Skip to main Content
Opinions

Alaska’s economy hasn’t hit bottom yet. But you can see it from here.

Almost 17 percent of Alaska's economic product disappeared when oil prices dropped, but we haven't lost 17 percent of our jobs. So how far down does this recession still have to go?

I took that question to economists, business leaders and small business owners. No one thinks we've reached the bottom. But we're beginning to be able to see it.

Alaska's gross state product has declined from about $60 billion to $50 billion. We are getting $10 billion less for all the work we do and all the resources we sell. The vast majority of that change is simply because Alaska's oil is worth that much less on world markets.

Jim Jansen, chairman of Lyden Inc., said freight volumes are down more than 20 percent and his company has cut employment accordingly.

But Alaska's economy hasn't seen a loss of employment in line with our 17 percent loss in economic activity. Job losses so far in this recession are about 3.3 percent, or 11,900 positions, said Neal Fried of the Alaska Department of Labor.

"When you look at that $10 billion, your first reaction is, 'I should be seeing a much bigger reduction in economic activity,' " said Mouhcine Guettabi of the University of Alaska Institute of Social and Economic Research.

Why hasn't it been much worse? Partly because of the way we were using the missing $10 billion, Guettabi said.

Some of the $10 billion was going to oil company profits rather than in-state spending. The companies' financial results got worse. But lower dividends didn't directly affect Alaska jobs.

Some of the $10 billion was funding state government. A huge budget gap developed. The Legislature cut spending, and that did cost Alaskans' jobs directly, especially in construction and at the University of Alaska.

But the state covered much of the gap from savings, to the tune of more than $3 billion a year, cushioning about a third of the total loss of economic activity. Artificially propping up the economy is unsustainable, but the Alaska Permanent Fund could sustainably spin off more than $2 billion a year.

Some of the $10 billion was being spent by the oil companies on production costs within Alaska. To get back to profitability at lower prices, the industry reduced payrolls and cancelled high-cost projects.

Those cuts hurt Alaskans, as high-paid oil jobs ended and services sold by Alaska firms were not purchased. Those firms cut jobs in construction and business services. The builders, engineers and consultants who lost their jobs had earned high wages like the oil company employees.

When the economy loses high-paying jobs, lower-paid workers who served these wealthier workers also lose their jobs. Weaker businesses close or realign.

Laile Fairbairn merged Sack's Café with another high-end restaurant, Crush, and the Sack's name will go away. The Artique gallery next door closed and part of its space will become the Crush wine shop.

The change is partly generational. The well-off customers who dined on fine food at Sack's and bought oil paintings at Artique are retiring and not being replaced. But the economic downdraft sped the change for Sack's, Fairbairn said.

"It had been on that trend, and then last winter happened and all of Anchorage saw that dip," Fairbairn said.

She said sales also went down at her other restaurants (Snow City Café, Spenard Roadhouse and South). Retailers told her of sales losses of 25 percent.

The Alaska Aces stopped playing and the Alaska Dispatch News went through bankruptcy. Both were already troubled, but a declining economy, like a prowling wolf, first takes the weak from the herd.

Now Fairbairn said her businesses have stabilized and she is holding her breath for another winter.

Is the bottom near?

For the most part, losses of high-wage workers are over, economists said. After cutting, the oil industry now can make money with oil in the $50 range. Production has stabilized and is even rising modestly. We may stay at this level for several years.

The Legislature doesn't have any more capital spending left to cut.

But lower-wage workers are still losing their jobs as the decline filters outward. The course of the recession continues to follow projections by economists last year, who said the decline would ultimately take 6 percent of jobs.

Ron Duncan, CEO of GCI, said the telecommunications company has lost subscribers in every category of business.

"We clearly see it in our top line. There are simply fewer people to sell to," Duncan said.

The end depends more than anything on the Legislature, economists and business people agreed.

The state could muddle through without a fiscal plan—probably, it will—but that will leave businesses wondering about tax policy and government spending that are the largest remaining unknowns in the economic outlook.

GCI's Duncan said the decision in April to sell the company to a Colorado-based conglomerate, Liberty Interactive, partly reflected the uncertainty created by the Legislature's failure to adopt a fiscal plan. GCI cut capital investment by 25 percent.

After this is over, Alaska will have a weaker university, fewer government projects, smaller Permanent Fund dividends, and probably some taxes to pay.

The economy will remain $10 billion smaller. We won't have a pro hockey team, the newspaper will be thinner, there will be fewer art galleries, which probably means fewer artists, and not as many restaurants suitable for an anniversary dinner.

"The quality of life and all of that starts diminishing. We become a lower-end economy with the quality of life and all the aspects that has," Duncan said.

That matters, because attracting highly skilled, creative people is a key to development.

"They may seem like they are just extra things that are out there, but if they matter to certain types of people who provide services, then that matters," Guettabi said. "That is not a negligible component of a long-term strategy."

We're a long way from having a strategy. The Legislature keeps coming close to shutting down the government in the middle of fishing season.

But in the dark mist of this recession, it's possible to make out the outlines of where we're going.

Correction: An earlier version of this column misstated the names of the Alaska Aces and the Alaska Dispatch News.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

For more newsletters click here

Local news matters.

Support independent, local journalism in Alaska.

Comments