Business/Economy

Alaska job creation expected to grind to near-halt in 2014

So what's the good news for the Alaska economy?

"We're not dead yet -- just a flesh wound," said Jonathan King, principal economist with Northern Economics, summing up a year that saw much slower than expected growth.

And the Alaska economy isn't grounded yet, though Northern Economics predicts almost no new jobs will be added this year.

"Perhaps low-level flying, restricted altitude," might be the best way to describe the year to come, said King, presenting the company's much-anticipated annual forecast at a World Trade Center Alaska luncheon on Tuesday.

On the upside, Alaska remains the richest state in the nation. It can live off the fat of its $17 billion in savings for a while. And the state's massive capital budgets in recent years will continue to bolster the economy for months to come, he said.

But with oil production and government spending on the wane -- and oil prices expected to remain flat at best -- the data for 2014 doesn't look good. A mathematical model run by Northern Economics produced "very pessimistic" results. The number-crunchers threw it out. They went with their gut.

'Sense of optimism'

After all, there is a "sense of optimism" in the air, said King, sharing a story about a friend with a job in the oil industry, who is much busier today than he was a year ago. And there are promising possibilities on the horizon:

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• Perhaps the oil production tax will produce substantially more spending and possibly greater production.

• The state's massive liquefied natural gas project could ramp up, providing a shot in the arm.

• The Chinese economy could remain strong, allowing Alaska companies to expand an export market worth $4.5 billion last year.

But let's face it. The shine is coming off Alaska. In 2013, things were "chillier" than expected, King said. The gross state product, a measure of economic output based largely on oil production and oil prices, fell from $53 billion in 2012 to $51 billion last year. The drop was $2 billion more than expected.

This year, gross state product is expected to fall again, to $49 billion, said King.

Adding to the woes, Alaska "took it on the chin" last year from federal cuts, resulting in fewer government jobs. Overall employment in 2013 was up just 0.5 percent, far less than the 1.3 percent Northern Economics predicted a year ago.

Will private investment help?

This coming year, the state is expected to continue reducing spending, further cooling the economy. But perhaps private investment will pick up as a result of the oil production tax cut -- Senate Bill 21 -- that went into effect Jan. 1.

"Will increased private investment save the day?" and replace government spending, wondered King.

Northern Economics predicts virtually flat job growth in 2014 -- only 0.1 percent or 460 new jobs added to the 460,000 existing jobs.

The state predicts the oil-and-gas sector will add more jobs than any other sector, at 3.5 percent, King noted. That's slower than the 3.6 percent growth in that sector last year, and the 5.4 percent growth seen in 2012.

Oil and gas is a relatively small sector -- with 15,000 employees -- so actual growth in that area will be relatively small.

"There's broad discussion about oil and gas being 'back' with Senate Bill 21," said a page in the Northern Economics report. But the state's labor department predicts the sector "will only add about 500 jobs next year," the report said.

Meanwhile, growth in the health sector is expected to continue slowing. That sector has fueled most of the state's employment growth in recent years, at a dazzling clip of up to 5 percent a year.

But growth slowed to less than 2 percent in 2013. For this year, Northern Economics predicts 1.7 percent growth in that sector, with some 800 new jobs added to the 50,000 or so existing jobs.

"That's a huge workhorse that has slowed for us," King said. "Is it permanent? Remember, nothing grows quickly forever."

The hospitality and leisure industry could see a good year, with the national economy improving and visitors from the Lower 48 possibly ready to spend more when they visit Alaska. And the trade sector should grow, with the addition of major stores such as Cabela's and Bass Pro Shops in Anchorage.

As for fiscal matters, the state expects to borrow some $3.5 billion from its reserves by the summer of 2015.

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"The revenue gap is back," said King. "We are eating our cash reserves right now."

Because of that, capital budgets will continue to shrink to one of their smallest levels in years. The professional services sector should feel the pain from that shrinkage by the end of the year, losing 1,600 jobs, Northern Economics estimates. Government positions should fall by 700.

This year won't be as bad as 2008, when the Alaska economy contracted during the height of the national recession, King said. The state has put away billions of dollars since then.

"We talked about this day for a long time," King said. "Well, it's here. The nice thing is we're richest state in union with the biggest bank account, and we can buy ourselves some time."

But it's time for Alaska to get its priorities in order, he said.

Contact Alex DeMarban at alex(at)alaskadispatch.com

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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