Study: Alaska’s economic growth ‘at or near the bottom’ in U.S.

Low oil prices, slow pandemic recovery cited as causes, but some in Southeast see rosy prospects.

By Mark Sabbatini • November 23, 2022 6:30 am
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University of Alaska Center for Economic Development A chart shows Alaska’s employment growth since 2015 trailing far behind the national average, according to a study released this month showing the state’s overall economic performance is among the worst in the country. A chart shows Alaska’s employment growth since 2015 trailing far behind the national average, according to a study released this month showing the state’s overall economic performance is among the worst in the country. (University of Alaska Center for Economic Development)
University of Alaska Center for Economic Development A chart shows Alaska’s employment growth since 2015 trailing far behind the national average, according to a study released this month showing the state’s overall economic performance is among the worst in the country. A chart shows Alaska’s employment growth since 2015 trailing far behind the national average, according to a study released this month showing the state’s overall economic performance is among the worst in the country. (University of Alaska Center for Economic Development)

Alaska’s economic growth is “at or near the bottom” of states since 2015 due primarily to low oil prices, with a drop in the number of residents every year for the past decade and a lack of economic diversification among other serious concerns, according to a report released last week by the University of Alaska Center for Economic Development.

Yet a day before the report’s release another economic expert said Alaska’s economy is showing signs of prospering, and a recent presentation overviewing Southeast Alaska’s economy said it’s “up by a mile” after the COVID-19 pandemic, even though the statewide study says the post-pandemic numbers are anything but healthy.

So what’s the bottom line of that seemingly contradictory equation?

“You have to look at the context,” said Neil Fried, senior economist for the Alaska Department of Labor and Workforce Development, who delivered last week’s prosperity speech at a conference in Anchorage. “There’s no doubt this decade if you measure employment growth or GDP growth we are lagging the rest of the county.”

Much of the reason is the U.S. economy was performing strongly prior to the pandemic while Alaska’s was struggling due to a drop in oil prices beginning in 2014, a key element of the university study, Fried said. But his optimism is about the future outlook based on current trends, including an unemployment rate of 3.5% during late summer (down from 12.2% in May of 2020), rising wages and a rebound in oil prices.

“The job market is very good,” he said. “There’s a lot of job opportunities and unemployment is at or near record lows.”

As for Southeast Alaska, an annual economic assessment released by Southeast Conference expresses “tremendous optimism” among businesses, based largely on a strong rebound in cruise tourism this year and an expected record number of passengers next year. Meilani Schijvens, director of Rain Coast Data which authored the report, stated its findings and the UA’s report can also be reconciled.

“My report to Southeast Conference was really about the remarkable recovery we’ve been able to make despite being the hardest hit in all of the U.S. due to COVID,” she said.

Southeast Alaska’s economy suffered a threefold hit from the wider economic setbacks of the pandemic, the devastation of tourism, and 2020 was also the “slowest fishing year, or one of the slowest,” in the region’s history, Schijvens said. But her report notes the region added 1,100 jobs during the first half of 2022, with mining jobs up 7% and construction employment up 5% for the year to date.

Regional concerns remain, Schijvens emphasized, especially related to state government employment and spending. She said the state government’s workforce has shrunk 24% during the past 10 years, and cuts to education and programs such as ferries are causing ongoing hardships for people working — or choosing not to work — in the region.

“The things young families need to live and to prosper and to stay, we’re not doing well,” she said.

The authors of the university study don’t share the generally optimistic future outlook of Schijvens and Fried, stating in the report’s conclusion Alaska’s recent economic performance “shows no obvious signs of improvement as these words are written in October 2022.”

“In September 2022, Alaska’s unemployment rate was only 4.4% — a very low rate by historical standards, but still the fourth highest of all states and DC,” the study notes.

The study’s overall findings are based on four benchmarks all showing dismal results compared to other states: employment growth, unemployment, net migration and gross domestic product. In summary, the findings are:

Employment growth: Alaska had 36 consecutive months of declining employment between 2015 and 2018 due primarily to low oil prices, while most states saw steady expansion. The state’s employment stagnated between 2018 and the onset of the pandemic in early 2020, and “while U.S. employment reached pre-pandemic levels in the summer of 2022, Alaska employment remains well below.”

Unemployment: The U.S. economy has a period of historically low unemployment prior to the pandemic, dropping to a multi-decade low of 3.7% in 2019. “Alaska, meanwhile, had the highest average rate of any state (or DC) in 2017, 2018, and 2019,” the study notes. While some states had higher employment in 2020 and 2021, Alaska’s overall rate of 6.5% between 2015 and 2021 is far above the national average of 5.1% and the second highest behind Nevada at 7.2%.

Net migration: Alaska’s average annual net migration rate between 2015 and 2021 is the lowest of any state, with a loss of 8.8 residents per 1,000, compared to a gain of 2.2 residents nationwide. Other low-ranking states include New York (-7.9), Illinois (-7.3) and Hawaii (5.4). “Expanding economies usually attract residents, while contracting economies often lose people,” the report states. “Other factors like living costs, quality of life, housing availability, and education also influence the movement of people. The net migration rate can thus be used as a rough gauge of the desirability of a place for a point in time.”

GDP: Real (inflation-adjusted) GDP for Alaska has declined since its peak in 2012. From 2015 to 2021 state GDP shrank by 7.1%, the second largest decline of all 50 states plus the District of Columbia. Wyoming, with a decline of 9.9%, is the only state with a larger decline. Over the same time, U.S. GDP grew by 12.8%.

Schijvens said her research shows “there is a 100% correlation to oil prices and state jobs, cuts to ferries and education.” Fried, looking at the statewide picture, said Southeast Alaska should be able to share in an improving situation statewide that appears to be on the horizon due to a significant increase in oil prices this year resulting from Russia’s invasion of Ukraine, even if prices have declined from their peak of a few months ago.

“One benefit we have had from oil is oil revenues been good the past couple of years and that’s been good for our economy,” he said.

Contact Mark Sabbatini at mark.sabbatini@juneauempire.com

Clarise Larson / Juneau Empire People walk the docks during a busy cruise ship day as the sun sets in downtown Juneau on Aug. 29. Cruise tourism rebounded to near-normal levels this year, giving Southeast economists and businesses reason for future optimism after the region was by some measures the hardest hit economically in the U.S. during the height of the COVID-19 pandemic.

Clarise Larson / Juneau Empire People walk the docks during a busy cruise ship day as the sun sets in downtown Juneau on Aug. 29. Cruise tourism rebounded to near-normal levels this year, giving Southeast economists and businesses reason for future optimism after the region was by some measures the hardest hit economically in the U.S. during the height of the COVID-19 pandemic.

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