The caller’s voice reflected the stress of the moment “I’m deeply frustrated with what I’m hearing from these two gentlemen. I don’t understand why we can’t just declare the economy open and get back to normal.” The day was May 26th, the place was KSKA’s Talk of Alaska, and the two gentlemen were Alaska Department of Labor and Workforce Development economist (and titan of Alaska labor economics scene) Neal Fried and yours truly. It was an uncomfortable moment, but an important one as the caller reflected the frustration and fear that many are feeling as we navigate the COVID19 pandemic.
The initial effect of COVID19 and associated public health measures on the economy is coming into view. On Friday, June 19th ADOWLD released the first peak at May’s employment numbers. The picture is not pretty- wage and salary employment in Alaska is down 40,900 jobs (12.2 percent) year over year, the unemployment rate is 12.6 percent, and every single sector of the economy is under water. As Neal said in our joint appearance on May 26th, “Employment is back to 2000 or 2001 levels.” Two decades of wage and salary growth in Alaska have disappeared (at least temporarily) virtually overnight. Not surprisingly, the tourism and hospitality sector is leading the way in both jobs lost and percentage of jobs lost.
There’s so much going on right now that and so many discussions happening that I want to take you on a tour of some of things that “the economists” are talking about around the watercooler. For the potentially squeamish there’s a “good news” section at the end.
Why Declaring the Economy “Open” Won’t Just “Make It So”
Think of the economy as a big, complex ship with a lot of mass; it neither starts nor stops particularly quickly. The COVID19 event also has a lot of mass. Globally and locally, we simultaneously hit that mass and put the ship in full reverse to blunt the impact. The collision itself damaged the economy, but so did the sudden effort of putting the ship in full reverse. We’re in that moment of your favorite ship disaster film (or sci-fi adventure) where the first officer turns to the captain with a status report and says “Captain, we’re back under power but the main engines are 50 percent, secondary power is partially offline, we’ve hull breaches in multiple areas of the ship, and there’s certainly unseen and unknown damage we’ve yet to discover.” This situation describes Alaska’s current economy. We’re moving, but we have multiple sectors that are bleeding jobs, there’s secondary and tertiary damage that will appear over the next year and main power (oil and PF earnings) aren’t at full strength.
We can’t just hit “go”. Our commodity-based economy depends on global consumption of oil, fish, minerals, and tourism to keep prices and demand high. Right now, prices and demand for nearly everything we produce are down significantly from last year. COVID could disappear tomorrow, but without demand, recovery in the commodity prices that fuel our economy will remain low for some time. The key to demand recovery is confidence across the local, national, and global economies. People spend more when they have faith in the future, but they cannot spend more until they return to work, or have the opportunity to return to work, which equates to feeling safe. It’s going to take time to get the state, national, and global “ships” back up to speed and that’s going to be frustrating, worrisome, and uncertain.
The unemployment rate very likely understates true employment loss. Why? Because there are many people who have seen their positions reduced from full-time to part-time, had their hourly wages reduced, or who have found part-time work after losing a full-time job. In addition, you have to be looking for work to be considered unemployed and there are some people who have given up looking for work. The “true” unemployment rate right now might be up to 50 percent higher.
More Job Losses to Come?
The preliminary job numbers for May show job gains from April, but losses from last May. May employment is traditionally higher than April employment as the summer economy ramps up. Gains this May were driven by the reopening of the economy including restaurants, but there’s another factor at play here is well, which is the Paycheck Protection Program loans hitting the economy. Businesses now have 24 weeks to spend those loans if they want them forgiven. Congress primarily intended the loans to support the retention of employees and paying payroll. When money and the forgivable term runs out, another round of layoffs is likely. I’m increasingly hearing that the “smart money” is looking to cut employment by late summer to ensure that firms will be around next year when the economy really starts to recover. As they say, “watch this space”.
Getting Workers Back to Work
Eight times a year the Federal Reserve publishes the “Beige Book” which contains commentary on the state of the economy. The Beige Book for May 2020 notes that even when jobs are available there are three factors which hold workers back from returning to their jobs: fear that their companies won’t take appropriate safety measures, lack of childcare, and increased size of unemployment checks.
Over the last four weeks I’ve heard from multiple employers of their own struggles with the second and third issues cited by the Federal Reserve- lack of childcare and workers turning down jobs because unemployment pays more.
- I expect the unemployment payment issue to resolve if unemployment support returns to normal levels on August 1. There will be workers hurt by the drop in support payments and there will be those who turned down jobs in May and June that may come to regret that choice in August and September.
- I am much more concerned about the childcare issue. Alaska’s childcare sector is fragile and under resourced. Low pay, long hours, and tough economics makes working in the sector a labor of love and a risky business investment. While the SOA is working with non-profits to aid the sector, we run the risk that a service one-in-seven Alaska employees counts on may not be there for them when their job calls for them to return. You add on the effect of potentially not having schools fully-open this fall and “what to do with children” is perhaps the issue for getting workers back on the job.
The Good News Section
Congratulations on making it to the “good news” section! Perhaps you just skipped straight here, but welcome none the less. Let me hit you with significant pieces of good news that occurred in the last month that may make a real difference in your life:
- Oil prices have rebounded significant since my post in early May with ANS oil selling at $43.77 per barrel at this writing. This price largely covers the marginal cost of production but doesn’t provide much incentive to explore.
- ConocoPhillips announced they’ll bring ANS production from their facilities back to normal levels in the next couple of weeks.
- Scientists announced the discovery of the first drug proven to reduce mortality in seriously ill COVID19 patients. The cheap and commonly available steroid reduced mortality by 35 percent for patients on ventilators and by 20 percent for those on oxygen. Truly welcome news if I’ve ever heard any.
Jonathan’s Takeaway: If the COVID19 event were a nine-inning game we’re probably in the bottom of the 2nd or the top of the 3rd. Undoubtedly, there will be twists and turns to come that none of us expect, but as time marches forward and the ship regains speed the news will eventually get increasingly better.
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 email@example.com.