Alaska by the Numbers – September 2020

With the first quarter of fiscal year 2021 in the books, there is still a lot of uncertainty in the air. But, a sense of optimism remains. The economy is slowly recovering, oil price stayed flat, production is looking better, and investment earnings are strong.

Here are a few highlight from September 2020.

The economy is recovering but remains on edge

According to data from the Department of Labor, Alaska’s official unemployment rate fell from 11.6% in July to 7.4% in August. Of course, that is partially a result of how the number gets calculated. A better gauge of recovery is to look at how many people are getting a paycheck.

The following chart shows that the drop in unemployment doesn’t correspond to a rise in jobs quite yet.

But, holding employment flat while the summer season ends will make the economy look more normal. The next graphic shows that the difference in job counts versus a typical year should close as the winter sets in.

Consequently, economic data will look good, even if nothing really changes. We won’t get a true sense of how our recovery is going until next summer. And if we shut down businesses again, the damage will be deep.

The 10-year jobs forecast is out

My favorite issue of Trends came out on October 1^st — The updated long-term jobs forecast. Paul Martz (a friend from graduate school) lays out the rationale for recovering from the pandemic and where things go from there. It’s worth a read, but here are some highlights:

• The pandemic accelerated a lot of trends that were already underway. Retail, information, and government jobs lost during this crisis might not come back.
• Lost jobs in tourism, restaurants, bars, and air travel are more likely to rebound quickly. Then, they will continue to grow.
• While retail stores will keep losing to online sales, some retailers will grow. That’s especially true for warehouse clubs, supercenters, pets stores, and office supply stores.
• The healthcare sector will continue to grow as the population ages, adding more jobs than any other industry.
• Resource development will remain a critical cornerstone of Alaska’s economy. Hardrock mining and oil extraction jobs, plus the jobs that support those industries, will grow (if projects move forward).
• Overall, Alaska’s job market looks like it will grow by 5.5% over the decade.

Oil prices remain flat

ANS closed the month of September with an average price of $40.42 (down $3 from August). Prices reached a low of $37.65 and a high of $43.67 during the month. The year-to-date average is now $42.44.

Based on current data, FY21 remains on pace to average $46.53. There is no change in the forecast this month. However, another month of data does reduce the uncertainty range to +/- $9.61 per barrel (with 90% confidence).

Risks factors have not changed either. The near-term risks from a resurgence of COVID-19 during the flu season, leading to another shutdown, remain. Upside potential still comes from a faster than expected demand recovery falling on top of excess supply curtailments from record low drilling. Our best guess remains that prices will stay within the current channel — between $40 and $45 — through November.

North Slope oil production is now on pace for a 3% increase this year

The official data confirm that August production from Alaska’s North Slope averaged 478,640 barrels of oil per day (BOPD). Preliminary data suggests that September production stood at 479,787 BOPD. This rate acts as a trend confirmation, allowing us to revise our forecast upward.

Our forecast model now predicts that production will pick up a little this winter, reaching a peak rate of 521,595 BOPD in December. If accurate, FY21 is currently on pace to average 499,572 BOPD (a 3% increase over FY20). However, this estimate relies on the assumption that in-fill drilling will resume this Fall. If that doesn’t happen, a production rate closer to 485,000 BPD is more likely.  

The Alaska Permanent Fund earned $3.6 billion in the first two months of FY21

The Alaska Permanent Fund Corporation released its financial statements for July and August. They show net earnings of $1.38 billion and $2.26 billion, respectively.  The majority ($2.9 billion) of the $3.6 billion of gains came from stock market holdings.

The projected earnings from the fund amounted to $4 billion when FY21 started. With ten months left in the fiscal year, the corporation is only $400 million away from that projection (although leading indicators suggest the fund lost value in September). The corporation doesn’t update its forecasts during the year.

Based on the latest financial report, the corporation reports holding $71.2 billion of assets and $5.3 billion of liabilities (including the scheduled POMV transfer for this year).  Interestingly, the corporation does not show a transfer for the $680 million PFDs in July. A representative of the corporation confirmed that the treasury did not request a transfer to cover the PFD – implying that it was paid with money already in the general fund.