Alaska economic recovery seen in 2022, university report says; But it depends on the virus

A new report from the University of Alaska’s Institute of Social and Economic Research predicts slow but gradual economic recovery in 2021 and a return to near pre-COVID-19 conditions by the end of 2022.

However, the conclusions depend on the COVID-19 virus coming under control and no new economic closures in Alaska, both which are uncertain at this point.

Author of the report, Prof. Mouhcine Guettabi, also assumes new federal stimulus measures and Alaska crude oil prices remaining stable at current levels (now approximately $40 per barrel) are also assumed.

Congress is now dealing with an extension of federal aid. A bill has passed the U.S. House of Representatives but is still being worked on in the U.S. Senate.

The study is on ISER’s website as of July 20.

Here are a few key points:

• Employment growth will resume in 2021, with a 2.2 percent gain in jobs

• Through 2022 job growth is expected to increase by 1.1 percent

• By the end of 2022 employment will still be 5 percent below pre-pandemic levels

• The Payroll Protection Act injected $1.3 billion into Alaska; an estimated $780 million went to payroll support and job protection. Without PPP, job losses would have been 13,000 greater

• Federal stimulus checks injected $580 million into the economy

Guettabi also presented a picture of consumer spending with details on the sharp contraction, but now a rebound, of consumer spending in specific sectors. The report compared data as of June 3 against with January 2020

Key findings include:

• Restaurant and hotel spending: Down 42.8 percent

• Arts, recreation and entertainment: Down 49 percent

• Transportation spending: Down 53 percent

• Health care spending: Down 37.4 percent (dipped to 75 percent in April)

• Grocery stores: Doubled in late March/early April; now slightly above normal

All consumer spending was 15.2 percent, the ISER report said. The data is from Opportunity Insights, a Harvard-affiliated nonprofit that tracks consumer spending.

Using data from Safeguard.com, which tracks foot traffic around retail buildings as an economic indicator, ISER reports that activity had returned to 75 percent of pre-COVID activity as of May 7 after dipping to 49 percent of normal in early March. This corresponds to the gradual reopening of retail, eating and drinking establishments. However, the increased activity also corresponds to rising COVID-19 infections and hospitalizations, although those remain low in comparison with other states.

Guettabi explained the data this way:

“Foot traffic data provided by Safegraph shows that mobility in essentially all types of establishments declined precipitously even before the mandates went into effect. The week ending March 15th saw declines in just about every sector,” he wrote.

“Across all sectors, foot traffic reached its trough in the week ending April 19th when it was at 49 percent of the week ending March 8th. Activity has picked up with week over week increases since then.

As of the week ending May 17th, foot traffic is at almost 75 percent of where it was before the pandemic.

The resumption of consumer activity is also linked to perceptions of being safe in public spaces. Regardess of any further orders for establishments to close, if COVID-19 infections continue to rise in Alaska and consumers don’t feel safe, businesses may not get enough traffic to remain open.

Meanwhile, the contraction has had severe impacts on the Alaska economy.

“In April 2020, employment in Alaska declined by 42,200 jobs relative to April 2019. Every sector in the economy, with the exception of federal government, lost jobs. Unsurprisingly, Leisure and Hospitality was the most affected sector and lost 48.1 percent of its jobs,” Guettabi wrote.

“As a result of the opening of the Alaska economy, May employment is slightly improved relative to April. However, May 2020 employment is still 12.2 percent below May 2019. Retail trade and Leisure and Hospitality were the two sectors to experience the most significant improvements.

“In 2020, we anticipate the economy to end the year with almost 25,000 fewer jobs than in 2019. Absent the Paycheck protection program, the Alaska economy could have lost another 13,000 jobs,” Guettabi wrote.

Federal aid has significantly mitigated business failures as it allowed firms to cover a portion of fixed costs and wait for the re-openings, he said in the report. The additional $600 a week in federal unemployment insurance payments has also allowed consumers to remain financially liquid in the midst of severe employment shock,” he said.

However, whether the improvement continues is uncertain.

“The federal aid to households, businesses, and the state has been substantial. The Federal unemployment insurance, however, will expire at the end of July which can represent a significant income shock to the Alaska economy,” Guettabi wrote.

“Additionally, the expiration of the Paycheck Protection Program, or PPP, may force businesses to lay off workers again if consumer demand does not increase substantially.

Guettabi suggested linking continued federal support that is to the unemployment rate or the state of the recovery, which may be more appropriate than aid that runs out at specific dates.

In the Small Business Administration’s Paycheck Protection Program Alaska firms received $1.3 billion in loans, in two rounds.

“Initially, recipients were required to use 75 percent of the PPP loans for payroll in order to have the full loan forgiven. The SBA threshold has now been revised and would require recipients to use 60 percent of the loan specifically on payroll.” Guettabi wrote.

Additionally, changes in the program would give business owners more time to spend the loans. “Before, the money had to be used within an eight-week time frame, but now it can be used within 24 weeks of obtaining it.

Using the 60 percent rule on payroll would indicate that $780 million went towards payroll and job protection,” he said. The federal assistance is potentially supporting 13,689 year round jobs.

In addition to the Paycheck protection program, individuals received The Economic Impact Payments which totaled more than $580 million and the Federal Pandemic Unemployment Compensation (FPUC) which is an emergency program that adds $600 per week to unemployed individuals.

The state has also received $1.5 billion for assistance to the economy. Of that amount, $290 million has been set aside for businesses assistance through a small business grant program being administered by Credit Union One.

As of June 22 another $271 million has been distributed to municipalities and communities including the Matanuska Susitna Borough and cities within the borough like Wasilla and Palmer, according to the state Division of Community and Regional Affairs.