Alaska's economy: historical trends and future outlook.

• Author: Guettabi, Mouhcine
• Position: ECONOMY

In this article we review recent trends in Alaska's economy and the economic outlook for the near-term and longer-term future. We begin with a brief description of the structure of Alaska's economy and key factors that drive it. Next we review historical trends in the economy. We then discuss factors likely to affect the economy in the near-term future, including the dramatic decline in oil prices and state oil revenues and the state's response to the resulting very large deficits. Finally, we discuss the longer-term outlook for the Alaska economy, including the potential economic impacts of an LNG (liquefied natural gas) export project.

Alaska's economy is complicated. In this brief article we have to omit important details due to lack of space. In particular, we do not address regional variation in the economy, which is significant, or the significant changes occurring in many industries.

Alaska's future economic outlook is uncertain. We can't predict with certainty the combined effects of the many factors which may affect it. Our primary goal is to describe potential implications of factors which we know will affect it.

Alaska Economic Structure and Trends

It is useful to group Alaska industries as "basic" or "support" and further into the four major "sectors" shown in the table below--which vary in what drives them, how they have changed in the past, how they are likely to change in the future, and in their relative importance for different regions of Alaska. Basic sectors and industries sell goods and services primarily to markets outside Alaska and thus bring money into the economy (the federal government is "basic" because federal spending in Alaska is paid for from outside Alaska). Support sectors and industries sell goods and services primarily to markets inside Alaska and thus recirculate money in the economy.

There is no single measure which fully describes the structure of Alaska's economy and the relative economic importance of different sectors and industries. Three useful measures are employment, wage and salary income, and contribution to gross domestic product. The relative significance of different sectors varies across these measures, reflecting the fact they measure different things. Employment measures how many people work in a sector, wages and salaries measure how much they earn, and GDP measures how much value they create.

As shown in the graph below, in 2013 (the most recent year for which detailed GDP estimates are available) resource industries accounted for 31 percent of gross domestic product but only 11 percent of total employment. In contrast, trade, service, transportation, and infrastructure industries accounted for 51 percent of GDP but 66 percent of employment. State and local government accounted for 14 percent of employment but 18 percent of wages and salaries. The federal government accounted for 9 percent of employment but 13 percent of wages and salaries.

Total Alaska employment in 2013, as estimated by the Bureau of Economic Analysis and including non-wage and salary employment, was 461,112. Employment for 2015, for which data are not yet available, would be slightly higher. A useful rule of thumb to remember is that 4,600 jobs would be about 1 percent of Alaska employment and 46,000 jobs would be about 10 percent of Alaska employment. The six largest Alaska industries in 2013, as measured by employment, were healthcare and social assistance, retail trade, local government, accommodation and food services, federal military, and state government.

Long-time Alaskans may remember Alaska as a state with rapidly rising employment and population, characterized by periods of boom and bust such as the construction of the trans-Alaska oil pipeline in the mid-1970s, the recession following completion of the pipeline in the late 1970s, the government-spending and construction-driven boom of the early 1980s, and the oil price-crash-driven deep recession of the late 1980s. While true once--as shown in the graphs below--that picture is no longer true. For the past quarter-century, Alaska's economy has been characterized by relatively slow and steady growth in population and employment--driven by growth across many sectors such as the federal government, mining, tourism, air cargo, healthcare, and retail trade, and with significant regional variation.

More recent data suggest that this long period of gradual growth may be ending. From July 2013 through June 2015, year-over-year growth in monthly employment averaged 0.93 percent for private sector employment, 0.46 percent for total employment, 0.18 percent for state government, -0.79 percent for local government, and -3.64 percent for federal government employment. This suggests that declining government employment--which accounts for 23 percent of Alaska employment and 31 percent of total wage and salary income--may end or reverse a long period of growth in Alaska employment.

Factors Affecting Alaska's Near-Term Economic Outlook

In the near term--over the next few years--three factors appear most likely to drive change in Alaska's economy, all of which are uncertain and difficult to project. First, the decline...