Bad for state budget, cheaper fuel helping local economies

  • Workers are seen constructing an F-35 fighter academic training center in July 2013 at Luke Air Force Base in Glendale, Ariz., where six squadrons of F-35 fighter jets were placed in 2015. Eielson Air Force Base in Fairbanks is expecting a similar boom in construction, and a corresponding boost to the local economy, when it receives two squadrons of the next generation jet. AP Photo/ Rob Schumacher/The Arizona Republic

Alaska’s economies appear to be unfazed more than a year after oil prices began to fall.

In fact, Anchorage’s unemployment rate of 4.7 percent in September was the lowest in the city has seen for the month in 14 years, according to the Anchorage Economic Development Corp.

Fairbanks was not far behind at 4.9 percent.

Statewide, the seasonally adjusted unemployment rate, which accounts for seasonal swings in job availability, was 6.4 percent in September, down 0.4 percent from a year ago, the state Labor Department reports.

AEDC President and CEO Bill Popp said state’s largest city has added about 2,000 jobs since last September, bringing total employment to 169,000 in a municipality with just more than 300,000 people.

AEDC’s January forecast for flat employment in Anchorage this year was incorrect in a positive way, Popp noted. At that time, he emphasized that a steady number of jobs should be viewed as a good thing, given the uncertainty surrounding state spending and petroleum economics.

“We’ve been seeing this starting to build up over the summer. We’ve been seeing a drop in unemployment rate and modest but continued growth in the job numbers and now we are feeling like if this trend continues, which we think it will, we’ll probably add 1,000 net jobs in Anchorage this year,” Popp said.

He attributed the encouraging job numbers to a strong private sector.

According to AEDC, nine of Anchorage’s 10 largest industries have seen job growth over the past year. The only industry to show a loss is the city’s small manufacturing sector, down a miniscule 11 positions from a year ago.

Employment in the city’s oil and gas industry actually increased more than 150 positions over the past year; however, the loss of Shell’s Arctic business, announced Sept. 28, has not yet been accounted for.

Statewide, oil and gas industry employment has continued near record highs in 2015, as have the number of construction jobs in the state, many of which are tied to oil and gas activity.

Government employment in Anchorage has been flat in 2015.

Business and professional services positions, which includes technical industries that benefit from public and private capital spending, are up 100 jobs from last September, according to AEDC’s monthly employment report.

Popp said activity at Anchorage’s banks and credit unions is slower than would be ideal. He attributes that to the city’s ever-present housing issues.

Single-family home inventories are the lowest they’ve been in five years — an average of 877 homes listed in September — which has continued to push the cost of buying a home in Anchorage up and price many prospective buyers out of the stalling market.

With few houses being sold, lenders have little reason to hire, he said.

Since oil prices and state revenue both began falling 16 months ago, state government employment — University of Alaska included — is down about 1,500 positions, Popp said, but only about 100 of those jobs have been lost in Anchorage.

As an entire sector, government provides about 29,000 jobs in the city, and the decline in federal employment over the past few years appears to be slowing, he said.

Anchorage has seen lower oil prices — more specifically lower fuel prices — benefitting some of its largest employers.

Passenger traffic was up more than 8 percent during the summer months at Ted Stevens Anchorage International Airport. AEDC also expects landed cargo tonnage to increase about 10 percent this year and that growth to continue for several years.

Anchorage Airport officials have said the bump in passenger traffic is likely due mainly to Lower 48 travelers spending energy savings on travel.

Much the same can be said for the city’s hospitality industry.

“One-in-5 jobs in Anchorage are benefiting from lower fuel prices,” Popp said.

The airport and hospitality industries each support approximately 1-in-10 jobs in Anchorage, according to AEDC. Popp noted those estimates are conservative.

“I think it shows us in a pretty good spot to start from as we face the headwinds of next year,” Popp said of Anchorage’s employment figures.

Popp and Fairbanks Economic Development Corp. President and CEO Jim Dodson both noted that hidden in the low unemployment figures is the fact that Alaska’s population is unusually transient, and people unable to find work are more likely to leave the state rather than file for unemployment.

Net migration in the state totaled a loss of about 7,500 people last year, many of whom were working-age adults, Popp said.

Big swings in migration to and from Alaska are not uncommon, however. When the Lower 48 economy suffers people come to Alaska looking for work and when the U.S. economy as a whole improves, they tend to leave, according to state economists.

How Anchorage and the state fare in 2016 and beyond will have a lot to do with what happens in Juneau and whether or not consumer confidence can hold on, he said.

Anchorage consumers are generally content with the city’s economy and their current personal financial situations, according to AEDC’s latest quarterly consumer optimism survey. However, expectations for the economic future are exactly tepid, with consumers reporting uncertainty about what’s to come.

“Right now, (consumer optimism) doesn’t seem to be manifesting itself into any kind of slowdown in the economy, but it’s something we need to pay really close attention to because if consumers lose optimism they’re going to stop spending,” Popp said. “It can have a pretty significant ripple effect if we are to lose that confidence.”

Dodson and Popp also said further deep cuts to state government spending in the upcoming regular legislative session would do a great deal of harm to Alaska’s economy that relies heavily on government employment.

State government employees make up 7.3 percent of Alaska’s current workforce, according to the state Labor Department. Further, local government — heavily reliant on state assistance — provides another almost 12 percent of jobs in the state.

“There is some room for cuts in our view and not insignificant cuts (to state government), but they need to be well targeted and we need to be looking at revenue streams that can balance the books and put our fiscal house in order for the foreseeable future and then we start to address that uncertainty issue,” Popp said.

Economies across the state are continuing along with business as usual in part because the impact of capital spending lags behind appropriations by a couple years, Dodson noted. The 2014 state fiscal year capital budget, with federal funding, was more than $1.9 billion.

“I don’t think any of the communities are going to be exempt from the lack of state spending; that’s going to be something that affects all of us,” Dodson said.

On the bright side, Interior Alaska has benefitted more directly from low oil prices. Heating, or fuel, oil, the region’s primary space heating energy source, has gone from about $4 per gallon less than two years ago to about $2.50 per gallon today.

Historically, Fairbanks-area residents have allocated about 60 percent of their overall energy costs to heat, according to Dodson. At $4 per gallon, that equates to an average of $4,300 per year spent towards homes that rely on fuel oil.

“There is a tremendous amount of spendable dollars left in our economy that were typically spent for heating our homes,” he said.

Additionally, a resurgence in military spending in should help mitigate state cuts around Fairbanks. The pair of F-35 squadrons that are all but a certain to end up at Eielson Air Force Base are expected to bring hundreds of jobs and hundreds of millions of construction dollars to the Interior.

At Fort Wainwright, a company of unmanned Gray Eagle aircraft will add nearly 130 base positions, while nearby Fort Greely and Clear Air Force Station are seeing an influx of money, too.

The area’s economy has immense ties to its military bases; defense activity accounts for more than a third of Fairbanks’ economy, while state and federal civil spending total about 10 percent apiece, according to Dodson.

“There’s no question about it; Fairbanks is a military town,” he said.

Updated: 
11/04/2015 - 2:23pm

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