Alaska's economic pace slows down

Construction proves to be bright spot; other industries don't fare as well

Posted: Tuesday, February 25, 2003

Alaska's economy may have been a gangbusters' affair in years past, but a new and slower-paced pattern seems to have taken hold, one that is influenced as much by in-state realities as by out-of-state factors. That has experts predicting a mixed bag for the near future.

Last year, a few sectors like retail and health care chalked up modest growth, and there was growth in areas impacted by federal dollars.

Other industries -- notably fishing and timber -- remained in the doldrums. Oil and gas, the twin engines of Alaska's economy, showed no explosion of interest in new ventures, even given the current high price of Alaska crude.

Neal Fried, an economist with the Alaska Department of Labor and Workforce Development, said there is no expectation this year will be any different.

"Trendwise, the broad picture is no big changes," he said. "The big pluses are in construction and in federal money as a source of growth."

Fried said it isn't just a matter of bricks and mortar, but the impact of money going to entities such as local governments and private nonprofits.


File photo by M. Scott Moon

Roberta and Bob Darling shop for a pair of boots at Sweeney's Clothing in Soldotna.

Photo by M. SCOTT MOON

"There is growth in the federal sector," he said.

What has surprised Alaska economists, he said, is the fact that the construction industry has been so predictable for the past decade.

"I'm waiting for the day it's no longer predictable," he said. "Things have come out of left field, but nothing to change things dramatically. For forecasters, it's been an easy one, easier then in the 1970s and 1980s when we were dealing with such huge swings in either direction. The fact that construction has been predictable and stable has been odd. I never would have said that in the '70s and '80s."

If those sectors are the bright spots, other areas are in need of energizing, Fried said.

"We know what is happening in fishing," he said, referring to the continuing low prices and poor runs that have plagued the industry of late.

"The oil patch is slow," he continued. "The last strong year was 2001. So far, 2003 is looking like a repeat of last year."

Despite the fact the price of Alaska crude oil has remained high for better than a year, and very high over the last few months -- ranging in the upper $20s to low $30s -- little is happening on the North Slope.

The tourist industry, too, suffered last year. A survey of 315 tourism-related businesses commissioned by the Alaska Travel Industry Association and performed by the McDowell Group of Juneau and Anchorage showed tourism's slow but steady growth over the past few years "came to a decisive halt" last year.

The October report said nearly half the businesses surveyed said they'd been impacted by the decline of tourists to the state.

While some sectors of the industry saw increases, other areas reported sharp declines. Essential-ly, the industry had zero overall growth in 2002.

"Tourism was unique last year," Fried said.

In the wake of the terrorist attacks of 2001 and the continuing poor economy, no one was sure how the 2002 season would turn out.

In fact, predictions based on bookings in late 2001 indicated the summer of 2002 might be a disaster. As it turned out, Fried said, things were better than expected.

"But it was a down year," he noted.

Making a prediction about the coming season isn't easy. There are so many factors to consider, not the least of which is the continuing recession and the possibility of war in Iraq.

"Are Americans going to travel outside (the U.S.) or stay domestic?" he said.

The retail sector is another unknown. The demise of Kmart stores in Alaska, including the one in Kenai, is a negative factor. But other areas in the retail and service sectors are growing.

"It won't be a screamer year," Fried said. "Most of the growth will be in the service sectors."

Other sectors show some promise, such as the air transportation industry, which will benefit by the growth of Pacific Rim trade.

Health care will grow as well, Fried predicted.

The Kenai Peninsula's economy remains a bright spot when compared to other generally rural areas of the state, Fried said. That's almost entirely due to its diversity, and the fact that the peninsula has become so attractive to people as a destination and as a place to live.

"The 2002 population figures show the Kenai Peninsula is experiencing a positive in-migration," Fried said.

The peninsula has become particularly attractive to retirees, which ultimately has a stabilizing effect on the local economy.

Fried added that for the first time since 1993, the state as a whole is experiencing positive population growth as a result of people moving in. Generally, there has been some job growth in the urban areas and on the peninsula, but jobs are scarcer elsewhere in the state.

Financial markets have contributed to Alaska's slow economy. A good indicator of how much can be seen by the performance of the Alaska Permanent Fund, which is invested in stocks, bonds and real estate. The fund's market value fell $4 billion between July 2000 and the end of June 2002, according to corporation figures.

Nevertheless, after three years of declining returns, the corporation is projecting an 8 percent growth over the next five years, according to Chris Phillips, chief financial officer of the corporation.

That prediction was based on assumptions as of June of last year. Phillips said the corporation would soon review its capital market assumptions for 2003, and those conceivably could alter that projection.

Although the nation's economy is in a funk and much of Alaska's is following suit, in recent interviews, municipal officials expressed optimism for the peninsula's economy. Borough Mayor Dale Bagley pointed to the growing success of efforts such as the Kenai Wild salmon branding project that could stimulate the fishing industry.

Oil industry observers say they think a Republican governor and Republican Legislature, as well as Republican control in Washington, D.C., will mean a better chance for opening the Arctic National Wildlife Refuge to oil drilling and an easing of permit regulations that could speed up resource development elsewhere.

Meanwhile, local efforts are joining those from elsewhere in Alaska to promote a gas pipeline from the North Slope. That idea won't have much impact on the economy in the coming year, but if one were built, the availability of a steady gas supply to the peninsula would have dramatic impact.

Long-range projections for the years 2000-25 made by the University of Alaska's Institute for Social and Economic Research suggest the peninsula will continue to see increasing employment at a steady rate of 1 percent per year for the next decade, thanks to its diverse economy.

"The things that have an opportunity to have a real economic impact would be the possibility of higher oil prices lasting a long time as a result of a war in the Middle East that would constrain supply, and the political alignment of Republicans in Congress and the state Legislature," said ISER Director Scott Goldsmith. "But those things that may happen in the next year won't have substantive economic effect until subsequent years. They are long-term factors."

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