Mid-Year Economic Outlook July 2013
We have built a solid foundation of opportunity here in Alaska, with a triple-A bond rating for the state, the lowest unemployment rate (6 percent) since 2007, and a favorable outlook for the coming year. Our tourism sector has recovered and mining is still growing strong, and the More Alaska Production Act will rebuild our energy sector and put more oil back in the pipeline.
Architecture and Engineering
BBFM Engineers Inc.
The engineering industry outlook is for a pretty flat year. There do not appear to be any large upcoming design projects, at least in the vertical construction portion of the industry. The military and other federal agency work has been slowing down, even before sequestration. The State capital budget is significantly lower than a couple of years ago and is mainly for remodel and addition projects. Municipal and school district work seems to be primarily state funded. There are some projects that are bonded but they are of a limited size. Private sector development has a couple of new retail facilities but the work in this area is mainly for remodels and additions.
Institute of the North
With the launch of the Alaska Arctic Policy Commission, there is a significant amount of work being done to assess Alaska’s strategic role as an Arctic state; infrastructure needs as they relate to safe, secure and reliable operations; and approach to issues such as research, resource management, and response capacity. This effort is undertaken at the same time a National Arctic Strategy is produced by the White House, which attempts to balance concern for the environment with economic development for the people of the North. Important to both processes is the effort to consult with all stakeholders and to ensure open lines of communication. Alaska can also look forward to Canada’s Chairmanship of the Arctic Council and act as a partner during these next two years.
While the economy in Alaska is showing signs of strength, I am still concerned about the torrent of regulations pouring out of the federal government, many stemming from the Dodd/Frank financial reform and Obamacare. In a time when the economy is still sputtering, and each and every job is critical, the last we need to do is bury businesses who want to hire Alaskans in a mountain of paperwork.
The remainder of 2013 shows a lot of promise. Alaska has one of the lowest unemployment rates in the country and positive economic indicators point to a steadily decreasing national unemployment rate. Alaska’s economy continues to grow due in large part to its robust small businesses, strong tourism industry, world renowned fishing industry, and our tremendous natural resource wealth. Alaska saw the first drilling in the Arctic in twenty years this past summer and I hope we can continue to move forward with responsibly developing our vast natural resources. I’m working hard on the federal side to keep Alaska’s economy growing and to make sure Washington stays out of the way as much as possible.
There are a great number of oil and gas projects under development across the state, but nearly every one faces roadblocks at the federal level. The permitting process under the current administration is clearly broken. Alaska is a rich state, we all know that, but our economic success depends on our ability to access our resources. Beyond that, we are also facing the reality imposed by sequestration and the impacts it will have on our considerable federal footprint. Alaska’s economic well-being is strong—many states would love to possess our fish, our beauty, our resources, our people, and our potential—and I remain committed to fighting against every threat and for every opportunity to build momentum.
AGC of Alaska
In spite of reductions in defense spending, the building construction side of the market continues strong, though still below capacity. There continues to be large retail expansion of Wal-Mart, Sam’s Club, and Natural Pantry and continued construction of Walgreens and Autozone. New entrants to the market include Cabela’s and Bass Pro Shops. Major upgrades to existing facilities are happening with Fred Meyer in mid-town.
Highway work remains strong and very competitive resulting in some very thin margins for many contractors. In all sectors, we continue to feel the benefits of recent state capital budgets.
Construction: Military and Civil Works
Col. Christopher D. Lestochi
Commander, Alaska District
U.S. Army Corps of Engineers
We are executing 322 projects valued at $312.9 million in fiscal year 2013 with our environmental and special programs carrying the bulk of the workload. Unlike previous years, work will focus on both Alaska and eastern Asia. Our current income is fueled by a surge in small interagency and international projects led by ongoing support for humanitarian assistance and foreign military sales programs. We continue to experience a decline in traditional high-dollar military construction projects with two firing ranges worth $18 million in progress. Similarly, although our civil works program received no new work in the president’s budget, we are still tackling several carry-over projects valued at $41.6 million that include a breakwater extension in Sitka Harbor and shoreline protection in Unalakleet. For the remainder of the year, half of our contracts are still to be awarded, while potential business opportunities could generate additional work.
President and CEO
Alaska Economic Development Corporation, Anchorage
2013 is shaping to be a banner year for the Anchorage economy. Strong job growth in excess of 2 percent for the third year in a row coupled with an unemployment rate less than 5 percent are the result of robust employment numbers in several categories. Business and professional services, health care, oil and gas, and construction are the industry leaders that are pushing the Anchorage economy to new heights.
Dr. Ashok Roy
Vice President for Finance & Administration/Chief Financial Officer
University of Alaska system
With regard to K-12 education, urban areas are doing better than the rural areas mainly due to energy costs and broadband access. In spite of Alaska spending much more per student than other states, the outcomes are significantly less than desirable. About 35 percent of our teachers are hired from out-of-state, as hiring teachers for rural Alaska who will stay with us is a chronic problem.
With regard to higher education, state support for the University System of Alaska has been solid and we are in a stable equilibrium. Expectations for the short term can be described as cautious optimism. Challenges emanating from reductions in federal grants due to sequestration; reduced enrollment due to smaller graduating classes for most of the next decade in Alaska; need to make college affordable and lessen student debt; and rising fixed costs will require the University to tighten its belt. The Alaska Performance scholarships are a bright spot. The overall future impact of the oil tax bill (SB21) is uncertain but will impact state spending. Problems and issues in education are often not susceptible to simple answers or binary logic.
PhD, Assistant Professor of Economics—Institute of Social and Economic Research
University of Alaska Anchorage
In general, the Alaska economy is fairly healthy and continues to grow at a moderate pace. However, federal government employment in the state continues to decline and the full effects of sequestration are yet to completely materialize. Given that government (federal/ state/ and local) represents close to 20 percent of the state’s gross state product, the implications of the cuts can have far reaching consequences. On the positive front, the rebound of the construction sector along with continued solid performance in the health care and social assistance sector are two of the brighter spots. Going forward, the state’s growth will be less pronounced than that of the nation in the near term since we experienced a less severe recession and therefore have less slack. Most sectors are expected to remain stable and experience modest gains. Preliminary numbers in the manufacturing sector look weaker than previous years. Aside from that, the nation’s recovery and high oil price remain key drivers in Alaska’s future performance.
Statewide Economist Research & Analysis Section
Alaska Department of Labor and Workforce Development
Our annual employment forecast for 2013, made at the beginning of the year, was for modest growth of 1.2 percent, or about 4,200 new jobs. Now that we have preliminary data for early 2013, we can see that private industries are driving this growth — particularly subsurface resource extraction, construction, and health care. Public sector employment has been declining through 2012 and into 2013 as a result of reductions in the federal civilian workforce.
Despite drag from declining federal employment, Alaska’s peak summer employment in 2013 should be at an all-time high.
Matanuska Electric Association
While MEA is moving ever closer to bringing our own local power generation online, we recognize that there are serious challenges to the industry as a whole around Alaska. Across our resource-rich state we all face fuel supply issues which must be resolved. There are also nearly a billion dollars of needed transmission upgrades along the Railbelt so that we can continue to deliver the low cost and reliable power so critical to our state’s economy.
Renewable Energy Alaska Project
Efforts by residential and commercial consumers to reduce energy use and cost through efficiency measures will increase. Given the new reality of lower state revenues, the state will also begin to look harder at ways to decrease its own utility bill for heat and electricity in schools and other public buildings, estimated now to be over $640 million per year.
As we approach the expiration of long-term natural gas supply contracts, Railbelt utilities will look for ways to mitigate the effects of higher gas prices in the state’s most populated region. Potential projects include efforts to build out the Fire Island wind farm to its full 54 MW capacity and explore for geothermal resources near Mt. Spurr. Discussions will also continue on how independent power producers can invest private sector dollars in more flat-priced renewable electric generating capacity.
Alaska Regional President
The financial services industry in Alaska remains healthy and strong. Banks continue to see record growth in deposits as customers remain cautious about investing in the stock market. Loan demand is on the rise as the economy recovers and interest rates remain at record lows. We are optimistic about Alaska’s future with the potential for further responsible resource development on the horizon.
Marcus L. Hartley
Vice President and Senior Economist
Seafood—Alaska’s largest export industry—should have a solid year. However, with an industry as diverse as seafood, some sectors face immediate challenges, while others could experience a banner year. The increasing value of the dollar relative to other currencies, particularly the Japanese Yen, coupled with the recession in Europe, could mean lower revenues for Alaska’s seafood exporters. These challenges will make domestic markets and overseas marketing efforts more important than ever.
In recent years, groundfish (pollock, cod, rockfish, and flatfish) has generated more than half of the total value in Alaska’s fisheries. In 2013, harvests of pollock are expected to increase by more than 100 million pounds. While this increase may be partially offset by expected decreases of other groundfish species, a greater volume of harvests will undoubtedly come onshore to processors in Dutch Harbor, King Cove, Sandpoint, and Kodiak.
Salmon fisheries represent another 25 to 35 percent of Alaska’s seafood value. Total salmon harvests are expected to increase by 40 percent, powered by a near doubling of forecast runs of pinks, although runs of sockeye in Bristol Bay are forecast to decline by 25 percent. One of the interesting stories to follow this year will be how much of the salmon harvest heads to the canning line, and how much is filleted and frozen. In 2012, many processors responded to low supplies of canned sockeye salmon and strong demand by canning a higher portion of the catch than has been seen in recent years.
World Trade Center Alaska
With three months of data available, Alaskan exports to overseas markets are generally trending as we had forecasted in the January issue of this magazine: down somewhat from the previous two years, but still at a historic level. We are forecasting that when 2013 results are tallied, Alaskan exports will be in the $4.3 to $4.5 billion range, down from the all-time record high of $5.2 billion achieved in 2011. Softening precious metal prices, for example, are a contributing factor.
The long-term trends, however, remain unchanged and bode well for Alaskan exports. Alaska is in the right place, at the right time in history, with the right commodities—natural resources and seafood—needed by growing markets and populations around the world.
Curtis J. Freeman
Avalon Development Corp.
The mineral industry this year has a split personality: producing mines are expected to remain profitable as commodity prices remain stable, although down somewhat from 2012. Exploration spending, however, is expected to be down dramatically over 2012 levels, which were down substantially for 2011 spending levels. Risk capital has dried up leaving many junior explorers with stock prices at historic lows and treasuries at care and maintenance levels. Look for bottom feeding by cashed-up companies.
Alaska Native Corporations
Our growth and development came together in 2011/2012 with the acquisition of two new subsidiaries: Patrick Mechanical, a mechanical engineering firm in Fairbanks, and Analytica, an environmental testing company headquartered in Colorado with offices in Anchorage and Fairbanks. The outlook for continued growth from all seven LLCs is poised in an profitable direction. We plan to continue our strategic growth throughout 2014.
President and CEO
Calista Corporation continues to serve as a partner in Alaska’s economy. Revenues grew from $300 million in 2011 to $400 million in 2012. The right of Alaska Native Corporations to participate in the SBA 8(a) program played a strong role in our success and those of the other ANCs. However, with this federal program under increasing attack Calista strives to diversify our revenue base. Statewide, we must address the increased costs of energy, supplies and transportation. We look toward targeted infrastructure development in rural Alaska to better support ANCSA corporations and small businesses as they strain under these fiscal weights. These businesses are in position to strengthen Alaska’s economy.
President and CEO
Bristol Bay Native Corporation
I believe Fiscal Year 2014 will be a year of exciting transition for Bristol Bay Native Corporation. We are focusing on investing in our people and our region as we work to pursue our mission of “Enriching our Native way of life.” As a diversified company with investment and business holdings in a wide range of industries, I have a positive outlook for the coming year for BBNC. In addition to expansion of our oilfield and industrial services, our expertise in construction, and our entry into the tourism industry, we know Alaska, and the Bristol Bay region in particular, provides for good investment opportunities in the fishing industry. We continue to seek economic opportunities for the Bristol Bay region and are learning about the full extent and potential value of our region’s resources to allow us to make wise decisions that benefit our lands and our people through many generations.
Chugach Alaska Corporation
This year is a testament to the ability of Alaska Native Corporations to adapt to an increasingly complex and challenging economy. While our federal customers are operating with reduced budgets in 2013, the impact of sequestration on Chugach Alaska Corporation’s government contracting line of business has not been as drastic as predicted. We have made strategic decisions in order to increase our net earnings, and anticipate our government and commercial divisions will continue to grow. Still, as we move into the future, we know that business as usual—doing what we’ve done in the past—is not enough. This year is all about capitalizing on efficiencies and developing innovative approaches to our core competencies.
President and CEO
I am optimistic about the state of Alaska’s economy. The passage of Senate Bill 21, reforming the oil tax regime, was a huge success for Alaska and moves the state in the right direction of more oil production, increasing the number of barrels flowing through the pipeline and employing more Alaskans. Interior Alaskans pay some of the highest prices in the nation for a resource that is in our backyard. We are past due of adding more oil to TAPS. Doyon’s highest priority is continuing exploration efforts with two projects in the Doyon region: preliminary seismic work in the Stevens Village area and drilling a well in the Nenana/Minto Flats basin, which is expected to begin this summer. Success with either or both of these projects would positively impact the state’s economy.
Oil & Gas
Alaska Oil and Gas Association
As we approach the half-way point of 2013, the oil and gas industry continues to have mega opportunities, but continually faces challenges. The industry continues to provide more than 90 percent of the state’s unrestricted general fund, and so it is a concern that production through the Trans-Alaska Pipeline System is now hovering at just one-quarter of its capacity, or about 540,000 barrels per day. The good news is the Legislature did pass a new oil tax policy that will put Alaska back into contention for increased investment for the North Slope. Cook Inlet is already experiencing increased investment for currently producing fields and additional seismic and exploration work. Developing the federal Outer Continental Shelf has been pushed back a year to ensure equipment and permitting are in place for the 2014 season.
President and CEO
Alaska’s tourism industry continues to anticipate a strong summer season. Stable marketing budgets from the state and community marketing organizations within have allowed increased exposure and reach over the past several years. As a result, fall and early winter inquiries from independent travelers, travel agents, and tour operators —a great leading indicator for summer—were robust.
Two elements vital for visitation have expanded; capacity for both cruise and air passengers have increased significantly for 2013.
Cruise capacity to Alaska this summer will total 934,074 passengers—an increase of 65,647 over 2012. Cruisers making their way across the Gulf of Alaska will increase by 40,000 passengers. Many of these visitors will take a cruise-tour through Southcentral and the Interior, or plan their own itineraries to locations far and wide.
Alaska will also benefit from many new routes opening up on domestic and international carriers, and also increased frequency from many longtime carriers. New or returning domestic service of note includes direct flights into Newark (United), Atlanta (Delta), Minneapolis (Sun Country), San Francisco (Virgin America). In addition, Alaska Airlines and JetBlue have increased capacity to Alaska from Southern California and Seattle.
Internationally, Anchorage will see service on Icelandair out of Reykjavik, Iceland, started May 15 with connections to Great Britain, Switzerland, Germany, Norway, Finland, and Sweden and other European cities. Condor celebrates twenty years of nonstop service between Anchorage and Frankfurt, Germany this year.
Along with this increased capacity and interest on the leisure side, a solid convention season this fall will extend the economic impact. Hotels, attractions, transportation companies, restaurants, and gift shops are geared up and ready to welcome these visitors and, quite likely, make 2013 the new high mark for Alaska tourism.
President and COO
Alaska’s tourism businesses have a positive outlook for this summer visitor season and through the winter and shoulder seasons too. This projection is fueled by a steady increase in visitors over the past four years. In 2011-2012, Alaska’s tourism industry saw a 3 percent increase in visitor numbers with over 1.8 million visitors traveling to Alaska. Alaska is also seeing new and expanded investments in tourism marketing dollars and industry.
For example, Alaska will see two new airlines providing service, Icelandair and Virgin Atlantic, and three Airlines with expanded service, Alaska Airlines, United, and Jet Blue as well as cruise ship passenger gains.
We know these investments in Alaska’s tourism industry are working to help create economic benefits for business owners, communities, and the State of Alaska. With continued and strong investments like these, Alaska can compete on an international scale as a quality travel destination.
Alaska Trucking Association
Freight indicators are steady and truck sales are increasing. The household-goods-movers sector is doing well. Freight carriers are doing OK. Drivers are in short supply as are technicians and mechanics. The oil tax reform issue still hangs over our heads so I think we remain cautiously optimistic.