Juneau, Alaska

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

Like It or Not, Alaska’s Economy is Growing

It was over a year ago that I pointed out that Alaska was on the verge of a recovery. Wages were starting to grow again, and I predicted that jobs would follow suit.

When we look at the data today, it’s clear that those predictions came true. Yet, I still hear people talking about being in a recession. Or, I see people try to dismiss the persistent good news to fit some narrative.

There is no foundation for an argument that a recession persists or that the economy is fragile. But, don’t take my word for it. Let’s dive into the data.

GDP

The textbook definition of a recession is two or more consecutive quarters with decreasing Gross Domestic Product (GDP) – which is the value of all the things an economy produces. [note: some economists reserve “GDP” to refer to the national statistic and use “Gross State Product” for state-level data. But, it means the same thing.]

By that definition, Alaska entered a recession in mid-2014 and began recovering in early-2016. However, Alaska is unique.

When something happens in the Middle East, and oil prices jump up by $5 per barrel, the value of the oil produced in Alaska shoots up by a billion dollars. When recession fears pull down the price of oil, the opposite is true. But, it’s the same amount of oil, produced by the same number of people.

In other words, changes in global markets have an impact on Alaska’s GDP statistic – but, that may not change the “economy” at all.

So, let’s pull the value of the oil we produce out of the equation and see how the “base economy” is doing.

Excluding the effects of the collapse in oil prices in 2014, Alaska’s base economy never technically entered a recession. There is a clear slowing down of the economy in 2016, but it continues to trend upward. And, beginning in the first half of 2018, the growth accelerated.

So, despite the billions of dollars of budget cuts and billions of dollars of lost oil value, those disruptions did not ripple through the rest of the economy causing a mass exodus of people and investment capital.

Alaska’s economy weathered that storm very well. And, that storm has passed. But, let’s look at the other statistics.

Unemployment rate

The unemployment rate is another way economists like to track what’s going on in the economy. In basic terms, it measures how hard it is to find a job. Obviously, a lower unemployment rate is better.

In the graphic above, you can see the cyclical nature of our economy. There are three recessions evident – the dot com bubble in the early-2000’s, the Great Recession around 2009, and the Alaska recession in 2016.

Notice that the recent recession was much smaller than the previous two. Also, notice that the unemployment rate began improving in late 2017. And, although our rate is higher than the rest of the country, the most recent data shows we are at our lowest level on record.

But the unemployment rate can also be tricky. So, let’s break those data apart.

Unemployment Totals

One part of the unemployment rate calculation is the number of people looking for work. If that number goes down, that tends to be a good thing.

From the figure above, notice that the number of people counted as unemployed went up in late-2015 and grew until late-2016. From there, it flattened out a bit, before starting a descent in the last half of 2017.

Since August 2017, the number of unemployed Alaskans has been in free fall. Another indication that the recession ended and work became available.

However, it is possible that these unemployed people simply stopped looking for work. They could have retired, left the state, went to college, joined the military, or just decided to stay at home.

So, we need to double-check that job numbers are rising alongside the fall in unemployment.

Jobs

The graphic above shows how Alaska’s job total has been changing.

From the graphic, it is clear that job losses were occurring from October 2015 until October 2018. But, the economy has been adding jobs every month for almost a year now.

Clearly, this isn’t some fluke. It’s strong evidence that the economy is in recovery.

But, job numbers themselves can sometimes be misleading. A person working part-time for minimum wage and a person working full-time for a six-figure salary both count as one job.

Because those two people have different amounts of money to contribute to the economy, it makes sense to weight those jobs differently.

We should scale those part-time jobs up to full-time-equivalent jobs, and adjust for the different amount of money they make per hour. The easiest way to do that is to multiply the number of hours they work by the amount they get paid. In other words, we should look at their wages.

Wages

A familiar pattern emerges here. Employee compensation fell in 2016, was flat through 2017, and has been rising since the beginning of 2018.

The fact that wages started rising before jobs did is an expected result. As I pointed out last year, it is those higher wages that unlock the increase in consumer spending, which in turn creates more labor demand in the lower-skilled sectors (although, this relationship has gotten weaker in the Amazon age).

Seeing as wages continue to rise, it is a leading indicator that job growth will follow.

But, there’s another point to be made here. In an economy with stable job numbers and increasing income, its people are getting richer. In my book, that’s an improving economy – even if it is not expanding. So, just looking at job numbers only tells part of the story to begin with.

Conclusion

By every economic indicator, Alaska is in a recovery period. It appears the recession ended almost a year ago – when the jobs numbers gave way as the last holdout.

In reality, it appears the recession probably ended a little sooner than that. While 2016 was clearly a tough year for our economy, the numbers were pretty flat in 2017 across the board. But, data indicate that by 2018, we were moving in a positive direction.

It is only by overreliance on an incomplete picture (the jobs count) that an argument for a sustained economic downturn persisted through most of 2018. But, even by that metric, things began improving before the end of the year.

Looking at any other indicator, and understanding the outsized impact of the fall in oil prices on the numbers, would reveal that the recent recession was mild by historical standards. And that’s impressive.

If an economic impact analysis had been done in 2014, imagining a world of $3 billion in budget cuts and a 60% drop in oil prices, the report would have predicted a catastrophic future.

Scaling up the predictions from the 2019 legislative session, the forecast would have been at least 30,000 lost jobs from the budget cuts alone. Fears of massive population loss, a housing price collapse, and a repeat of the 1986 experience would have dominated our social media feeds.

The reality we observed was far less dire. Our economy is simply more robust and resilient than people like to believe (and economic models assume).

The bottom line is that there is no credible argument that Alaska remains in a recession or is on the verge of another. Like it or not, the data confirm that Alaska’s economy is growing.

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