An end in sight for Alaska’s recession

Alaska’s recession will continue through 2018 by all indications but losses of jobs are easing. State labor economist Neal Fried says that the economy will likely shed about 1,700 jobs in 2017, a slight improvement from 1,800 jobs lost in 2016, but the numbers are still estimates, Fried told the annual Resource Development Council conference in Anchorage Nov. 15.

There are signs that the recession is moderating, however. “Year-over-year job losses have gotten smaller in 2017,” the state Department of Labor said Nov. 17 in a press release that accompanied its data for October employment.

Economists look closely at the number of Alaskan employed in wage and salary jobs, which is reported to the state by employers, as a gauge of the state’s economy.

October and September data released by the department show both months at 1.3 percent below October and September of 2016 in total employment. That’s better than June, which was 1.7 percent below June, 2016, or last January, which was 2.1 percent below January, 2016.

The largest employment losses during the current downturn were in fall of 2016 at -2.6 percent below the same period of 2015. The recession began in late 2015 after oil prices slid from over $100 per barrel to under $40 per barrel. It took a while for the impacts to be felt, but by early 2016 oil producers and contractors were cutting costs and payroll.

State government jobs were also trimmed as state royalty and oil production tax income dropped the Legislature cut the state budget.

Fried said oil and construction are still bearing the brunt of the job reductions. For the first six months of 2017, oil was down 2,100 year-over-year; construction down 1,500; professional and business services, which includes engineering, down 900; state employment down 900; retail down 700 and leisure and hospitality jobs, which include restaurants and drinking establishments, down 100.

Retail and jobs in leisure and hospitality reflect discretionary spending in the economy as well as visitor spending, and through 2016 the cuts in high-pay oil and petroleum support work like engineering, along with state workers, began to be felt in other parts of the economy, like retail.

To some extent job losses were softened in restaurants and hotels by the robust 2017 tourism season.

In contrast, health care employment increased by a robust 1,800 year-over-year, according to the first-half 2017 quarterly data, driven mostly by the state’s expansion of Medicaid. Local government jobs were also up 400 in contrast with state employment, which was down.

Local governments have a more diverse revenue base, from property and sales taxes, than does state government, which depends mostly on oil income, and because of that they are able to meet increases in local demand for services.

Although there are still oil and gas jobs being lost, oil producers and explorers still have new projects underway and the reduction of jobs is much less than it was. In October there were 9,600 people employed in petroleum, 800 less than in October, 2016. In June, however, there were 1,300 fewer oil workers than the same month a year earlier.

There are still significant declines in construction, however, with 1,200 fewer people at work in that industry in October, and in June 1,400 fewer people employed, than were working in construction in October and June 2016.

Given the trend, it’s possible that the recession will bottom out in 2018 or 2019 and the economy will start adding jobs again, but Fried told the RDC that historical experience shows that economic recovery in Alaska tends to be gradual.

Between January 2016, when the state’s economy was still strong, and January 2017, which appears to have been the employment low point, about 6,800 jobs were lost. Absent some unexpected development it will take some time to climb back to that employment level.

Despite the recession, residential home prices remained steady at an average 2017 value of $344,449, Fried told the RDC, and the pace of home sales is only slightly down, or 6,002 year-to-date compared with 6,202 for the same period of 2016. Home foreclosures have not increased – in fact they are down – and the state’s unemployment rate has shown no sharp increase.

Although reduced oil and state employment are primary causes of the recession other sectors of the state’s economy are stable. It has been a banner year for fisheries and employment in that industry is stable. It was another record-breaking year for tourism, too.

Military populations are also stable at bases in the state, with 3,000 armed forces personnel at Alaska bases in 2017, on average, compared with 2,943 in 2016.

Oil and gas activity has been cut back but it now appears to be increasing. Oil prices are showing some recovery – they are now in the $60 per barrel range for North Slope crude oil – and several new North Slope projects are in construction or on the drawing boards. Oil production is also up modestly, which along with improved prices helps the state budget.

Alaska’s $60 billion-plus Permanent Fund is also performing well, earning a 12 percent return on assets last year. Although this doesn’t help the economy, at least for now, the Legislature is considering use of some of the Permannent Fund’s income, estimated to be over $4 billion this year, to help the state budget.

As recessions go, this one has been relatively mild so far and appears to be easing. Alaskans have memories of the sharp 1986-1988 recession, also caused by a collapse of oil prices. In that downturn several banks went bankrupt and residential home prices took a sharp dip.

Employment dropped much more than during the current downtown and the population of Southcentral Alaska actually dropped due to people leaving the state. There appears to be no unusual or significant outmigration currently, however.

Tim Bradner is copublisher of the Alaska Economic Report and Alaska Legislative Digest.