It’s certainly not the best of times, but it’s also far from the worst of times for Alaska’s economy, according to Anchorage Economic Development Corp. CEO Bill Popp.
Nearly two years after oil prices began to tumble from the $100-plus per barrel plateau, Alaskans are finally starting to see companies in the state’s oil-dominated economy adjust to what many are calling the “new normal” — oil prices mainly between $40 and $60 per barrel.
Popp said during AEDC’s annual three-year Anchorage Economic Outlook presentation July 28 that it’s “easy to get caught up in the emotions” of this year’s extra-contentious extra innings budget and tax battle in Juneau, news of layoffs and oil projects being delayed on the North Slope, and think the state is spiraling into oblivion. However, the numbers don’t bear that out, he emphasized.
While the AEDC forecast focuses on Anchorage, as the state’s economic hub with more than half of the state’s population in the surrounding area, the city’s economy is often used as the primary indicator of Alaska’s situation as a whole.
Total Anchorage employment was down about 2,500 jobs in June compared to a year ago, according to AEDC. Anchorage had a record 156,000 jobs last year, up more than 1,000 from 2014.
More specifically, the oil and gas industry is down 700 positions, with the construction and professional and business services sectors each down about 1,000 jobs.
Those job losses are discouraging, but Popp noted that Anchorage employment hit an all-time high last summer, which is “exacerbating” the job loss figures this year.
Similarly, direct oil and gas employment hit a statewide record-high of 14,800 jobs in March 2015 despite depressed oil prices, so the current industry contraction appears worse than if the job losses were based on historical averages, he explained.
Preliminary Labor Department data for June indicates the state is down about 2,500 oil and gas jobs to 12,300 — equivalent to 2011 — from its peak 16 months ago.
Popp said current state oil and gas employment is still up more than 50 percent from its recent low in 2005. He added that AEDC has no indication of significant layoffs coming in the industry after both major and independent producers announced job cuts last year and earlier in 2016.
State government employment in Anchorage is down 400 jobs in Anchorage, but that has largely been offset by 300 more available federal jobs.
The final 2017 fiscal year state budget, which went into effect July 1 and included significant vetoes from Gov. Bill Walker, will mean cuts to another 400 jobs statewide, according to administration officials.
Strong tourist seasons the past three years have boosted Anchorage’s, and the state’s, leisure and hospitality jobs over that time. Anchorage added 300 jobs in the in 2015 for total sector employment of 17,200. The number of leisure and hospitality jobs has been steady in the first half of 2016 and that is expected to hold for the rest of the year, according to AEDC.
“Global turmoil is Alaska’s best friend” as far as tourism goes, Popp commented.
“Alaska is viewed as an exotic but safe domestic destination.”
On the positive side of the ledger, Anchorage’s ever-strong health care sector added another 900 jobs last year and another 600 so far in 2016. Popp said AEDC expects that trend to continue as state courts have affirmed the governor’s authority to accept federal Medicaid expansion dollars. He explained that employers should now feel confident enough in the future of that added money to the industry to add more employees as well.
The retail sector is also up 200 jobs this year and transportation companies have added 100 positions.
All told, AEDC is holding firm on its January prediction of 1,600 fewer jobs — just a hair more than 1 percent of the 2015 workforce — in Anchorage by the end of this year, Popp said.
Yet, the job losses are not really revealing themselves in unemployment numbers, he said further.
Anchorage’s unemployment rate was 5.7 percent in June, up 0.4 percent from both May and June 2015. Statewide, unemployment was 6.7 percent last month, which was flat compared to May and a 0.2 percent year-over-year increase.
However, the slight uptick in unemployment is fairly common in June, according to the Labor Department, because of an increase in job seekers at the end of each school year.
There were less than 1,000 initial unemployment claims throughout Alaska in the last week of June, according to AEDC, which is on par with the prior couple years and about 500 than the 2011-13 average.
Popp surmised that could be due, at least in part, to the fact that upwards of 30 percent of the state’s oil and gas jobs — the industry that is seeing the most job losses — are filled by nonresident workers.
“We also know anecdotally there was a fair number of retirements, which also would not show up in (unemployment) numbers,” he added.
Looking beyond 2016, AEDC is projecting Anchorage will absorb losses of another 1,500 jobs next year, with flat employment in 2018 before slight growth again in 2019. That would mean a workforce of 153,000 people over the next two years, a contraction of 1.9 percent from the 2015 peak.
Population and housing
Closely linked to employment is the city’s population. Anchorage will be down about 3,500 residents from its 2013 peak of more than 301,000 people by the end of the year, AEDC predicts.
Identical to the workforce estimates, Anchorage is expected to lose another 1,500 people next year and be flat at 295,900 residents in 2018 before beginning to rebound in 2019.
Popp said some city-dwellers are moving to the Lower 48 in search of jobs and cheaper living, but many, if not most that are leaving are heading to the Matanuska-Susitna Borough to escape Anchorage’s excessive housing costs. About 1,300 Anchorage residents did just that last year, he said.
Even with nearly 5 percent growth in average single-family home prices in the Mat-Su core of Palmer and Wasilla so far this year, home prices there are still more than $90,000 less than the average sale price of nearly $366,000 in Anchorage, according to MLS data.
Popp used Anchorage’s current housing data as proof the city is not on the precipice of the economic black hole feared by some.
June single-family home listings in the city are were up 33 percent over the last three years; however the 1,026 homes on the market last month is still the sixth fewest over the last 10 years and falls almost exactly on the average since 2007.
The overall market is starting to shift from a very constrained sellers market to favor buyers, but houses listed at less than $400,000 are still going quickly, Popp said.
“If you’ve got a good property, your time on the market is measured in days or weeks. We’re seeing a lot of deal flow,” he said. “The market is relatively healthy and it’s just moving and changing.”
The average sale price in June of $387,000, above the year-to-date average by $21,000, exemplifies that typical summer demand is still there, Popp added.
Budget, consumer concerns
Despite economic indicators that are not doom and gloom, Popp said average Anchorage consumers are “markedly pessimistic” about the future despite having healthy confidence in their personal finances, at least based on AEDC’s latest Consumer Optimism survey.
A lack of consumer confidence could “make a difficult (economic) situation much worse” and lead to a self-induced recession.
“We are a consumer-based economy in no small measure and we have to maintain the confidence of our consumers to maintain our economy,” he said.
A significant source of the worry could be coming from Juneau, where six months of wrangling over the budget produced little more than small cuts from the Legislature. Those cuts were followed by $1.3 billion in spending vetoes from Walker, whose pushes for tax increases and using the investment earnings of the Permanent Fund to drastically reduce the states multi-billion dollar deficit were ultimately futile.
The AEDC Board of Directors has endorsed using the Permanent Fund’s income to partially pay for state services.
“The good old days of oil saving us from ourselves are over,” Popp said bluntly.
“We are not projecting significant growth in the price of oil in the coming years and I think we need to embrace that.”
He has said in previous interviews with the Journal that the uncertainty created in the business community by a drastically imbalanced state budget can nearly do as much to deter private investment in the state as the immediate situation of any given industry.
The “no action plan” or NAP, chosen by a majority of legislators in the House, which failed to pass a substantial budget plan, is simply perpetuating that uncertainty, Popp said.
“We need to wake up as a state and solve this critical challenge. Now is not the time to take a NAP,” he concluded.
Elwood Brehmer can be reached at [email protected]