Oil, gas cutbacks likely to level employment growth
For the first time in two decades Alaska employment growth is likely to level and even decline slightly in the new year due to cutbacks in oil and gas employment and an expected soft year in tourism.
“Oil is still the most dynamic industrial sector we have. Just looking at the numbers, without the oil growth things flatten out,” said state labor economist Neal Fried.
“It’s an important industry because the effects of its growth trickle through a lot of other industries like transportation and business services, which includes engineering,” he said.
North Slope operator BP Exploration (Alaska) Inc. has already announced the delay in one construction project and a 10 percent reduction in drilling in the Prudhoe Bay field. The company says it intends to use one less drill rig in 2009, BP’s Alaska president, Doug Suttles said in November.
Similar reductions are considered likely among other companies operating on the North Slope. “It’s likely to be a difficult year,” ConocoPhillips Alaska Inc. president Jim Bowles told a business conference in November. Prices for Alaska North Slope fell below $30 per barrel in late December.
The last decline in Alaska statewide employment was during a regional economic recession in the late 1980s, also sparked by a sharp decline in oil prices.
The economy began recovering after 1989 and a major factor in the recovery was the spending by Exxon Corp. (now ExxonMobil) on the cleanup of spilled oil from the Prince William Sound oil spill.
The huge infusion of cash into the regional economy from spill cleanup work in 1990 helped end the recession and started the state on a trend of gradual growth in jobs that has continued until now.
That may end. A 1980s-type recession isn’t expected because Alaska’s economy is now larger and more diversified, however. Also, the state has substantial cash reserves to that will help it ride through a temporary decline in oil prices.
The rate of statewide job growth has been gradual for years and has been actually slowing over the last two years. It is predicted to increase about one and a half percent in 2008 over 2007. What was mostly driving the growth was a robust expansion in oil and gas employment, however.
In November, preliminary estimates by the state Department of Labor and Workforce Development put statewide wage and salary employment at 310,700, or 2,200 jobs higher than statewide employment in November 2007.
Over half of the additional jobs, about 1,200, came from the oil industry, however. Petroleum employment was at 13,000 in November, compared with petroleum employment of 11,800 in October, 2007
Other sectors of the Alaska economy were mostly level in November, with some industries showing small increases, like an increase of 100 jobs in retail, and others showing decreases, like construction, which was down 200 jobs.
Construction employment actually picked up a bit in the third quarter of 2008 and is down less now than was expected earlier. The industry is expected to remain stable through 2009. “But 2010 is more of a question.” Fried said.
Retail was helped by the opening of new stores and an increase in consumer spending from this record 2008 Permanent Fund dividend and one-time energy rebate from the state.
“We now have as much retail in Alaska, as a percentage of the economy, as there is on the national level,” Fried said. “For many years we had less retail here than nationally, which was what spurred the growth. Now retail is mature in Alaska,” which means retail will grow slowly, along with population and income growth.
Alaska tour operators are bracing for a poor year, due to a recession that is now spreading globally. Advance reservations are down for major cruise lines and many Alaskan businesses that depend on tourism.
High-end sports fish lodges that cater to wealthy out-of-state clients could be less affected, and other Alaska operators are likely to do more aggressive marketing to Alaskans, which could offset the loss of business.
“Retail is a big question for us,” Fried said.
Alaska mining exploration will also take a hit in 2009 because many mineral exploration firms depend on equity financing for their projects, and money in capital markets has dried up. Companies working on gold projects, however, have fared better than those exploring for industrial metals like zinc, lead and copper, so the Alaska mining picture isn’t entirely bleak.
Federal spending, another major driver in the economy is expected to slightly decline in 2009.
Most attention has focused on the oil industry, which drives about a third of the state’s economy, according to researchers at the University of Alaska Anchorage’s Institute of Social and Economic Research.
Much of the economic impact of petroleum is felt indirectly, through the spending of oil revenues received by the state.
State spending has increased substantially in recent years in lock step with rising oil prices and state revenues. State legislators sharply increased construction spending, through the state capital budget, but also set aside several billion dollars in surplus revenues in state savings accounts.
Those savings will now help the state ride through what may be a sharp dip in oil revenues. The state capital budget will likely be smaller this year but spending in the operating budget, which finances state agencies and major programs like school funding, are likely to remain stable.
Even if the state capital budget shrinks it won’t affect the state’s construction industry for a year or two because of a backlog in state and municipal-funded projects built up during two years of record state capital budgets, which also funded many local government projects.
The state will also benefit from an economic stimulus package planned by the Obama administration in the new year, but how much of this Alaska garners will be colored by politics. It will measure Gov. Sarah Palin’s clout, if any, with the Obama administration and the Democrats in Congress.
It will also test whether newly elected U.S. Sen. Mark Begich, D-Alaska, can use his influence in the Democratic congressional leaders to offset any negative feelings toward Palin, who campaigned against Obama and other Democrats as Sen. John McCain’s Republican vice presidential running mate.