A new report on Alaska’s economy by the University of Alaska’s Institute of Social and Economic Research predicts gradual recovery in economic conditions in 2022.
Retail job are expected to bounce back quickly next year unless there are more closures. Health care is coming back, too.
The report, authored by Prof. Mouhcine Guettabi, also focuses on key employers in like retail, leisure and hospitality, health care, construction and employment.
In most of those industries employment is expected to recover to near pre-COVID-19 levels by the end of 2022, but that depends on control of the COVID-19 virus and a gradual reopening of the state’s economy.
However, infections are rising again although not at the pace of other states. It’s possible that new restrictions may be ordered.
A key factor for retail as well as restaurants and bars is whether customers feel safe. If businesses are seen as diligent in heath measures like mask-wearing and physical distancing it will help restore confidence.
A big uncertainty is over school openings and the shortage of daycare workers. This will affect economic recovery if a working member of a household must stay home to help children with on-line school work.
But given continued recovery, here is what ISER reported on key industries:
RetailAlaska’s retail industry weathered more than a two-year recession as a result of the oil price decline in 2015. In addition to this temporary shock, the growth of retail has been challenged by the growing influence of large online retailers which has caused the closures of many large recent losses, which include Sam’s Club warehouses, Nordstrom, and others.
“In 2020, we anticipate the sector to end the year with around 2,160 fewer jobs than in 2019. The decrease would represent a 6 percent relative to the previous year. In 2021, we expect the retail sector to regain jobs rather quickly especially if Alaskans reallocate some of the spending they typically do while travelling towards in-state purchases,” ISER wrote in the report.
“In 2022, we anticipate a continuing climb for the economy as it is expected to grow at 1.7 percent. By the end of 2022, the Alaska economy should be at about 100 percent of the pre-pandemic levels,” the report said,
A caveat: “There are (still) significant downside risks which could negatively influence the employment outlook,” ISER said.
Leisure and hospitalityThe leisure and hospitality sector is made up of arts, entertainment, and recreation as well as the larger accommodation and food and beverage industries. It relies on both spending by Alaskans as well as tourism.
“The pandemic-related closures as well as the severe decline in travel mean that the sector will be much smaller than previous years and will be challenged going forward,” ISER said.
“In 2020, we anticipate the economy to end the year with around 10,780 fewer jobs than in 2019. This would represent a 29 percent decrease relative to the previous year. In 2021, we expect the sector to resume growth as travel patterns begin normalizing. By the end of 2022, we expect that the Leisure and Hospitality sector to be at about 85 percent of the pre-pandemic levels,” the report said.
In addition to the sector’s importance for jobs, leisure and hospitality plays an important role as a tax base for many communities, which mean local government revenues will be severely challenged as long as travel levels are depressed.
Health care“The Healthcare sector has been one of the few sectors to experience continual growth even in the midst of Alaska’s most recent recession. The growth is largely due to the aging of the Alaska population. According to the Alaska Department of Labor, Alaska’s 65-plus population will increase to 125,423 by 2026, as the large baby boomer generation continues to move into that age group,” ISER wrote.
“As a result of the pandemic and the suspension of non-essential visits, healthcare employment declined precipitously but it is expected to rebound much faster than the rest of the Alaska economy as many people who delayed procedures are now returning to healthcare facilities as evidenced by the much higher foot traffic to physician offices,” the report said.
In 2020, ISER anticipates the economy to end the year with around 1,300 fewer jobs than in 2019. This would represent a 2.6 percent decrease relative to the previous year. In 2021, we expect the sector to resume growth at a rate 2.23 percent. By the end of 2022, we expect that the education and health care sectors to be about even with the pre-pandemic levels.
Professional and Business ServicesProfessional and business services, as a sector of the economy, has several components: It includes professional, scientific, and technical Services, management of companies and enterprises, and administrative and support and waste management services. The demand for these services, in Alaska, is heavily tied to the oil and gas industry.
Performance in fields like engineering and environmental consulting has been challenged by the pandemic and its pressure on oil prices. This sector shrank significantly between 2015 and 2018 in Alaska’s last recession, and is now being hammered again. The current negative outlook for oil and gas means that this sector will also have challenges in the coming years given its connections to industries like petroleum.
In 2020, we anticipate the economy to end the year with around 1800 fewer jobs than in 2019. The decrease would represent a 6.7 percent relative to the previous year. In 2021, we expect the sector to resume gaining jobs, although at a slow pace. By the end of 2022, professional services could be at 93 percent of the pre-pandemic levels
Natural resources, oil and miningAn updated forecast by the Alaska Department of Revenue shows that compared to the Spring 2020 forecast and with revised oil price and production estimates, Unrestricted General Fund (UGF) revenue could be between $115 and $125 million lower than forecast for FY 2020, between $359 and $476 million lower than forecast for FY 2021, and between $161 and $308 million lower than forecast for FY 2022.
Updated oil price assumptions were based on oil futures prices for Brent crude oil with closing prices as of April 30, 2020 and assuming that the differential between Brent and Alaska oil would return to zero by June 2021.
Both prices and production have dropped as a result of the pandemic and while it is unlikely we will get back into negative territory (very low prices) anytime soon, there will still be downward pressure on prices due to a supply glut and slow increases in demand as economies re-open. Therefore, the outlook for oil and gas will be one of continued downsizing at least in the short run.
In 2020, we anticipate the economy to end the year with around 660 fewer jobs than in 2019. The decrease would represent a 4.4 percent relative to the previous year. In 2021, we expect the sector to essentially be flat before resuming gaining jobs in 2022. By the end of 22, we expect the sector’s employment to be at 96 percent of its pre-pandemic levels.
ConstructionSummer employment in the sector is about 50% higher than the winter low point. According to recent report by the McDowell Group, the biggest funding source of construction spending in Alaska comes from private sector investment, most notably spending by the oil and gas sector.
The challenges surrounding the oil and gas sector will ripple into construction as was seen during the 2015-2018 recession. While private spending is important, federal, state, and local government spending on