Business/Economy

Alaska’s overall economic performance among the worst in US for several years, research finds

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For the last seven years, the Alaska economy has performed “at or near the bottom” nationally in four key measures of economic health, according to a report released Thursday by the University of Alaska Center for Economic Development.

Taken together, the state’s poor performance between 2015 and 2021 — in employment growth, unemployment, net migration and gross domestic product — place Alaska’s economic health at the bottom of all 50 states and the District of Columbia, said Nolan Klouda, the center’s executive director and lead author of the 10-page report.

“You could make a case that Alaska is the bottom-performing state going back to 2015,” Klouda said in an interview Thursday. “I think it is.”

The report concludes, “by all measures presented here ... Alaska’s economy appears stuck in a rut relative to the rest of the U.S.”

“This underperformance places Alaska at or near the bottom of all states and D.C. for the period from 2015 to 2021, as well as the pandemic-affected period from 2020 to the present,” it says. “This marks seven years of weak or negative growth as measured by (gross domestic product, the total value of all goods and services produced) and employment, and the highest rate of net outmigration of any state or D.C.”

The report is a short but troubling look at those economic indicators in Alaska and nationally. It does not explore policy solutions. It casts years of low oil prices as the primary culprit, though those prices have improved in recent months. Oil prices are key to Alaska state revenue and higher prices drive funding for valuable oil projects.

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Klouda, in the interview, provided some ideas to help turn the situation around, including continued diversification of the state’s economy and allocation of revenues into areas that can attract people to Alaska, such as investments to improve the educational system.

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He also pointed out that the “stark” picture of the state’s economy in the report is based on the performance of the rest of the U.S. during a time of relatively strong economic health nationally.

Bill Popp, head of the Anchorage Economic Development Corp., said that the report paints a clear and accurate picture of the state and Anchorage’s economic challenges. Net outmigration — more people leaving Alaska than coming — is a particularly troublesome issue that hinders economic recovery through a lack of available workers, he said.

Bright spots, Popp said, include improvements in employment in recent months, including in the oil industry, with major oil projects on the horizon that are expected to create thousands of jobs, and growing emphasis by industry on marketing the state’s attributes to prospective employees that might move here, such as in tourism and the medical field.

“I think it’s a call for action to the community, that we can no longer say this is a cycle and the economy will get better next year,” Popp said. “We have lot to be optimistic about, but we don’t have the labor force to take advantage of those opportunities that we need to.”

Gross domestic product

Gross domestic product is the “headline” measure of economic health, the report says.

“From 2015 to 2021 state GDP shrank by 7.1%, the second largest decline of all 50 states plus the District of Columbia,” the report says.

Over the same time, U.S. GDP grew by 12.8%.

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Alaska’s gross domestic product shrank during the pandemic. A recent three-month measure of real gross domestic product in Alaska was 7.7% below pre-pandemic levels, the lowest of all 50 states and the District of Columbia, the report says. Nationally, gross domestic product was 4.8% higher over the same period.

Last year, Alaska’s GDP was $57.3 billion, the smallest of all states except Wyoming and Vermont, the states with smaller populations than Alaska.

Employment growth

Alaska ranked next-to-last in employment growth, just ahead of North Dakota, the report says.

“While the rest of the country experienced employment growth, Alaska employment dropped 8% from 2015 to 2021,” the report says.

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As of August, Alaska’s employment was 3.9% below pre-pandemic levels, compared to .2% growth nationally. Only Vermont, the District of Columbia and Hawaii ranked lower, the report says.

Unemployment

Alaska had the highest unemployment rate of any state from 2017 to 2019, and remained above the national average during the pandemic.

“Across the 2015 to 2021 time period, Alaska had the second highest average unemployment rate at 6.5%, against 5.1% for the U.S. as a whole,” the report says. “Only Nevada fared worse at 7.2%.”

“One surprising aspect of the pandemic recovery has been low unemployment rates throughout the U.S.” it says. “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.”

Net migration

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More people have left Alaska than moved here each year from 2012 to 2021, another sign of a contracting economy.

“Alaska’s average annual net migration rate between 2015 and 2021 is the lowest of any state,” the report says.

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During that period, Alaska lost about nine residents for every 1,000, while the U.S. gained about 2.2 residents for every 1,000.

Oil’s impact

Klouda in the interview expanded on the broad impact of oil prices to the economy. He said that prices, coupled with low oil production compared to previous decades, hurt government revenues and the state’s gross domestic product. Also, sharp job losses at oil and gas companies have seen only mild recovery, eliminating many high-paying jobs that support other aspects of the economy.

“The relative weakness of oil prices is probably the biggest factor in all these (indicators),” he said.

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An unprecedented period

Klouda and Popp said the state’s economic performance is unprecedented, at least in recent Alaska history.

Popp said the net outmigration of Alaskans has continued for an unusually long number of years. The key factor has been the lack of people moving to Alaska, a situation that can be addressed with proper investments to improve services in Anchorage and the state, he said.

“One issue is that our wages are not as strong as they used to be,” he said. “And a lot of cities and states have reinvested in themselves, providing great schools, vibrant downtowns and community settings and walkable neighborhoods, things that younger generations are looking for. There’s a lot of competition for the labor force nationally and it’s come full circle that we haven’t invested in ourselves.”

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Klouda said that the Alaska economy crashed dramatically in the 1980s, but this downturn has been marked by a “slow, grinding attrition” of employment challenges, people leaving the state and falling gross domestic product.

[‘Slow strangulation’: Alaska school districts face fiscal cliff with high inflation and flat funding]

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The slow boil means many Alaskans are still doing OK, he said.

But the consequences are adding up, affecting public investments in things like education that can boost the quality of life and help keep people in Alaska, he said.

One result of the state’s struggling economy can be seen in the Anchorage School District’s proposal to close schools, a result of fewer students, net outmigration and several years of flat funding by the state for public education, the result of limited state revenues, Klouda said.

“This data has been known, but we saw value in putting it all together,” he said of the report. “Instead of providing scattered facts, we wanted to put this information together to paint a really clear picture of how our economy is doing.”

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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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