AEDC: recession fading despite ongoing state financial issues

  • GCI co-founder and CEO Ron Duncan told the AEDC forecast audience Jan. 31 that the state’s budget problems and resulting economic hesitance as “purely a self-inflicted problem” because political leaders in both parties have chosen to hold out for what they see as the perfect solution instead of employing the one tool a large majority of lawmakers already feel is necessary to solve the vast majority of the problem: earnings from the Permanent Fund. (Photo/Michael Dinneen/For the Journal)

Anchorage is pegged to lose about another 1,000 jobs this year, but the analysts that track the numbers closely believe it could be the last year of a shrinking economy in the city.

Anchorage Economic Development Corp. CEO Bill Popp said during the group’s annual forecast luncheon Jan. 31 that the job losses this year will continue to be widespread amongst the various sectors of the city’s economy. However, the workforce reductions are expected to be smaller in almost every industry than what has been endured in the past two years of recession.

Losing 1,000 more jobs in 2018 would equate to a 0.7 percent decline in the city’s overall workforce of about 151,000.

For context, Anchorage lost about 2,100 jobs last year and more than 2,900 in 2016, the first year of the recession. Popp said the city’s ever-burgeoning health care industry was the outlier in 2017; it added roughly 800 jobs.

The transportation sector was flat, aided by a busy Ted Stevens Anchorage International Airport, which was aided by tourists and cargo from a strong Lower 48 economy.

“Who lost, last year? Everybody else; that’s the simple way to put it,” Popp commented.

But the major job losses seen in 2016 in the linked oil and gas, construction and professional and business services — engineers, architects, lawyers, accountants, administrators and the like — sectors have moderated.

In 2016 those three industries shed 3,100 jobs in Anchorage. In 2017 they lost a combined 1,400 workers.

Overall, AEDC is projecting the recession will fizzle out sometime late this year or early next. Oil prices have stabilized of late and a batch of prospective developments on the North Slope should help revitalize Alaska’s central industry, which is largely headquartered in Anchorage. Aside from that, the tourism and transportation sectors are expected to remain strong.

The job losses haven’t equated to a ballooning unemployment rate, however. Anchorage averaged 5.7 percent unemployment in 2017, which is still near full employment as economists calculate it. And Alaska as a whole was at 6.9 percent, which is the highest in the nation, but close to historical trends.

The city is losing jobs but not adding much to unemployment rolls because many without work are packing up and heading south instead of collecting unemployment assistance, according to Popp.

“People are leaving town for the Lower 48, some are for better opportunities,” he said.

The national unemployment rate, at 4.4 percent, is as low as it’s been in more than a decade.

As a result, AEDC expects Anchorage to lose another 1,500 residents this year and end 2018 with a population of 296,000. Anchorage’s population peaked in 2013 with 300,880 residents, according to the state Labor Department.

This year, AEDC is predicting the interrelated oil and gas, construction and professional service industries will lose a total of 400 jobs — 200 each from construction and business services with oil and gas hopefully holding flat.

Anchorage retailers are expected to shed about 400 jobs this year, the biggest projected loss in the sectors AEDC tracks, but Popp noted that estimate was reached before the January announcements that Sears and Sam’s Club would collectively close three large stores in the city.

He added, though, that the Alaska Sears and Sam’s Club closings were part of larger, national trends for the iconic retailers and not wholly a result of Alaska’s economy or reductions to the Permanent Fund Dividend.

There simply aren’t numbers to support the theory that cuts to the PFD by Gov. Bill Walker and the Legislature the past two years have translated to massive declines in consumer spending as some like to purport, Popp stressed.

“The Permanent Fund (dividend) is an important part of our economy; it adds $600 million to our state’s economy. A lot of that Permanent Fund is spent on paying off bills, going into savings, paying for education; a chunk of it goes to paying for stuff but it is not the driver of our $1 billion-plus retail economy here in Anchorage,” he said, noting past formulaic declines in the PFD amount to not correlate to retail losses.

Popp also said he’s hearing rumors that the Sears and Sam’s Club buildings could have new tenants shortly after the stores close — and possible reemployment opportunities for at least some of the workers losing jobs.

“In Alaska we still love us some retail,” he quipped. “We like to get out and shop.”

The leisure and hospitality industry, despite being buoyed in the summer by record numbers of tourists in recent years, is expected to lose about 200 jobs mostly due to locals’ belt tightening, literally and figuratively, a classic recession symptom. Restaurants are having a hard time drumming up business when tourists aren’t around, according to AEDC.

“If you’ve been holding back on going out to eat at one of your favorite restaurants, I’d suggest maybe it’s time to go out and have a meal because we need to support this industry,” Popp encouraged the forecast attendees.

On the flipside, the transportation and health care sectors should break the recession trend again, adding 100 and 600 jobs respectively in 2018, AEDC projects.

Transportation will continue to benefit from strong economies elsewhere resulting in strong cargo trade and passenger numbers at the airport, while Alaska’s highest-in-the-nation health care costs continue to support growth in the sector.

On health care, Popp emphasized that more jobs are always good, but he also said that if the state can manage to get its health care costs under control the industry’s workforce might take a hit in the coming years.

Anchorage’s health care sector has added nearly 7,000 jobs since 2006, an increase of more than 40 percent.

“As we start to address those (cost) issues it could impact the job base in health care,” Popp said. “So there’s issues we have to balance there as we try to come up with the solutions that are going to be necessary to make this less of a problem for businesses.”

Health costs hurt business confidence

AEDC found in its annual Anchorage Business Confidence Report that business leaders feel the cost of health insurance is one of the biggest impediments to growing their businesses.

An interesting revelation from the business survey was that employers still feel a lack of professional and technical workers is an impediment to growth, even during a recession. It was fourth behind Alaska’s near-omnipresent issue of high energy prices.

Popp said the skilled worker shortage is likely attributable to qualified candidates moving to the Lower 48 where jobs are readily available and the cost of living is lower.

The biggest issue facing Anchorage businesses, according to the survey, is the state economy, and specifically what lawmakers will or won’t do to try and stabilize it.

“Business needs certainty and state government is not giving that to the business community and until businesses can pencil out what their taxes are going to be, no one can say what they’re going to be — the Legislature and the governor can’t seem to come together to an answer — this uncertainty continues to keep money on the sidelines, hence the reason it’s the number one issue,” Popp emphasized.

AEDC is one of many business organizations across Alaska that for several years has been advocating for the Legislature to pass a fiscal plan centered on using a portion of the earnings of the Permanent Fund to pay down the state’s ongoing multibillion-dollar annual budget deficits.

Despite the challenges, Anchorage business leaders overall have changed their tune from markedly negative in 2017 to “kind of ambivalent” in 2018, as they see more positive economic indicators aside from the state’s issues.

GCI co-founder and CEO Ron Duncan reiterated Popp’s sentiment on the state budget in a speech following the economic forecast. He characterized the state’s budget problems and resulting economic hesitance as “purely a self-inflicted problem” because political leaders in both parties have chosen to hold out for what they see as the perfect solution instead of employing the one tool a large majority of lawmakers already feel is necessary to solve the vast majority of the problem — earnings from the Permanent Fund.

State economists generally consider the current recession in Alaska has primarily been caused by a sharp retraction in government and a lack of public confidence that the deficits will be resolved soon and for the long-term.

“It’s hard to feel comfortable investing more in Alaska until we can see a path to fiscal stability,” Duncan said.

“If we start using the earnings in a sustainable way before we drain away all of our savings then we have a chance to restore business confidence.”

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Elwood Brehmer can be reached at [email protected].

Updated: 
02/07/2018 - 10:42am

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