Alaska economy strong, but inflation a worry

PHOTO/Rob Stapleton/AJOC

Alaska’s economy is stable but faces some real uncertainties after this year, a leading Alaska economist says.

The national economy, meanwhile, is on a roll that should continue through 2007, but inflation is an increasing worry, according to Wells Fargo Bank’s senior economist.

Both economists spoke at the World Trade Center Alaska’s annual economic forecast luncheon held in Anchorage Jan. 17.

Pat Burden, president of Northern Economics Inc., an Anchorage-based consulting firm, said Alaska economic conditions are generally healthy with total employment expected to grow 2.2 percent this year. Personal earnings should be up 5.4 percent and the state’s Gross State Product is expected to rise 2.7 percent, Burden said.

There are reasons to be cautious, Burden said. Alaska is coasting on a surge of state, federal and oil industry spending continuing from 2006, but falling oil and metals prices, a decline in federal spending due to the Iraq war, the loss of “earmarks” in federal budgeting and decreased influence of the state’s congressional delegation could mean things may not be so good in 2008 and beyond.

Burden showed Energy Information Agency data that showed low world oil supply figures for 2005 and 2006, the causes for spikes in oil prices, but recent increases in production, which explain the recent softening of prices.

Oil prices are now nearing the state’s projected price average of $48 per barrel for the current fiscal year.

Commodity prices, particularly in metals, are also down. The surge over the last two years was caused by high demand in China and India, which may now be moderating.

Burden said the very low unemployment numbers for the state’s major population areas - 4.6 percent in Anchorage, 5.3 percent in Fairbanks - is both a blessing and a potential problem.

Low unemployment means a lot of people have jobs, but it also means the labor force is tight, he said. In small, isolated economies like Alaska, it means the pool of potential workers for employers is small. For employers finding trouble recruiting qualified workers, this will put upward pressure on wages, Burden said. That’s good in some respects - big box retail employers are already giving raises to retain workers - but it could contribute to regional inflation, he said.

On the national level, Wells Fargo Bank vice president and senior economist Eugenio Alleman said he sees no apparent end to good times despite recent jitters in the stock market. Inflation is the concern, he told the listeners at the World Trade Center Alaska luncheon.

Alleman said continuing consumer confidence is providing strength to the economy. Consumption in the fourth quarter was up 4 percent, compared to the same period a year ago, with 3 percent growth expected in the first quarter of 2007. Labor markets are very tight. Unemployment is 4.5 percent, near a historic low, he said.

“I am more concerned about inflation. The Producer Price Index was up 2 percent in November and rose another 0.9 percent in December, after being very low during the preceding 12 months,” Alleman said.

11/09/2016 - 10:37am