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Resource Industries Expect Stronger, Stranger Economy in 2023

by | Nov 17, 2022 | Featured, Fisheries, Mining, News, Oil & Gas, Tourism

Kimbrell panel

RDC Executive Director Leila Kimbrell opens a panel of leaders from timber, seafood, tourism, mining, and oil and gas associations.

Alaska Business

Answering “how is the economy?” has been more difficult the last couple of years, even for Neal Fried, the senior economist at the Alaska Department of Labor and Workforce Development. “We have the strangest and weirdest economy that I’ve ever seen, and I’ve been following this economy for a very, very, very long time,” Fried told the annual conference of the Resource Development Council.

“Generally Pretty Good”

On one hand, Alaska is taking longer to recover from the COVID-19 downturn than any other state. Fried blames that lag on a lack of momentum coming out of a statewide recession driven by the 2014 oil price crash.

On the other hand, Alaska is “generally pretty good” in absolute terms. Unemployment is lower than ever at 3.5 percent, and incomes didn’t implode but continued to grow. Fried acknowledges that inflation is quite high, approximately 8.5 percent in Anchorage for all of 2022. However, inflation was consistently higher than 5 percent in Alaska from 1974 through 1982, yet Fried calls those the state’s best growth years. Therefore, “We can still have prosperous times during periods of higher inflation. I do think inflation is going to start to come down; I just don’t know by how much,” Fried says.

Next year could see a full recovery, thanks to a boost from the oil and gas sector. The number of jobs in that industry has been slowest to return to pre-pandemic levels, but the Willow and Pikka projects have generated excitement. Contractors “have been waiting five or six years to be this busy,” says Kara Moriarty, president and CEO of the Alaska Oil and Gas Association.

The tourism sector has a firmer basis for optimism, after cruise ships brought more than 1 million visitors in 2022. That was despite ships sailing at limited capacity, so Sarah Leonard, president and CEO of the Alaska Travel Industry Association (ATIA), expects full loads in 2023 could set records for cruise ship tourism.

Fluctuations in the seafood sector depend more on the health of wild stocks, so the pandemic hardly interrupted fisheries and processing. In fact, COVID-19 shutdowns were a boon to seafood marketing, according to Nicole Kimball, Alaska vice president of the Pacific Seafood Processors Association. “We’re really trying to maintain all those new Alaska seafood consumers that started being forced to cook at home and learned to cook fish at home because they weren’t going to restaurants,” she says.

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Likewise, the mining sector was relatively COVID-proof, says Fried, and the state is also getting a boost from a larger military footprint, as Eielson Air Force Base welcomes squadrons of F-35 fighter jets. “We are basically exporting defense to the rest of the country,” Fried says. “They are paying us to defend them. That’s how you have to look at it: it’s an export. They pay us to do that, and it’s a big industry. Sometimes we forget about it because it’s behind a fence.”

Hiring Challenge

RDC jobs chart DOL

The number of jobs in Alaska for 2022 (red line) is converging on the pre-pandemic level from 2019, indicating recovery and resumed growth.

Research and Analysis Section | Alaska Department of Labor and Workforce Development

Hopes for a stronger economy are tempered by two main concerns. One is uncertainty about state and federal political decision making, although industries have always had to contend with that. The other source for pessimism is a shortage of workers willing and able to fill jobs. Fried notes that 2022 saw an unusual divergence between job seekers and job openings (a statistic his department only recently began tracking). All year, the number of jobs has far exceeded the number of workers available to fill them.

Moriarty has seen the effects in the oil industry. “Our direct companies are having a challenge hiring anybody, from security and janitors to senior engineers, and there’s vacancies everywhere,” she says, “but our contractors are specifically struggling with truck drivers and welders, and those are things you do not need a college degree for.”

Kimball adds that the seafood industry depends especially on large pools of labor during short spans of time. “If you don’t have the workforce in place to process salmon, you not only miss out on that volume but you miss out on the opportunity to do those higher-value, value-added products that bring more value into Alaska,” she explains. “It takes more workforce, more labor in order to do higher-value products than it does a lower-value product, like freezing a fish or heading and gutting a fish.”

Gray Clouds

RDC migration chart

Since 2012, the number of people moving to Alaska has not replaced the number moving away.

Research and Analysis Section | Alaska Department of Labor and Workforce Development

One reason for the worker shortage is declining labor force participation, which has steadily dropped since 2010. However, the rate is actually up since the pandemic. COVID-19 also limited the pool of visiting international workers, which tourism businesses draw from. “While a lot of our businesses look to hire locally first, we do rely on international programs like the J-1 visa to bring international people to fill those positions,” saysLeonard. Because in-person interviews for visa applicants were suspended during the pandemic, “There’s a huge backlog in the processing for J-1 visas, so that has added another layer to trying to hire,” she says.

Alaska’s aging population is the most persistent cause of the worker shortage. Fried recalls that Alaska’s population swelled in ‘70s and ‘80s as Baby Boomers migrated to the state, and now that cohort is aging out of the workforce. They are taking their skills and experience with them, and younger people are not entering the industry fast enough to replace them.

Alaska’s population also shrank in recent years due to net out-migration. Every part of the state lost population with two exceptions: the Matanuska-Susitna Borough and the Kenai Peninsula Borough.

Fried notes that Alaska has the fastest population turnover of any state. The 10 percent moving in or out every year outpaces next-place Wyoming, Nevada, and Hawaii. Such a churn wouldn’t be much of a problem except that mobility is lower than ever nationwide; fewer people are choosing to move anywhere, so they’re not coming to Alaska.

“The problem is really bigger than any one industry,” says Karen Matthias, executive director of the Council of Alaska Producers. “People are leaving the state, and they’re not leaving because there are not good jobs available; they’re leaving because they want to live somewhere else.” Matthias, whose group represents the mining industry, asks what communities are doing to make Alaskans want to stay.

The tourism industry might have an answer. “We launched an in-state and Lower 48 marketing campaign about working for Alaska tourism. It was a social media digital campaign with videos and imagery about how great Alaska is,” says Leonard. “We’re carrying that forward with a new partnership with the University of Alaska, launching ‘Day in the Life’ TikTok videos.”

Strange as it may seem, a stronger economy may depend on selling Alaska itself, more than any of its wares. Leonard says her association is up to the task. “If there’s one thing that ATIA does well,” she says, “it’s marketing experiences to Alaska.”

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The track of oil and gas development in Alaska shows the footprints of bold companies and hard-working individuals who shaped the industry in the past and continue to innovate today. The May 2024 issue of Alaska Business explores that history while looking forward to new product development, the energy transition for the fishing fleet, and the ethics of AI tools in business.

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