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Economic Forecast: No Easy Recovery in 2022

by Jan 3, 2022Finance, Magazine

The recovery from COVID-19 has been slower than expected in 2021 for myriad reasons, including stalling vaccination rates, the Delta variant, and labor shortages.

The pandemic stripped the varnish off Alaska’s economy.

The recovery from COVID-19 has been slower than expected in 2021 for myriad reasons, including stalling vaccination rates, the Delta variant, and labor shortages. The damage done to the economy also brought into focus deeper issues tied to four straight years of net out-migration from the Last Frontier.

Alaska employment numbers increased in 2021 since tumbling to about a twenty-year low in 2020. Based on preliminary data available in November, Bill Popp, president and CEO of the Anchorage Economic Development Corporation, is seeing marginal growth in Anchorage—the primary economic center of Alaska—since the pandemic first struck.

“We’re up about 4,300 jobs in September overall, compared to August where we were up 5,900 jobs,” Popp says. “The Delta variant definitely took a little bit of the wind out of our sails in the month of September.”

Getting COVID-19 numbers under control is a top priority to Alaska’s economic recovery, explains Jon Bittner, the executive director of the Alaska Small Business Development Center (SBDC). Fears about returning to work in often low-paying, public-facing positions is part of the reason that nearly 30,000 Alaskans who were working before the pandemic have not returned.

“They don’t want to get COVID or they have a family member that has health issues,” Popp says.

Bittner agrees that the Delta variant put a damper on the early stages of the recovery. However, he’s optimistic about the general trend in 2021 and expects to see further growth into 2022.

He points toward a survey conducted in 2020 and in 2021 in which the Alaska SBDC asked business owners to predict what their financial situation would be in the next twelve months. In the 2020 survey, about 30 percent thought their financial health would be poor to very poor. About twelve months later, that number is down to 14 percent, Bittner explains.

“We’re actually seeing a much stronger sense of optimism among businesses, which leads me to believe that they did better towards the beginning of 2021 than we thought they might,” Bittner says.

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Alaska Business June 2022 Cover

June 2022

Labor Shortage

While businesses are trying to claw their way out of the 2020 fallout, their efforts continue to be stymied by underlying issues in the Last Frontier’s economy: labor shortages resulting from years of out-migration compounded by early retirements connected to the pandemic.

“A business’s ability to come back from the economic downturn is sort of predicated on its ability to stay open,” Bittner says. “We’re seeing examples all over the state of businesses that have to reduce hours, reduce days, reduce what they offer customers, which slows their ability to make money, which slows their economic recovery.”

These reductions are tied directly to labor shortages.

“A lot of the demographic forces in Alaska are exactly the same demographic forces as in the rest of the United States,” according to UAA economics professor Ralph Townsend. “The difference between Alaska and the rest of the country is that Alaskans are much more mobile.”

Alaska has traditionally drawn adventurers and dreamers from the Lower 48 with the allure of earning a fortune. When their fortune turns, they often leave. “So our migration is certainly sensitive to economic force,” Townsend says.

Alaska is reliant on the in-migration of college-trained professionals, Townsend says. He voiced his concern that attracting that part of the labor market might not be as easy as it once was.

“Historically, we brought in a lot of teachers,” Townsend says. “Our superintendents got used to the idea that they could go to the Lower 48 and bring in a very large percentage of our teachers. That’s no longer the case.”

While there is some optimism around the idea that a remote work revolution could result in people moving to Alaska, that optimism is heavily tempered by the reality on the ground.

Popp points out that Alaska is not a hot spot for migration, as clearly shown by recent trends.

“We’ve got a great outdoor proposition… We are a place of spectacular natural beauty and recreational opportunities,” Popp says. “But that is one metric among many that workers use to decide where they want to work from when they are remote.”

Anchorage, like much of Alaska, suffers from issues around education, affordable healthcare, and housing—barriers to attracting new workers. Popp also describes the city itself as “rough around the edges,” meaning, “We don’t have vibrant, energetic centers that a number of younger remote workers are looking for.”

Unlike many of the economic headwinds facing the state, such as global supply chain slowdowns, the workforce problem is one Alaskans can potentially solve themselves, Bittner says. However, echoing Popp’s concerns, he adds, “There are stumbling blocks to making this a popular destination that can really generate a lot of activity.”

In a “cutthroat market” for attracting workers, Bittner says, “Just being a nice place to live will not be what puts us over the top.”

“The Infrastructure Investment and Jobs Act recognizes that Alaska is decades behind in having the basic infrastructure which many states in the Lower 48 take for granted. It addresses that gap by sending billions of dollars back home to put Alaskans to work building roads and wastewater systems, fixing bridges, and pioneering innovative transportation and energy technologies.”

— US Senator Lisa Murkowski

Further compounding Alaska’s struggle to attract labor is the exodus of people from the workforce both in the Last Frontier and the Lower 48.

“The pandemic proved to be a tipping point,” Townsend says. “We already had a long trend towards the Baby Boom population retiring, and this was simply a tipping point to accelerate it.”

Townsend explains that more families are also in a better financial position to wait out a crisis than they were before the pandemic, with median family wealth rising 33 percent during the pandemic.

“This increase is due to a variety of factors including unemployment benefits, stimulus checks, increases in values of real estate, and increased pension value due to stock market growth,” Townsend says.

Popp points toward issues around child care, early retirements, and the Great Resignation, which is a nationwide phenomenon.

“None of these are single causes of labor shortages, but they all contribute and they all add up to big numbers,” Popp says. “I don’t know that we’re going to see a big turnaround on labor given the national shortfall.”

Federal Rescue

Due to extremely harsh winters in Alaska, road construction crews are on daily duty repairing the highways when the snow clears.

©Mvandyke99 | Dreamstime.com

Despite the labor shortfall, there has been growth in 2021, and there is good reason to believe that 2022 will steadily build on it.

One of the most significant bright spots for the economy comes from the federal infrastructure package, the Infrastructure Investment and Jobs Act, supported by Senator Lisa Murkowski and Representative Don Young.

“This bipartisan infrastructure bill is one of the most consequential legislative efforts I have worked on in my senate career,” Murkowski says. “I am incredibly proud and humbled to have played a leading role in the creation of this legislation. The Infrastructure Investment and Jobs Act recognizes that Alaska is decades behind in having the basic infrastructure which many states in the Lower 48 take for granted. It addresses that gap by sending billions of dollars back home to put Alaskans to work building roads and wastewater systems, fixing bridges, and pioneering innovative transportation and energy technologies, all of which will benefit generations to come.”

Alaska is guaranteed at least $5.3 billion over the next decade, a slower rollout than federal rescue packages intended for short-term economic boosts. Popp and Bittner were unsure how quickly funds from the infrastructure bill would arrive for Alaska projects, but both seem confident the bill could have some impact in 2022.

“I do feel that they’re gonna be fast tracking a lot of that, and businesses that are poised to take advantage of those projects are probably going to start ramping up investing,” Bittner says.

Popp suspects that from 2023 and beyond, a significant amount of money will be flowing into the Port of Alaska, while earlier federal dollars tied to the bill will tackle low hanging fruit, such as roads and bridges.

The downside for Alaska is that it will be competing against the Lower 48 for a workforce to put these federal dollars into action, Bittner explains.

“Everybody is going to be hiring along the same timeline,” Bittner says. “The competition is going to get worse, not better.”

Frontier Recovery

Without the same kind of deep pockets found in the Lower 48, Alaska needs to find other ways to make the changes to draw a workforce north.

“It’s a community decision. It’s political leadership. It’s business leadership. It’s the citizens at large, who have to decide that we’re not happy with the situation,” Popp says.

There must be hard conversations identifying exactly what the problems are and what changes need to be made, Popp adds. “And then,” he says, “the really hard part of how much money are we willing to spend on this.”

But the short-term solutions come down to the basics.

“We have to be able to get our businesses to stay open and to make a profit,” Bittner says. “We have to be able to engage in the economic recovery effectively and attract workers to the state for all these new projects. If we can’t do that, then I think 2022 is going to be a little rougher for us than it is for others.”

Enjoy this story? Check out other in-depth articles in our January 2022 Digital Edition.

Alaska Business Magazine June 2022 cover

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