Alaska News

Alaska economy tepid, but not in recession yet, economists say

Is Alaska's economy in a recession?

With oil prices low for more than a year and resulting state budget cuts, it's a question on the minds of many Alaskans.

One economic consultant, Gregg Erickson, declared in a recent report commissioned by the Alaska Mental Health Trust Authority titled "The Great Alaska Recession" that the state is in the midst of a "major" recession.

But in a phone interview with the Alaska Dispatch News, Erickson appeared to change his mind.

"The numbers don't say we're in a great recession," Erickson said. "Maybe we should have couched these conclusions in less dramatic language."

Other Alaska economists agree there's no recession. Not yet, anyway.

That Erickson could simply declare the existence of a recession, with little data to back up his claim, underscores the fact that the definition of a recession is somewhat subjective. There is no set standard -- as there is for measuring earthquakes -- for decisively assessing shakiness in an economy.


Telltale signs

To begin with, a recession is usually defined as a significant slowdown across the economy that stretches on for more than a few months.

Seems simple enough. But pinpointing the start of a recession is not easy. The signals marking the arrival of troubled times vary depending upon the characteristics of an economy and availability of data. Sometimes those signals conflict.

At the national level, employment, real income, real gross domestic product and retail sales are among the major indicators used by the National Bureau of Economic Research to take the temperature of the U.S. economy and make the official call a recession has begun or ended.

But at the state level, the data for most of those indicators are less accurate or harder to measure -- or they don't reflect the true health of the Alaska economy.

"We don't have those more sensitive national numbers and even with them they often get it wrong," said Neal Fried, an economist at the state Department of Labor.

That leaves year-on-year employment data as the best gauge of the state's economic well-being. How many people were employed last January versus this January? And last February versus this February? And so on.

Based on those employment statistics, "our numbers are not showing that we're in a recession," Fried said.

Likewise, Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage, sees no obvious evidence that Alaska is in a recession.

"There are no available data as of this time that clearly point to it," he said.

Who makes the call?

There is no institution, either private or public, at the state level with the authority to officially declare the start and end of a recession.

Alaska's economists are the default authorities on the subject, but though they agree employment is the best measure of a recession, there is no formal consensus among them as to how many consecutive months of falling employment would constitute one.

"There's no hard and fast rule for declaring a recession," said Jonathan King, senior economist and principal at the Anchorage-based consulting firm Northern Economics. "For me it's an increase in the frequency of, or a string of, months with lower employment than the year before and average monthly employment declining year over year."

Scott Goldsmith, professor emeritus of economics at the UAA Institute of Social and Economic Research, has a slightly different view.

"I would argue that a reduction in employment, measured on an annual basis, would be the best indicator," he said.

Fried thinks significant year-on-year job losses over a period of time -- a year, perhaps -- might qualify as a recession.

In his report, Erickson based his assessment on a brief time period -- just two months' worth -- of negative employment numbers in August and September 2014. But during every other month that year and in four of the five months of available preliminary data for 2015, employment growth, although low, was in fact positive.

Economists may not conclude a recession is in progress for some time because collecting and organizing data is time-consuming. The National Bureau of Economic Research did not pinpoint the December 2007 start date of the Great Recession until a full year later.


"The problem with many indicators is there is a long lag time," Fried said.

Far from optimistic

There are other, less formal indicators that taken together can help tell the tale of economic contraction.

In the mid-1980s, at the onset of the largest, most devastating recession in state history, the number of new residents tapered off, business failures climbed to a historic high, real estate values fell, construction withered and the number of delinquent commercial loans leaped. According to an 1986 article in the Anchorage Daily News, restaurants even reported people ordering more burgers and fewer steaks.

Alaska's economists do not predict a recession nearly as disastrous, but they are far from optimistic about the future.

"We expected the first half of the year to be okay and it's the second half of the year that we're more worried about because the state budget will be smaller," King said.

Erickson predicts the disappearance of at least 4,000 Alaska jobs by September of this year.

"I'm doing a worst-case scenario here," he said.

Knapp noted preliminary employment for May 2015 was lower than it was the same month a year earlier, which could be the signal that a recession has begun. But the figure does not point to a significant decline, he said, and could still be revised.


The persistence of low oil prices could very well catalyze a recession in the near future. Low prices have already dampened the economic engine of government spending and may well do the same to oil industry activity.

"Indeed," Knapp said, "there are many reasons for concern."

Jeannette Lee Falsey

Jeannette Lee Falsey is a former reporter for Alaska Dispatch News. She left the ADN in 2017.