Juneau, Alaska

(907) 699-6788 ed.king@kingecon.com

Alaska by the Numbers – May 2020

Here is your monthly round-up of what happened to Alaska’s economy and financial situation.

The unemployment rate hit a record high

The Department of Labor data for April gives us the first official glimpse at just how bad the pandemic hit our economy. It shows a seasonally adjusted rate of 12.9% (The unadjusted rate stands at 13.7%). That’s a new record high – even higher than during the post-pipeline construction collapse in the 1980s.

What makes this number especially concerning is that it follows a record low unemployment rate of 5.2% just a month early. Before March, Alaska’s economy was thriving. There were fewer people unemployed than ever before – despite having a larger population – and showed an increasing real per-capita income. Only someone mistaking population growth for economic growth could argue otherwise.

Since March, the Alaska economy took significant damage from five directions.

  • The oil price collapse upended capital plans, resulting in hundreds of layoffs.
  • The cancelation of cruise shop operations amputated the tourism season, resulting in lost seasonal work opportunities for thousands of Alaskans and lost revenues for scores of Alaskan owned businesses.
  • The travel restrictions resulted in significant disruptions for the tourism, mining, oil, and fishing industries.
  • Global lockdowns destroyed demand for many of Alaska’s products, forcing cutbacks in operations
  • The government’s stay-at-home order, and the public’s general resistance to leave the house, forced many small businesses to close their doors – Some of which will never reopen.

Altogether, more that 100,000 Alaskans (almost a third of our workforce) have filed for unemployment benefits. The question about recovery depends on how long it will take to get those people back to work. Of course, that requires a job to go back to.

Oil prices recovered more than expected

Alaska’s oil received an average price of $28.21 in May. That’s slightly higher than expected. However, where the price landed at the end of the month was surprising. On the last trading day of May, ANS posted a price of $38.13. That bodes well going forward and suggests that the market is no longer concerned about running out of storage. June 2020 is the last month of FY20, which we forecast to average $33.55 +/- $4 (hitting resistance and retreating during June). That means that FY20 will end up averaging around $51.43.

Oil rigs operating in the shale patch fell to a record low in May, playing out the way we expected. Combined with production cuts from OPEC, the global oversupply fell dramatically during May. Additionally, demand began recovering faster than excepted around the world as pandemic fears eased.

With this new data in the books, we can increase our average price outlook for FY21 (as predicted). The forecast price now stands at $40.84, with a low side estimate of $29.26 and a high side potential of $54.55. Our expectation is for prices to stay in the $30-$40 range for the next six months, rising toward $50 in the first half of 2021.

Prices will fall short if the COVID-19 pandemic causes another lockdown, if the rising prices are happening too fast (leading to supply coming back online prematurely), or if the economy doesn’t rebound the way traders are expecting. Prices will beat expectations if there are significant supply disruptions or if demand growth keeps outpacing forecasts.

North Slope Oil production is still suffering

The good news is that Alyeska was able to reduce its prorations toward the end of May. That implies that the West Coast refineries were able to take more Alaska crude than it looked they would. However, the good news was hollow.

TAPS moved just 388,373 barrels of oil on the last day of May. That’s down from an average of 490,252 barrels per day in April. And we expect June production levels to stay down at about 400,000 barrels per day.

The Permanent Fund has recovered

According to the April 2020 financial statements from the Alaska Permanent Fund Corporation, our financial assets gained $2.5 billion in value during April 2020. That brings the official year to date performance to negative $1 billion.

But, the stock market performed well in May too. Our preliminary numbers suggest the fund should have earned another $2 billion during the month, bringing the fund’s earnings back to a positive value for the year. However, it’s still unlikely that the fund will earn enough returns to cover the $2.9 billion transfer to the general fund.

The PFD is coming early

The Governor announced that our PDFs will get issued on the first day of the fiscal year. That means most of us should see $1,000 deposited in our bank account on July 1st rather than in October.

Some people are disappointed that the payment isn’t larger and sooner. But, the Governor doesn’t have authority to set the size of the check. Only the legislature can determine the amount of the PFD and the fiscal year in which it gets paid. They ended up passing a budget with a $1,000 PFD for distribution in FY21.

While the statutory calculation would call for a PFD of over $3,000 per Alaskan this year, the legislature hasn’t distributed the statutory amount since 2015. With the extremely low oil prices and continued production decline, it’s unlikely that formula will ever be followed again. In fact, the current trajectory could result in the end of the PFD completely.

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