The Cloudy COVID-19 Economy
Instead of recovering from a several year recession, the pandemic has made the state’s economic future even more murky
Though its largest city lagged behind, Alaska as a whole saw modest job growth in 2019, marking an emergence from a recession that started in 2014. Economists were cautiously optimistic in their predictions for what 2020 would hold for the state’s economy. What none of them saw coming—what nobody saw coming—was the COVID-19 pandemic and the crippling economic damage it would cause.
“The entire world lost GDP, so here in Alaska it’s estimated that we lost about 7 percent of our GDP from 2019, or about $4 billion,” Governor Mike Dunleavy says.
The pandemic also resulted in significant job loss. There were 37,600 fewer jobs in September 2020 than September 2019, says Mouhcine Guettabi, an associate professor of economics at the Institute of Social and Economic Research (ISER).
On average, before the pandemic, there were about 930 unemployment insurance claims a week in Alaska. Since March 21, unemployment insurance claims jumped to an average of 8,000 a week. As of the week ending August 22, there were 29,146 continuing regular claims and another 11,375 Pandemic Unemployment Assistance claims, Guettabi explains.
Bill Popp, president and CEO of the Anchorage Economic Development Corporation, expects about 11,000 of those jobs to be lost in Anchorage.
Unlike the rest of the state, which saw marginal job growth, Anchorage ended 2019 down 400 jobs, Popp says. In the five years since the recession began, Anchorage lost about 6,000 jobs, add to that the estimated 11,000 lost due to the pandemic and, “That means 17,000 jobs lost in the last six years. And that puts us back to 2001 employment levels,” Popp says. “We’ve basically lost about twenty years’ worth of job growth in the city of Anchorage.”
That accounts for about 40 percent of state’s job losses, Popp notes.
Hardest Hit Industries
Though nearly every industry has taken a hit during the pandemic, some have suffered more than others.
“The big losers are the hospitality sector. And then, not far behind, there is retail trade,” Popp says.
Healthcare, which had previously been a bright spot of economic growth in the state, was also hit by the pandemic. Despite what some might expect, healthcare employment did not go up, Popp says. In fact, there was about a 1,000 job decline in the industry in Anchorage this year.
“Elective procedures have just dropped dramatically in Anchorage. People don’t want to go to a hospital unless they absolutely have to,” Popp says. “And then, on top of that, the hospitals have to preserve resources to protect themselves to be able to take care of surges that come and go in a COVID pandemic.”
Dunleavy notes that, as the country better understood COVID-19, there was an increase in elective surgeries toward the end of the year.
Cruise ships docked at the end of Broadway Street in Skagway.
“We’re somewhat in the same situation that the other states are and other countries are in terms of their economies and their healthcare,” Dunleavy says. “The focus is on the virus and making sure that we have the capacity but, at the same time, also addressing the everyday events that occur in the everyday lives of folks… that find people ending up in the hospital.”
The oil and gas industry, which remains a pillar of the state’s economy, was also not immune to the effects of the pandemic.
Popp points out that the industry took heavy blows and faces a global outlook that leaves little room for optimism. In April, oil prices dropped into the negatives for the first time in history. By May, prices had stabilized but remained low.
The fallout from the pandemic saw employment in Alaska’s oil and gas industry shrink by 1,700 jobs.
“We’re seeing lows in the oil and gas sector that we have not seen in quite some time,” Popp says. “We saw numbers like this back in 2004, which was a pretty bleak time.”
The decline in prices affects state revenues, which has negative ramifications for the state budget gap, Guettabi says.
The impacts of the pandemic on the economy were significantly compounded by the seasonal nature of Alaska’s industries from tourism and fishing to construction. As its residents know well, the state’s economy does not function uniformly throughout the year. Instead, there is a massive spike in economic activity and employment during the summer months.
According to employment data for 2019, there were 35,369 more jobs in July than in January. The vast majority of them were directly connected to the fishing and leisure and hospitality industries.
“None of this is easy. COVID-19 has definitely knocked us for a loop, and it’s going to take a while for us to get our footing. But we think we’re going to start to return to growth in 2021. And we think that there is opportunity in the future to get us back on track towards job growth. It’s just a matter of us all coming together and saying we’re gonna do this and making it happen.”
“Our seafood industry, we worked hard to save that,” Dunleavy says. “I think it’s actually a success story the way we handle that: worked with the industry, the processors, the fishermen to make sure that the workers coming in did not bring the virus to the population of Alaska and that was pretty successful. We did have a fishing season.”
Nonetheless, it was an unprecedentedly difficult year for the seafood industry. Processors faced significant issues due to uncertainty, the need to minimize COVID-19 risks, and disruption in key markets for Alaska seafood on top of challenges unrelated to COVID-19, such as smaller returning fish.
Though the Alaska seafood industry harvest numbers were not significantly impacted by the COVID-19 pandemic, there was a year-over-year decline in harvest value, according to a McKinley Research Group (formerly McDowell Group) report.
Become an Industry Sponsor
Alaska Small Business Development Center Executive Director Jon Bittner says that the economic impact in Alaska would have been completely different if the pandemic had struck in late fall instead of in the spring.
“It still would have been bad. But especially for commercial fishing, tourism, things like that, it happened right after they had secured a significant number of bookings and after they had expended a lot of money on setting up for those bookings but before any of the bookings actually arrived,” Bittner says.
“So you had an almost unanimous slew of people asking for refunds after you’ve already spent the money to get ready for them. And there was no real recourse.”
Small Business Support
As of September, the Alaska Small Business Development Center had assisted more than 5,000 businesses and helped them raise about $43 million in new capital, Bittner says. Usually, the center works with 4,000 to 5,000 businesses in a full calendar year.
The center has positioned itself as a one-stop shop for all things small business related, Bittner says. It helps owners find assistance and funding options to prevent their operations from going under due to the additional economic strain of the pandemic.
“We were really active in the AK Cares program. We were very active in the SBA’s Paycheck Protection Program and the Emergency Injury Disaster Loan and disaster loan advance,” Bittner says.
Both the PPP and Economic Injury Disaster Loans, which are direct business loans that can be converted into grants under specific conditions, accounted for a $1.5 billion injection into the state’s economy, Popp says.
“Anchorage saw a lion’s share of those loan dollars,” Popp says. “The other big piece of support for Alaska that directly affected Anchorage was the federal Pandemic Unemployment Assistance Program, which was the $600 per week unemployment assistance add on, on top of what the state was paying out.”
While active, the Pandemic Unemployment Assistance Program provided $87 million a month to Alaskans, Popp notes. The program ended on July 25.
At the state level, Popp praises the AK Cares program, which surpassed $130 million in approved grants for Alaska businesses by September.
Though both federal and state programs were vital for many businesses’ continued survival during the pandemic, they weren’t designed in a way that fit the needs of businesses operating in some key industries. In part, this was due to the need to rapidly launch the programs and get funds to businesses before they went out of business, Bittner says.
“So, seasonal businesses, like tourism, like commercial fishing, kinda got left out or weren’t really good fits for many of the programs out there until very late in the game when they were able to make changes,” Bittner says. “And that was a real problem to an industry that was hurting pretty early on, and they weren’t able to access a lot of funds until much, much later.”
What’s Our Economic Future?
The pandemic isn’t over, nor is its influence on everyday life and economic opportunities; nevertheless Alaskans and economists are looking forward in an attempt to gauge what an economic recovery may look like for the state.
Guettabi’s models show employment taking a positive turn by 2021; however, the state wouldn’t return to pre-COVID-19 levels until 2023 or later.
He expects the state to follow what is known as a k-shaped recovery, which is when different sectors of the economy recover at different times, rates, and magnitudes. Certain industries, such as tourism, are expected to take much longer to recover than other industries, such as fishing.
Optimism about economic recovery in Alaska relies on a number of expectations built into the economic models.
“We’re going to continue to protect our elders and our senior centers, and those that have underlying health conditions really need to be careful. But we’ve got to keep moving forward in terms of our economy… and balancing that with making sure that our healthcare capacity still stays in a zone that can handle an increase of cases.”
For Guettabi, this includes four primary assumptions.
“First, the federal government will continue to provide financial assistance to unemployed individuals either by extending the unemployment insurance payments or by investing in work share programs. Second, I rely on the Alaska Department of Revenue’s forecast that shows oil prices will remain low but stable for the next two years,” Guettabi says.
“Third, and perhaps most importantly, we assume that the virus will be contained and that the economy will not experience another round of closures. Lastly, we assume a normalization of travel in 2021, which significantly affects the leisure and hospitality outlook.”
Many states, including Alaska, are attempting to find the right balance between being open for business to promote economic growth and taking the necessary precautions to protect the population from COVID-19.
“So we’re going to continue to protect our elders and our senior centers, and those that have underlying health conditions really need to be careful,” Dunleavy says. “But we’ve got to keep moving forward in terms of our economy… and balancing that with making sure that our healthcare capacity still stays in a zone that can handle an increase of cases.”
‘Dramatic Demographic Shift’
ISER’s Director Ralph Townsend says that, though it’s important to understand how we can help the economy recover from the effects of the pandemic, officials and investors risk being too myopic.
Townsend says he’s tried to get decision-makers to focus on how local demographics are changing and the significant impacts that’ll have on the economy.
“Alaska is currently going through a rather dramatic demographic shift, which is going to have real implications for the future of Alaska and particularly to the size of our workforce,” Townsend says.
Alaska is experiencing its longest stretch of net out-migration since statehood. As of 2012, more people have been leaving the state than coming to it; however, there was still growth in the population because there were enough new births to offset deaths and people leaving the state.
That changed in 2017. The state’s population is now shrinking.
Anchorage’s population peaked in 2013 at 301,000. By the end of 2023, the population will sink to 286,000, according to Popp’s projections.
“That is not insubstantial, and that is the wrong direction. That is not a city that is growing, that has a vibrant economy,” Popp says. “And these are challenges that we face, that we need to address in terms of how we get people to stay here.”
Economists have identified three key elements to turning the migration pattern in the state around: retain retirees, retain Alaskans in the workforce, and find creative incentives to draw workers to Alaska from the Lower 48.
“There’s billions and billions of dollars in Alaska retirees’ retirement funds. Do we want them spending that here or do we want them spending that somewhere in the Lower 48?” Popp asks.
“That’s a huge transfer of wealth that’s taking place. It’s the largest transfer of wealth between one generation and the next—which is basically the Baby Boomer generation’s transfer of wealth to the Millennial generation—that has ever been recorded in human history. It’s trillions of dollars, getting ready to change hands over the next decade and a half, two decades.”
Popp says the state must provide incentives to keep that wealth in the state to encourage investment in local businesses and industries.
Of course, the value of the generation extends beyond the financials.
“These are important people with great lessons to teach in terms of their experiences, and to lose that experience base just makes things that much harder for us to move forward when we don’t have those who can warn us about not repeating the mistakes of the past,” Popp says.
Along with holding onto Alaska’s retirees, the state must also attract skilled workers, something that is becoming increasingly difficult. Even prior to COVID-19’s arrival, there was a war for talent building and the pandemic has only made incentivizing potential workers harder as companies tighten their belts.
Dunleavy says drawing a skilled workforce to Alaska from the Lower 48 requires crafting policies that increase the competitive edge industries have when operating in Alaska, creating jobs along the way.
“I’m optimistic that the fundamentals of Alaska, unless they’re changed through politics, are still there to ensure that we’ve got resources that are in demand, and that we can market those resources and move those resources. Alaska is known as the resource state—we’ll continue to work that—but also it’s going to be a transshipment state through international air cargo,” Dunleavy says, adding that there must be a sustained effort to make progress on the Alaska to Alberta Rail initiative. Known colloquially as A2A, the private project would lay 1,600 miles of railway to connect the Alaska Railroad with northern Alberta.
“Alaska is currently going through a rather dramatic demographic shift, which is going to have real implications for the future of Alaska and particularly to the size of our workforce.”
While highlighting the need to keep energy costs down for industries, Dunleavy says a number of sectors in the state have growth potential, including initiatives to provide US-mined rare earth elements to meet national demand.
“[President Donald Trump’s] executive order on rare earth critical minerals that came out a week or two ago, I think bodes well for the state of Alaska,” Dunleavy says. “We’ve got thirty-three to thirty-five rare earths. We have a lot of critical minerals and strategic materials, such as commercial-grade graphite.”
While Dunleavy is focused primarily on creating government policies that attract investment to Alaska, Popp points out that cities that are proactive on workforce quality of life issues are driving investment in the rest of the nation.
“What we’re finding is that companies are now following that workforce to those communities that are most successful in making investments,” Popp says. “Communities that are attracting that younger workforce, the next generation workforce, are seeing companies follow and make investments in the future of that city and the future of their companies.”
Popp acknowledges that efforts to attract a more robust workforce will be delayed due to the pandemic, but he maintains that we cannot lose sight of what needs to be done to ensure the state’s long-term economic health.
“None of this is easy. COVID-19 has definitely knocked us for a loop, and it’s going to take a while for us to get our footing. But we think we’re going to start to return to growth in 2021,” Popp says.
“And we think that there is opportunity in the future to get us back on track towards job growth. It’s just a matter of us all coming together and saying we’re gonna do this and making it happen.”