Economists project another slow recovery after pandemic
A long, slow recovery from a near shutdown of Alaska’s economy lies ahead, and that’s only if things go well, according to some of the state’s leading economists.
State Department of Labor and Workforce Development Economist Neal Fried said 2020 was supposed to be the second consecutive year of slow growth following the oil price-induced recession of 2016-18 during which the state lost more than 10,000 jobs.
However, Alaska lost 42,200 jobs in April alone, or 13 percent of its workforce, during the peak of the pandemic-induced economic shutdown, according to Labor Department figures. When the job losses were tallied it took Alaska back to roughly 2001 employment levels, Fried said.
“The timing of this (pandemic) was lousy for Alaska,” he said, as the state has the most seasonal economy in the nation, and it’s not even close. While the state’s gradual reopening helped add back 14,200 jobs in May, Fried noted that Alaska tourism businesses added more than 18,000 jobs during the 2018 summer season. He also emphasized that those jobs support economic activity throughout the year as well.
“As we move into June and July the big story is going to be how many jobs are we not going to gain that we normally do,” Fried said.
Fried was part of an online panel discussion on the state’s economy hosted by the Alaska policy think tank Commonwealth North.
It remains to be seen how many of those tourism jobs will materialize this year with no cruise ships and minimal air travel into the state but the early numbers have not yielded much hope. According to the Labor Department, employment in the leisure and hospitality industry declined by nearly 40 percent in May across the state, from approximately 38,500 jobs in May 2019 to 23,200 last month.
“A saving grace is that a lot of those jobs go to nonresidents,” University of Alaska Anchorage Institute of Social and Economic Research Economist Mouhcine Guettabi said of the leisure and hospitality industry.
Guettabi said he’s “very confident” Alaska’s economy is “at bottom or very near bottom,” in terms of employment, but he doesn’t think the state will recover to pre-pandemic employment levels until early 2023 or late 2022 at the earliest. That recovery timeline is predicated on limited further spending cuts in government or the private sector, according to Guettabi.
“If austerity were to take place that puts even more pressure on the recovery because a cut is a cut is a cut at this point,” he said.
He stressed a fear of an “income cliff” if temporary government aid programs aren’t extended, given the economic plight currently being felt in Alaska and the nation would be exponentially worse if not for the more than $2.5 trillion Congress has put into various forms of COVID-19 assistance. He noted that more than $3 billion in individual and business aid has been injected into Alaska, which is about 7 percent of the state’s gross annual product.
“It seems very clear to me at least that there needs to be more support and a transition that gets us to the other side of this recession,” Guettabi said, adding that consumer demand could “completely evaporate” later this summer if Congress does not extend boosted unemployment benefits.
Lawmakers approved $600 per week in federal unemployment assistance on top of state unemployment insurance in the CARES Act passed in late March. The federal unemployment payments are set to expire July 31. If they are extended, the size of the federal supplement will face scrutiny as unemployment benefits are in many cases paying workers more to stay home than to return to work.
Guettabi also characterized Alaska’s unemployment rate — 12.2 percent in May after hitting 13.1 percent in April — as being “scary” but also “artificially low” because of the immensely popular Paycheck Protection Program for small businesses.
“There needs to be a rolling way to think about this instead of setting arbitrary deadlines. I would rather (Congress) do too much than too little because the cost of too little is too high,” Guettabi said.
The economists also highlighted the importance of comparing monthly pandemic employment data year-over-year as the job losses came so quickly and were so severe that month-to-month comparisons will likely show improvements that appear very positive but do not represent the totality of the situation.
Guettabi expects Alaska’s health care sector, which was down 2,900 jobs or about 7.5 percent year-over-year in May, to recover quicker than most other sectors mainly due to historical demand. It was one of the few industries that added jobs throughout the 2016-18 recession.
Job losses in health care from the pandemic surprised many economists nationally as restrictions on elective procedures sidelined doctors and nurses working in specialty practices.
As for the state’s anchor oil industry, the outlook is cloudy. Fried said state economists expected the oil and gas sector to add about 400 jobs this year on the back of renewed exploration and several large projects under development, but that was when oil was trading in the $60 per barrel range.
Since the start of the pandemic and the subsequent price war between Russia and Saudi Arabia that briefly put Alaska North Slope Crude in the negative in March, Alaska has lost 2,200 oil and gas jobs, or about 20 percent of total industry employment.
Continued North Slope production decline, ever-changing industry technologies, the pending transition from BP to Hilcorp’s leaner business model at Prudhoe Bay and no expectation for oil prices to fully recover in the near-term mean it might be years before the state recovers the lucrative oil jobs, if ever.
“I never thought I would celebrate $38 oil prices,” Fried said of the current price range.
Elwood Brehmer can be reached at [email protected].