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Alaska in Recession: A Light at the End of Tunnel?

 

Today’s blog kicks off what APCM and I hope will be a dynamic and interactive series on Alaska’s economy and other interesting topics.  Please consider me your “economist in residence” and that you’ll send questions or comments to askjonathan@apcm.net. Your entries will seed future blogs appearing on the third Wednesday of each month. Recognizing our goal of an interactive series, today’s appearance addresses some of the mostly commonly asked questions I hear about Alaska’s current economy. Here we go, let’s get to it!

Alaska has been in recession for over a year and a half, when will this end?

Hold on to you hats as I’ve got good news and you don’t need to keep it a secret. Alaska’s recession is slowing as major private and public sector spending cuts come to an end (for now).  Every economy runs on the same fuel: spending.  In Alaska, our big spenders are the oil industry, state spending which is a proxy for the health of the oil market, and the federal government.  Over the last three years, the oil industry and State of Alaska cut spending dramatically to adjust to the oil market and related revenues. That adjustment phase is nearly complete and overall spending is stabilizing.  The result is that we’re seeing the rate of job losses in the economy slow dramatically (see Figure 1).

Figure 1. Alaska’s Recession Slows:
Six-Month Rolling Average Year-Over-Year Employment Gains and Losses

Source: Halcyon Consulting estimates from Alaska Department of Labor and Workforce Development, 2017.

 

After entering recession in late 2015, the pace of job losses peaked in the waning months of 2016 when our economy was losing jobs at rate of nearly 2.5 percent, or 9,000+ wage and salary jobs, per year. By my estimate, calculated from Alaska Department of Labor and Workforce Development data released just last week, our rate of job loss is now under 1.0 percent per year and slowing. At the rate at which we’re slowing, Alaska may emerge from recession by the end of 2017 and could experience some small job gains in 2018. While we’ll still lose jobs for the whole of 2017, we stand a good shot of entering 2018 poised for a slight gain or a no-loss year.

Wow, economic growth in 2018, what do we need to make this happen?

We need the key drivers of Alaska’s economy to stay their current spending course and we need to hope that forces outside of our control don’t cause another round of spending cuts.  So, on the first point we need the oil industry spending (and oil prices) to stay steady at least.  We’re largely assured of stable State of Alaska spending for one year with the Legislature coming to an agreement on Fiscal Year 2018 expenditures earlier this summer.  Consumers can do their part by realizing the worst is over and spending locally.  As for the second point, we need to hope that the number of damaging decisions coming out of Washington, D.C. are kept to a minimum.  For example, decisions earlier this year to limit the number of foreign workers caused regional employment recessions in both the Southwest and Southeast corners of the state this summer with year-over-year July employment falling by 10 percent (!) in Southwest Alaska and 3 percent in Southeast Alaska as fish processors couldn’t get the employees they needed.  While we might wish those jobs went to domestic workers, regional and local Alaska economies are going to miss the money those workers would have spent this year.

How can the State of Alaska stay the course on spending without raising revenue?

The only way the State can maintain current spending without raising revenue is to continually raid the Permanent Fund Earnings Reserve; an approach which will eventually endanger the Permanent Dividend and the body of the fund.  Politically, this approach is unlikely to stick, and legislators will be forced to again consider raising revenues which could affect the economy in 2019 and 2020 during the first years those revenues are collected. The initial years of tax collection will cause a drag on the economy and could kick Alaska into a mild double dip recession depending on the strength of the economy as a whole.

Jonathan’s Takeaway:  Entering 2018 look for stabilizing economic conditions; help by not panicking and by spending locally; hope that outside factors don’t derail our potential recovery.

 

Jonathan King is the founder of Halcyon Consulting, an Anchorage firm dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 21 years of social science consulting experience including 14 years in Alaska.  Suggested blog topics, constructive feedback, and comments are desired at askjonathan@apcm.net.

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