scott Minerd, Chief Investment Officer of Guggenheim Partners.

Minerd was speaking at an Alaska World Affairs Council luncheon recently. During his presentation entitled “Alaska’s Place in the World Economy”, Minerd said that Alaska has favorable demographics with a higher percentage of work-age individuals, those under age 25 and those aged 25-34, than the rest of the U.S. However, he said, Alaska is vulnerable by having so many workforce people undereducated. Alaska comes in behind the rest of the country in teachers per 100 students; those having earned bachelor’s degrees; and those enrolled in graduate degree programs. Alaska also has a higher dropout rate than the rest of the nation. “Alaska should have a world class university,” Minerd said.

Minerd says that growth in Alaska will come from outside organizations that come to the state to develop the natural resources. With more than an estimated 21 years’ worth of oil and gas to develop, Minerd says Alaska should expect those companies who come to the state to do business to invest in infrastructure and education. “Alaska needs capital investment,” Minerd said. “History shows that once resources are gone, unless there was investment in infrastructure, the society devolves.”

Alaska needs to take advantage of its unique position on the globe regarding future transportation through the Northwest Passage or risk being left behind and exploited by other Arctic nations. Minerd recommends building port(s) along the Arctic or western coasts of Alaska. Though there are technical challenges, he says these “gas stations” are a great way to exploit Alaska’s position on the globe. “When other Arctic nations, such as Russia, build ports to cross the Northwest Passage, Alaska will be left out,” he said.

But there is great opportunity in Alaska, Minerd says. Though Alaska’s economy is next to Iceland as the second-smallest economy of the eight Arctic nations, it is also right behind Norway as the second-largest economy per capita. “I see a lot of opportunity,” he said. “Alaska has the opportunity to be the driving economic force of the U.S., if not the world.”

Scott Minerd is Chief Investment Officer of Guggenheim Partners, a privately held global financial services firm with more than $125 billion in assets under management.

Click here to see Minerd’s accompanying presentation.

Fread Sees 0.6% Job Growth for Anchorage in 2012; Health Care and Hospitality will Lead Gains

In a January presentation to the Building Owners and Managers Association in Anchorage, Alaska Department of Labor's veteran researcher, Neal Fried, revealed his forecast for job growth in Anchorage for 2012.

Preiminary figures for 2011 indicate that Anchorage jobs grew 1.4%, after job losses in 2009 and nearly flat job numbers in 2010. Fried's forecasts "modest" growth for 2012 at 0.6%:

• Government and Construction sectors will lose 400 and 300 jobs, respectively
• Health Care sector will gain 700 jobs
• Leisure and Hospitality will gain 400 jobs
• Transportation will gain 300 jobs
• Retail Trade and Professional Services will each gain 200 jobs

Video Clip: Alaska Highway Funding and State Transportation Bill

Associated General Contractors’ John MacKinnon discusses the future of federal highway funding in Alaska as well as the benefits of a state transportation bill during a presentation at the AGC 2011 Alaska Construction Spending Forecast.