Taking the Win at the End of the Decade - Alaska Permanent Capital Management

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Taking the Win at the End of the Decade

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The end of 2019 is upon us and we can celebrate the fact that Alaska’s economy spent most, possibly all, of the year out of recession. The bad old days of 2016 and early 2017 when we were losing jobs at an annualized rate of two to two and half percentage points (roughly 8,000 jobs a year) are well behind us and it looks like we’ll end 2019 with average job growth above a half percent annualized rate (roughly 1,800 jobs). It’s not strong economic growth by any measure except in comparison to the savage losses of 2016 and 2017. In the spirit of Senator George Aiken perhaps it’s a moment to ‘declare victory and go home’. My fellow Alaskans, we’ve survived. We’re not back to where we once were, but we’re still here and still in the game. Congratulations!

Before delving any further into our economic state, I want to take the time and some writing space to thank everyone who emailed me at askjonathan@apcm.net this year, or who pulled me aside on the proverbial street to mention the blog, disagree with the blog, and thank me for covering a topic. It’s always great to know that people are reading the posts and getting something from them. Thank you for your comments, thoughts, and support. Your insights inform my understanding of the economy, give me additional viewpoints to consider, and influence what I cover.

All right, back to the Alaska economy! The Alaska Department of Labor and Workforce Development has published monthly employment data through October 2019. The November data will be available just after this blog is published if the ADOLWD sticks to their typical schedule. These data are estimates based on a monthly survey of employers and as such as subject to revisions. Recent revisions have been upward, which to me indicates greater economic strength than the first read would suggest. Through October 2019 we’re averaging 1,840 more monthly jobs than we did in 2018. As a reminder, last year at this time we were averaging 2,000 fewer jobs than we averaged in 2017. As a broad statement, 2019 nearly healed the damage done in 2018 and brought us back to almost 2017 monthly average employment levels. We’re still many thousands of jobs below the peak employment seen in 2015.

Table 1. Average Monthly Jobs in Alaska through October, 2018 vs 2019

 Economic Sector

Average Monthly Jobs

2018

2019

Difference from 2018

Number

Percentage

 Total Nonfarm Payroll

330,270

332,110

1,840

0.6

Construction

15,970

16,760

790

4.9

 Leisure and Hospitality

36,470

36,930

460

1.3

 Oil and Gas

9,350

9,700

350

3.7

 Educational and Health Services

50,350

50,700

350

0.7

 Professional and Business
Services

27,400

27,750

350

1.3

 Manufacturing

13,730

13,870

140

1.0

 Trans/Warehouse/Utilities

22,630

22,760

130

0.6

 Wholesale Trade

6,450

6,540

90

1.4

 Local Government

41,730

41,740

10

0.0

 Federal Government

14,930

14,860

-70

-0.5

 Other Services

11,100

11,010

-90

-0.8

 Financial Activities

11,800

11,670

-130

-1.1

 Retail Trade

35,810

35,660

-150

-0.4

 State Government

23,590

23,380

-210

-0.9

 Information

5,650

5,380

-270

-4.8

Table Note: Job gains and losses for individual sectors do not total to the change in total nonfarm payroll because the table includes both sectors and sub-sectors.

As shown above in Table 1, a little more than half the economic sectors showed job growth this year. Leading the way in total jobs added are construction, leisure & hospitality, oil & gas, private education & health, and professional & business services.  Each of these leading sectors has its own story as to what’s driving growth:

  • Construction jobs are being juiced by earthquake recovery efforts.
  • The oil industry is investing even though oil prices are only in the $60 range because they’ve reduced costs in such a way that finding and producing a new barrel of oil in Alaska is now profitable at low $40s/barrel prices instead of mid-$50s/barrel prices.
  • Leisure and hospitality are drawing strength from the Lower 48 economy.
  • The Professional and Business Services sector has retrenched. It’s leaner and meaner just like the oil industry and is making it work in the same lower revenue environment.

If we look towards the lower half of the table, we see a mix of government sectors and sectors where jobs can be more easily outsourced or replaced with automated services. (e.g., retail/finance/information).

So, as we head into 2020 what’s caught my eye? Here are four things that grabbed my attention in recent weeks and that I think will continue to play out in 2020.

  1. The FY20 Budget Cuts- This summer the budget process settled on several hundred million dollars in budget cuts for FY 2020. A general rule of thumb for budget cuts is that you look for the economic effects to start showing up 6-9 months after the cuts occur. We’re just entering that timeframe now. In some places, these cuts are just starting to bite (e.g., recent layoffs in the Alaska Marine Highway System). In other places, those cuts aren’t materializing, and it wasn’t ever feasible for them to take place without greater planning (i.e., Medicaid). At the same time, the State of Alaska spent many millions of “extra” dollars fighting wildfires this summer. The short of all these moving parts- The “spent” FY 2020 budget is going to be bigger than planned which means a smaller negative impact on the economy from cuts.
  2. The Financial Squeeze is Still On- The Department of Revenue’s fall revenue projection is out, and it says to expect a couple hundred million less in revenue for FY 2020 and FY 2021 compared to prior estimates. Take away a couple hundred million in revenue and add a couple hundred million in increasing costs of state government just from inflation and you start to get to real money. Add in a desire by some to increase PF dividends and you get to a REAL difference between revenue and potential expenditures. We may be out of recession, but the financial picture is still tough.
  3. The North Slope Renaissance- I’m a member of the Anchorage Downtown Rotary and a recent presentation featured Joe Marushack who is President of ConocoPhillips Alaska. Mr. Marushack discussed his company’s development efforts on the North Slope and how production changed after SB21 passed in 2014. It was hands down, one of the best industry presentations I’ve seen in years. It was thoughtful, specific, and level-headed. While I don’t see oil production in Alaska increasing in a way that drastically changes the structure of our budget, I did leave feeling like we have a chance to arrest for the long-term the decline in oil production seen between 1982 and 2014. Stability in oil production is a win for this state given our history.
  4. Dropping Medicaid Enrollment Numbers- Over a year ago I published a blog which talked about the relationship between falling employment and increasing Medicaid enrollment. After K-12 education, Medicaid is our largest consumer of state funds. The past administration did a great job containing state costs while enrollment exploded by more than 30-40 percent as the economy tanked. The ‘best’ way to spend less on this program is to get people working in higher paying jobs and off the program. It looks like that may finally be happening and there might be some traction towards smaller enrollment numbers.

I’m hoping to take deeper dive into each of these issues in 2020.

Jonathan’s Takeaway: 2019 has been a bumpy ride on many fronts, but we’re ending the year in better shape than any year in the last half-decade. I’ll take it.

Jonathan King is a consulting economist and Certified Professional Coach. His firm, Halcyon Consulting, is dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 23 years of social science consulting experience including 16 years in Alaska. The comments in this blog do not necessarily represent the view of employers and clients past or present and are Jonathan’s alone. Suggested blog topics, constructive feedback, and comments are desired at askjonathan@apcm.net.

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