Northrim: Resilient in recession, state must ‘get our act together’
FAIRBANKS — For a state officially in recession, the traditional economic indicators of Alaska’s economy are showing a remarkable resiliency, Northrim Bank economist Mark Edwards says.
Edwards and other Northrim officials presented the bank’s 2016 economic overview in a presentation in Fairbanks on April 11, with similar events to be held in Juneau on April 12 and Anchorage on April 14.
The usual ways of measuring economic performance — unemployment, home foreclosure and delinquency rates, and building permit activity — don’t yet reflect an economy going over the cliff, Edwards said.
That’s not to say there hasn’t been pain, particularly in oil and gas, construction and professional services. Also, those are high-wage sectors and the loss of jobs there will have ripple effects because of less discretionary income spending in fields like leisure, recreation and entertainment, Edwards said.
In opening the Fairbanks presentation, Northrim CEO Joe Schierhorn underscored the importance of the Legislature acting this year on solutions to solve a recurring $3 billion a year state fiscal deficit.
“We are on record supporting a comprehensive solution including use of Permanent Fund income, measured spending and a broad-based tax,” Schierhorn said.
Northrim has held that position for several years now, including endorsement of the broad-based tax. This position puts the bank at odds on this with some business groups, like the Alaska Chamber, which are lobbying against the income tax proposed in the House.
The state now gets the bulk of its revenue from oil and gas, but those have been hit hard by a sharp decline in oil prices.
On the economy, Edwards said preliminary data shows the state lost 7,600 jobs 2016, or 2.4 percent, with about 3,100 of the jobs lost in Southcentral Alaska and 2,800 in the state’s northern region, mainly in North Slope oil and gas.
The Interior region, mainly Fairbanks, saw a loss of 700 jobs. Southeast lost 600, Edwards said.
Oil and gas was hit hardest, down 3,100 statewide, or 23.5 percent; construction was down1,200 jobs. Professional and business services, a field that includes engineers, saw a loss of 1,300 jobs, or 4.6 percent.
Health care, in contrast, boomed, adding 900 jobs or 2.6 percent. Tourism also did well in 2016 and will do so again in 2017.
“This has been a tough time for a lot of people, however. We haven’t had to deal with a major recession since the 1980s, and we’re not there yet with this one,” meaning the scale of the 1980s downturn, Edwards said.
The state still has a lot of advantages, however, mainly its land base and natural resource wealth.
“Basically, we just have to get our act together. We have all the tools we need for a recovery,” he said.
State government can do structural reforms to help that, such as streamlining regulatory requirements. Availability of skilled labor is also a concern the state can help with, through education and training.
“We need to ensure we have the right skill sets to take advantage of opportunities,” Edwards said.
Alaska Native corporations will also help stabilize things because they bring in revenue from out-of-state investments and through the spending of dividends paid to shareholders.
Although higher than the nation, the state’s unemployment, 6.7 percent in December, is basically stable and is within historical ranges, Edwards said in Fairbanks.
“U.S. unemployment rates have been more volatile over the last 20 years. National rates were as low as 3.9 percent and as high as 9.9 percent, whereas Alaska stayed within a much tigher band, reaching a low of 6.3 percent and a high of 7.9 percent,” Edwards said.
Other indicators were stable, too. Home foreclosures and mortgage delinquencies are some of the lowest in the nation, he said.
Building permits reached 1,503 in 2016, up 16 percent from the prior year. The bulk of the units built were for single-family housing but about 20 percent was for multi-family units of five units or more, according to Northrim’s report.
In 2012, only 868 permits were issued statewide, reflecting a lingering effect of the 2008 recession.
Overall, “the number of building permits for new, privately-owned housing of one to five-unit buildings remained relatively low for the tenth straight year,” Edwards said.
Building permits were still below the average of 2,781 new units per year in Alaska during the prior decade, before the national recession hit.
Per capita income in the third quarter of 2016 was eighth-best of the 50 states, at $55,588. That compared with $49,681 at the national level. However, total income in Alaska declined 0.7 percent in the third quarter, to $41.1 billion, compared with total income in third quarter 2015.
Speaking on Fairbanks itself, Edwards said apartment rents in the Interior city were generally stable, at about $1,100 per month, on average. It was down marginally 0.6 percent from 2015. Fairbanks home sales prices climbed 3 percent in 2016, to $230,289 on average.
In Anchorage, home prices increased over four consecutive years from $321,958 on average in 2011 to $366,836 in 2015. Average prices dropped in 2016 by 0.2 percent to $366,080, according to the report.
The state’s economy is strong in other ways, Edwards said. For example, many properties are owned by people with large invested equity, who have financial capability because of that to absorb lower lease or rental revenues. There has been no uptick in distressed properties according to Edwards.
Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at [email protected].