Alaska's economy in 2008: expert predicts risk for Alaskans ins industries.

• Author: Burden, Pat
• Position: ECONOMY

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Employment in Alaska has grown for 20 consecutive years, reflecting strength in the state's economy. That growth streak may be at risk in 2008 when the state's economy will be affected by:

* higher commodity prices--and the price of crude oil in particular

* a national economy that is likely in recession

The interplay between these influences will determine if the state's 20-year record of continuous growth in employment will continue.

HIGHER COMMODITY PRICES

Crude oil prices have skyrocketed over the past year as shown in Figure 1. Higher prices have resulted in larger expenditures by the companies operating on the North Slope and in Cook Inlet. However, costs for drill rigs and equipment also have had dramatic increases and some projects have been delayed or abandoned due to a higher cost structure. In addition, the state's new petroleum tax regime will result in lower expenditures than originally planned by the major producers.

Higher crude oil prices and higher commodity prices have led to higher gasoline prices and higher food prices that adversely affect the pocketbook of each Alaskan when they fill up their car, buy heating fuel or pay the natural gas bill, or shop at the supermarket. However, the higher commodity prices also result in larger royalty payments and greater tax payments from Alaska oil production. This means more revenues to the state and the potential for larger capital and operating budgets, and even budget surpluses. Figure 2 shows the dramatic growth in the state's petroleum revenues since 1998.

LIKELY NATIONAL RECESSION

Offsetting the positive influence that higher crude oil prices and state government revenues will have on the state's economy is the effect of a probable recession in the national economy. The downturn in the national economy is very evident from the daily tax deposits received by the U.S. Treasury. Figure 3 compares daily federal tax deposits for Tuesday of each week since week two of the federal fiscal year that began in October, 2007. The latest date shown is April 1, 2008.

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Another indicator of a probable recession is the seasonally adjusted unemployment rate, which shows that national unemployment increased from 4.5 percent in July 2007 to a preliminary estimate of 5.1 percent in March 2008 (See Figure 4).

Alaska's unemployment rate increased from 5.8 percent in April 2007 to a preliminary estimate of 6.6 percent in February 2008, the...