State economist says recession should bottom out in 2019

Alaska’s recession is dragging on through its third year although job losses in some high-wage occupations like oil and gas and construction have levelled off or even ticked up slightly, a state labor economist said last week.

The overall economy is still shrinking, however, at least in terms of wage and salary employment, according to Neal Fried, economist with the state Department of Labor and Workforce Development. But job losses are slowing and the recession should bottom out in 2019 and begin growing slowly, Fried said Nov. 14 in a briefing to the Resource Development Council’s annual conference in Anchorage.

However, it will likely take several years for the state’s economy to regain what was lost after oil prices plunged in 2015, sparking the downturn.

In 2016, the first year of recession, 5,000 jobs were lost; in the following year, 2017, there were 4,000 jobs shed. The estimate for 2018 is a further loss of 2,000 workers so far that appears to be happening, Fried said.

“This is the third recession in Alaska’s history, but it is not the worst. That would have been the 1980s recession,” Fried said, when a sharp contraction in state construction spending in 1986, caused by a plunge in oil revenue, caused large layoffs of workers and losses in real estate values, mainly in Southcentral Alaska.

The current recession was similarly triggered by a plunge in oil prices and revenues but it is milder than the one in the 1980s. While oil companies and state government have cut spending and laid off workers the reductions, at least in the state budget, were cushioned by withdrawals of funds from state savings accounts that didn’t exist in the 1980s.

Much of the most recent job losses have been in retail, Fried told the RDC, but much of that is driven by forces that have nothing to do with the recession and are related to corporate decisions, such as nation-wide store closures including in Alaska, and in the effects of e-commerce on retail, which is happening nationally to the industry, Fried said.

Some types of retail are still doing well, or at least are stable, including eating and drinking establishments. While some of that is caused by a good 2018 tourist season part of it is driven by Alaskan consumers, an indication that there is still disposable income in the economy.

Tourism will continue to do well as long as the national economy thrives, encouraging people to take vacations in Alaska.

Things are now looking up for the oil and gas industry, too, with new discoveries on the North Slope and new projects being built. The outlook is for enough new work on the slope this winter to at least sustain the current industry workforce and for possible increases as new discoveries are developed over several years.

ConocoPhillips, a major slope producing company, has made a string of new oil finds on the west-central North Slope and in the National Petroleum Reserve-Alaska, and production recently began at one of these.

Hillcorp Energy, which operates several small fields on the slope, is in the final stages of development at a new project in the Milne Point field, which is adjacent to Prudhoe Bay, with plans to begin production there in January.

There will be continued work on both of these, mainly new drilling, and both companies and have other new projects underway including a second and third NPR-A development by ConocoPhillips, one now in construction, and a project in shallow offshore waters by Hilcorp that is in advanced planning.

Another major project in advanced planning is Pikka, a new discovery near the Colville River being developed by Oil Search, a company from Papua New Guinea. A very active winter exploration program is also planned for the slope.

While the outlook is brighter for the slope the industry has a long way to go to climb back to its peak in 2014, Fried told the RDC. About 14,000 were employed that year on the slope, but layoffs have shed about 5,000 jobs, bringing the industry to about 9,000 now.

For the construction industry a modest uptick of 300 jobs in October, compared with the same month of 2017, represents a 1.8 percent increase for the industry, which looks substantial but it’s really a reflection of how far construction has dropped since the recession began. “We’re now back to where we were in 2002 and 2003 in construction,” Fried said.

Military construction near Fairbanks, including the buildup around Eielson Air Force Base in anticipation of the arrival of new interceptor squadrons in 2020 and 2021, is really the only positive development in the industry. State-funded and commercial construction are still down, although federal spending on transportation has at least been stable.

One positive development is that the uncertainly over state finances has eased since the Legislature’s adoption of a plan to use some of the Alaska Permanent Fund’s ample earnings to help fund the state budget.

What were multi-billion-dollar state budget deficits have now eased and although there may still be deficits they will be smaller and more manageable. A new uncertainty, however, is whether a recent slide in oil prices will continue.

Prices for North Slope oil had been increasing, which restored confidence in the industry, but oil markets have now turned down.