AEDC: Recession extended by inaction
Anchorage Economic Development Corp. CEO Bill Popp believes Alaska’s recession will last another year, due in large part to continued inaction from state lawmakers.
Popp spoke July 26 at AEDC’s annual three-year Anchorage economic forecast presentation.
He said the absence of state fiscal reforms has led to uncertainty from businesses and consumers who don’t know where and at what level taxes or further spending cuts will be levied has artificially slowed economic activity in Anchorage and statewide.
Several years of spending cuts have helped shrink the state’s annual deficits from nearly $4 billion to about $2.5 billion, but a deal to completely eliminate them has not been reached.
While AEDC is naturally Anchorage-centric, the city is Alaska’s economic hub and its situation is therefore generally on par with the state as a whole.
“Because of the lack of decision-making in Juneau on a long-term policy that says ‘this is the direction the state is going,’ we are now extending our forecast for a third year of recession — 700 jobs lost (in Anchorage) in 2018,” Popp said.
“We should not be in this situation.”
Through June, the city had lost about 1,600 jobs this year, or about 1 percent of its labor force.
Popp said job losses are moderating somewhat, but that’s little consolation to those individuals handed pink slips.
The expectation is Anchorage will end the year down 2,100 positions, which is a slight improvement over AEDC’s January forecast of 2,200 lost jobs this year.
The city lost about 3,000 jobs last year, according to AEDC. Those losses were led by about 1,400 jobs shed in the professional and business services sector, which includes architectural and engineering firms hit hard by severe contraction in state and oil and gas industry capital spending.
The oil and gas sector was also down about 800 jobs last year, but Popp noted about half of those positions were the end result of Shell cutting its Arctic offshore oil exploration program, which was announced in the latter half of 2015.
Anchorage retailers contracted by about 300 jobs last year and AEDC expects a similar situation this year as consumer spending slows somewhat. Still, Alaska storeowners are faring better than their Lower 48 counterparts who are falling victim to new consumer trends despite a healthier overall economy.
“Alaska retailers are a bright spot on (national retailers’) ledgers and they are squeezing that bright spot to drive a few more dollars into their overall balance sheet to help them out with the debacle that they are dealing with right now, which is known as the Amazon effect,” Popp said.
Conversely, he said the health care industry continued to grow and exceed expectations, adding 700 jobs in Anchorage last year; however, policy changes in Washington, D.C., and cuts to federal funding could quickly reverse the long trend of health care job growth if they ever materialize.
Leisure and hospitality businesses also added 200 jobs, bolstered by record numbers of tourists traveling to the state due in part to a strong Lower 48 economy.
Anchorage’s unemployment rate averaged 5.3 percent last year and is at 5.8 percent so far in 2017.
Comparatively, Alaska as a whole had a 6.8 percent unemployment rate in June. The national rate was 4.4 percent and near its lowest levels in more than 15 years.
Overall, employment in Anchorage is down about 3 percent from its 2015 peak, according to AEDC’s figures.
On a macro level, Alaska’s recession was spurred by inflated oil industry and state spending driven by $100-plus per barrel prices, Popp said, which is generally understood, but he also offered some insight into what that did for Alaska.
“Folks, we had an oil price bubble go through the state economy. It started in 2010 and ended in 2014 and in that five years — we’re still trying to figure out what the actual number is, but we think conservatively the additional revenues pumped into the state economy equated to somewhere between $12 (billion) and $14 billion. What could go wrong with that?” Popp said. “It basically repeated what happened to us on a much smaller scale back in the 1980s with the housing price bubble we had.”
As a result, the oil industry is resetting to pre-2011 employment levels, he added, and broader figures show Alaska’s economy in general is following its primary driver.
In 2016, Alaska averaged 332,400 jobs for the year based on state Labor Department figures. That was the fewest jobs since Alaska had an average labor force of 329,500 workers in 2011.
Despite the job losses, other fundamental indicators show the local economy is stumbling, not crumbling.
Housing prices in Anchorage — generally viewed as higher than they should be due to a tight market — have stabilized. The average price for a single family home sold in the city was $366,000 last year and AEDC expects it will be flat this year after peaking at $367,000 in 2015.
Housing inventory in Anchorage is also down about 20 percent year-over-year, according to AEDC.
“We aren’t really concerned with the real estate market at this time,” Popp said.
Additionally, Alaska continues to have the lowest foreclosure rate in the country, he noted.
And for the time being, money continues to flow into Alaska’s banks and credit unions. Cash on deposit was about $19 billion in the state last year and AEDC expects it will “well exceed $20 billion” when the numbers come out in September, Popp said further.
He characterized that as further evidence that while the state’s politicians may not have started the recession, they could do a lot to end it.
Other state economists have called it a “government-induced” recession on the premise that the 40 percent-plus decline in annual government spending in recent years pushed Alaska’s economy into the negative, which was not seen during previous oil industry contractions when government spending was mostly steady.
“Money is going to safety and sitting on the sidelines because they have no clue — people have no clue whether their businesses or individuals — what their taxes are going to be next year because we have a state fiscal crisis that is putting us in a spot that is giving us a crisis of confidence,” Popp commented.
Finally, he said an Anchorage consumer optimism survey AEDC conducted earlier this year shows people are feeling the recession but still fairly comfortable with their personal finances.
However, negativity reigns in people’s views about the future of Anchorage’s economy, which is especially troubling given the city has a consumer-based economy, Popp said, noting the survey was taken at the height of the contentious budget debates in Juneau.
“We need that solution if we’re going to get out of this recession,” he said.
Popp ended his speech by once again pleading for the Legislature and governor to reach a compromise on a long-term fiscal plan for the state and the crowd of Anchorage business types responded with a strong applause.
Elwood Brehmer can be reached at [email protected].