Each Monday, I update my production and oil price models with the newest data from the week before. Then, I run a new set of simulations and post the results here and here respectively. Those numbers become inputs into a projection of State revenues.

I also track changes in jobs, wages, investments, population, and GDP on various pages of this website. All of this let’s me know what kind of shape the State’s economy is in, and what to expect will happen next.

But I want a better way to communicate this information to you. A way to track the changes in the model results and to explain why the numbers are changing, for anyone that’s interested.

By simply updating the forecast pages, you lose the ability to see how well my forecasts have been performing and how things are changing. And I want you to call me out on when the predictions are bad, it’s the only way I can improve.

So, I’m going to start publishing a blog post at the beginning of each month. That way, we can all review previous forecasts, understand what has happened over the month, and update your view of what that means to the State.

I hope you enjoy this series and find it helpful. If you have questions about any of these numbers, please let me know.

State Revenues

By my count, the State collected about $212 million in unrestricted general fund (UGF) receipts during August 2018. That brings the fiscal-year-to-date total to about $427 million.

The result is a total FY19 estimate of $2.9 billion ± $900 million. This is an increase of about $640 million from the number that the Department of Revenue suggested to be used for budgeting purposes in their Spring update.

$542 million of those UGF revenues will come from non-oil sources, according to the Department of Revenue. The rest will come from the oil industry, which is very sensitive to oil price and production rates. So it makes sense to pay attention to what’s going on there.

Oil Production

Oil production was down to 453,834 barrels of oil per day in August, as summer maintenance wrapped up. This is a little higher than I expected to see, but is still a little lower than last August. I am expecting September to climb to around 490,000 barrels per day as the maintenance cycle ends and full production ramps back up. Production should hit a sustained winter rate of 536,000 barrels per day by November. By March (after the winter drilling season) we should see production rates hitting 560,000 bbls/day as oil from GMT1 and Moose Pad begin to flow.

I am currently expecting the total FY19 production rate to average around 515,000 barrels per day ±18,000.

 

Oil Price

Oil prices slipped a little in August, averaging $73.82 per barrel of oil at the West Coast refineries. This was down slightly from July’s price of $76.19.

Fiscal year to date, oil prices have now averaged $75.01.

I’m expecting prices to jump around a little, but to stay in this general range for the rest of the fiscal year. That generates an expected average price of $75.13 ± $10 for FY19.

Price could go higher if geopolitical tensions escalate, if the trade war pushes up the cost of supply, or if the dollar loses value in the global markets. And they could fall lower if OPEC increases production, Iran sanctions are lifted, or if the current price attracts new investment into the industry.

As of right now, those risks appear to balance. While that gives the appearance of stability in price forecasts, it really means we don’t know which way things is going to go.

That leaves us to assume that today’s price is the best indicator of tomorrow’s price, and to embrace the uncertainty with a wide net.

Jobs

The Department of Labor reports that Alaska jobs increased by 4,600 workers in July. Most of this increase comes from seasonal work, with the biggest contribution coming from the seafood and tourism sectors. Some of those increases were offset by summer layoffs in education.

Smoothing out the seasonal factors, the numbers indicate that the economy has largely stabilized. As I wrote before, the last effects of the recession appear to be rippling through the system. That led to continued (but smaller) losses in the trade and professional services sectors.

Those losses were largely offset by continued growth in the healthcare and tourism industries. The construction sector also added jobs for the third straight month, providing optimism for the rest of the economy.

I am expecting August numbers to come in pretty flat, and for a recovery in seasonally adjusted job totals to begin to soon.

Investment Earnings

The Alaska Permanent Fund Corporation reported earning a 1.31% return during July, which translates to about $800 million in total fund growth. The majority of that growth is still held in unrealized earnings, with a reported $253 million in statutory net income in July.

The Corporation is currently projecting a total accounting net income of $3.7 billion ± $5 billion for FY19. After adding royalty deposits, and subtracting $2.7 billion to be used by the legislature, that results in a projected total fund balance growth of $1.3 billion ± $5 billion during FY19. 

PFD

Given these projections, the current statutory calculation of the PFD works out to about $3,068 per person next year.

However, the projected POMV draw for next year works out to just $2.9 billion. There’s a good chance that won’t be enough money to fill the UGF deficit and also pay the full dividend. Which means we can expect some fiscal challenges again next session.

History suggests that this will mean a smaller PFD. My best guess is that it will be around $2,000. But we still have a lot of time before then, and things change quickly. So, who really knows?

Wrap-Up

I’ll try to keep these posts short and at a high level. But if you ever have any questions, please feel free to ask in the comments section. Or, if you’re a donor, you have my cell number.

 

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