There’s no getting around the fact that Alaska’s aggregate economic performance since 2015 has been downright dismal. We’ve taken the one-two punch of collapse in oil prices followed by a global pandemic. We’re one of the few states that has yet to recover more than 50 percent of the jobs lost in the pandemic. The estimated number of wage and salary jobs for September 2021 was 317,800 compared to 343,000 in September 2019 and 351,000 in September 2015. Just using the September figure we’ve lost 10 percent of our employment over the last six years. I don’t want to belabor the point, suffice to say that the last half-decade hasn’t been much to write home about.
The periods in which Alaska’s economy and population has grown are historically “event driven”:
- The gold rush of 1897-1906 doubled the state’s population;
- The 1940-1960 establishment of Alaska’s strategic position tripled the state’s population;
- In the 1950’s large-scale timber harvests feeding the post-war construction boom increased Southeast Alaska’s population;
- The pipeline construction period of 1973-1977 increased the population another 25%;
- The state spending boom that followed the Trans-Alaska Pipeline operations boosted our population another 30 percent;
- The Exxon Valdez Oil Spill pulled us out of the 1986-1989 oil crash;
- The commodity super cycle of 2000-2014 brought the state back from the brink of non-permanent fund insolvency.
Unlike many other states with more diversified economies, we’ve always been subject to more ups and downs. In the four years (Thank You, APCM!) I’ve been writing this blog I’ve always felt that it would take an “event” to turn Alaska’s economy around. I’m wondering if that moment is here.
We’ve talked a lot this year about inflation as the global economy tries to restart itself. The inflationary trend, a recovering global economy, and a lack of investment over the last several years have sent all oil prices higher. The current price of Alaska North Slope is $83.77 per barrel and the price had been over $86.50. Don’t look now, but sustained prices like these could leave us perilously close to (nearly) balancing the state’s budget gap depending on how big a permanent fund dividend we want to pay ourselves.
While the oil price news is good, I don’t see this change as the solo event that restarts the economy unless prices go much higher. Oil is a smaller part of our economy than it has been in past decades. I think the event that might combine with higher oil prices to jump start our current languid economic conditions is the passage of the Infrastructure Investment and Jobs Act recently passed by congress on bipartisan votes in both houses. The IIJA will not only provide a massive shot in the arm for the economy but has the potential to transform and rejuvenate our transportation infrastructure. There really is no portion of our traditional infrastructure of highways, ports, harbors, ferries, airports, water and sewer systems, and electrical systems that isn’t touched by this massive bill. We’re also seeing large investments in broadband and clean energy which will accelerate the transformation occurring in both areas. While I usually don’t prefer to cite political sources, one of the best rundowns of what’s in the bill comes from Alaska’s senior U.S. senator. All told, depending on how well the state competes within the competitive funding categories Alaska could see a $6 billion injection into the economy over the next five years.
So, let’s talk about how these investments will affect Alaska’s economy. I expect:
- Direct stimulation of the construction, trade and transportation, telecommunications, government, and professional/ business services sector as firms ramp up to support the planning for, and construction of, funded projects. Job opportunities should be good for local professionals in these fields in the coming years, particularly considering the continued retirement of the Baby Boom generation.
- Indirect stimulation of secondary sectors such as retail, hospitality, etc., as workers spend their wages from these projects.
- Significant leakage of investment dollars from Alaska to the Lower 48 economies. During the state’s infrastructure spending binge from around 2009-2013 there was so much work available that many Lower 48 firms came to Alaska to bid on work and local firms sent work to their outside offices. With six years of nearly continuous recession local resources for engineering and other services are thin. While I expect significant Alaska-based hiring, the increasing ability to do work from anywhere means firms are better able to add talent in stronger labor pools outside of Alaska.
- Reduced transportation costs and broadband costs around the state along with improved service. For coastal communities we could see a return of some historic Alaska Marine Highway Service levels. At a minimum I expect at least the replacement of aging vessels. The youngest mainline ferry in the fleet is nearing a quarter century of service whilst the oldest vessel will soon enter its’ seventh decade of service (Yikes!).
- Continued wage inflation as firms compete for talent. As this investment is national the competition for talent will be national too.
Since I’ve covered what I think, I should probably also mention what I think what I don’t think. I do reserve the right to change my mind as data and evidence emerge and while I think that we could be nearing a turning point for the economy I’m not expecting a boom as we’ve seen in the past. I have this feeling that the economy will finally feel be supported in a way that it hasn’t in many years.
Jonathan’s Takeaway: Look for true green shoots in 2022 as IIJA money starts to flow into the economy particularly if oil prices stay high.
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 24 years of social science consulting experience, including 18 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.