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Economic forecast for 2017 looks grim

January 13th | Shady Grove Oliver, The Arctic Sounder Print this article   Email this article  

While this year's losses in many industries across the state are not predicted to be as tremendous as they were in 2016, the state's economy is still far from being out of the woods.

"Simply put, Alaska's economic health is in peril and will be catastrophic if the Alaska Legislature fails to pass a sustainable budget," said Department of Labor Commissioner Heidi Drygas in an economic trends report released last week. "In the absence of a fiscal plan, job losses will continue, population loss is inevitable, and the weak job market will have negative ripple effects on real estate."

According to the report, which included numbers from 2016 along with predictions for 2017, Alaska's economy is shrinking faster now than it has at any time since the last major oil boom and bust during the 1980s.

"Local governments may be expected to foot the bill for more of the services they offer as the state withdraws funding, which could lead to further cuts in the near future," the report noted.

The state as a whole lost 6,800 jobs in 2016. Hiring freezes went into place across Alaska along with salary freezes for employees already in place.

"I lived through the 1980s, when job losses in construction nearly forced my family out of state to find work. I don't want to go back to an era when one in five Alaskans lost a home. There is a big difference, of course, between now and the 1980s: This time oil can't save us," Drygas said.

The report, which was divided into statewide, Anchorage, Fairbanks, and Southeast sections, outlined losses in each of those areas. While there were few specifics for rural regions, like the North Slope, Northwest Arctic, Southwest, or the Aleutians, industries that touch those regions were covered.

For example, a downturn in the oil and gas industry last year had ripple effects across the state.

"The oil and gas industry, which includes the major producers as well as drilling firms and oilfield support services lost 2,800 jobs in 2016, a 20 percent drop," said Caroline Schultz, an economist with the Department of Labor who wrote the statewide forecast. "Another tough year is expected, even as prices creep up."

Schultz noted, however, that because the oil industry was one of the first areas to have severe losses following the crash in oil prices — from above $100 a barrel to below $40 a barrel in 2014 — the losses are beginning to even out.

The oil and gas industry is forecast to lose another 1,400 jobs this year, or about 14 percent as opposed to last year's 20 percent.

"Two years of heavy losses would push oil industry employment down to its 2006 levels," Schultz wrote.

As those numbers begin to level, other industries are now feeling deeper losses as they catch up.

For example, the construction industry lost about 1,500 jobs last year, or 8.5 percent, "largely through cutbacks and project completions on the North Slope," Schultz wrote.

Professional and business services, which include employers in the scientific, technical, managerial, administrative, and professional fields related to the oil and gas industry, also lost last year.

"The professional, scientific and technical services industry, which includes engineering, architectural, and geophysical consulting firms, bore the brunt of the 1,600 jobs the sector lost in 2016," wrote Schultz. "Professional and business services' losses are expected to slow to 500 this year, which would be less than 2 percent. With a general slowdown in the economy, demand for these services will likely drop off, but the bulk of the loss related to oil and construction has likely already happened."

She noted that while other industries, including some that affect the southern part of the state, also "lost ground" last year, none suffered as severely as oil and gas, which may not come as a surprise to Alaskans, who have seen the state struggle as a result of price crashes over the last two years.

According to the Anchorage-specific portion of the report, the oil and gas industry hit record employment highs in 2014 and 2015 which then began to disappear toward the end of 2015.

"By November 2016, statewide oil industry employment was at 11,700, its lowest level since 2007. Most of the loss was in oilfield service companies, which make up nearly three-quarters of industry employment. By the second quarter of 2016, Prudhoe Bay employment fell to 10,400, its lowest level since 2010," said Neal Fried, an economist with the department who authored the section.

Fried pointed to low oil prices, ExxonMobil's work toward completing the Point Thompson project and Shell's pulling out of Arctic exploration as contributing factors to the decline.

"Oil layoffs are nothing new in Alaska. If that were the only negative playing out in the economy, the broader market could still grow — something that's happened three times in Alaska's modern history. This time is different because during the three to four years preceding the drop in price, oil industry expansion and near-record oil revenue expenditures were the biggest factors propping up the state's modestly growing economy. When that stimulus evaporated in 2015 and 2016, the broader economy lost steam," Fried said.

However, Fried noted that Caelus Energy's recent discovery on the North Slope, along with Hilcorp's work on the Liberty Project and ConocoPhillips' plans for the Greater Moose's Tooth area and NPR-A lands could hold potential for 2017 and the years to come.

Job losses have been significant across the state, with rural areas seeing quite a bit of fluctuation in employment numbers over the last year.

In the north, the North Slope Borough saw unemployment grow from about 5.6 percent in the fourth quarter of 2015 to about 6.6 percent by the end of 2016. Those numbers still leave the Slope with one of the lowest levels of unemployment statewide, however.

The Northwest Arctic was not so fortunate. Its unemployment jumped from about 13.9 percent in 2015 to about 15.6 percent in 2016, giving it one of the higher levels of unemployment in Alaska.

The Nome Census Area came in right in between, with its unemployment growing from 10.1 percent in 2015 to about 11.9 percent in 2016.

While much of the state saw slight increases in unemployment numbers over the last year, much of the southeast and southwest saw unemployment go down.

Despite the fluctuations, the job forecast for the state is not expected to get significantly better in the near future, which is why the commissioner called on legislators to come together and pass what she called a sustainable budget.

"My department and others will continue to cut, but we cannot cut our way to a solution — the math simply doesn't work. We could lay off every single state employee and still not balance the budget. Cuts alone are not sufficient and will result in a deeper, more prolonged economic decline than Alaska has ever seen," Commissioner Drygas noted.

The report can be found in full at labor.alaska.gov/trends/jan17.pdf.

Shady Grove Oliver can be reached at sgoarctic@gmail.com.

 

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