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Anchorage's recession recovery is slow ... but real.

If you thought Anchorage still had that boarded-up look despite a recent upswing in economic indicators, you're right. Things are getting better, experts say. But the banking and housing sectors so deeply shaken by the recession of 1986-87 are still staggering under their losses. For them, full recovery of vigor and momentum is months, even years, away.

And though evidence of Anchorage's improved economic health is real enough, optimism should be weighed against the realization that the city's improving economic climate stems in large measure from the percolating dollars spent by Exxon to clean up its oil spill.

According to the city's demographer, Mike Breedlove, growth in the job market continues to fuel a rebounding population depleted by the collapsing construction sector in 1986. Jobs are growing; population is growing. They go hand in hand. Generally, jobs are creating the growth. Even construction employment is up over year-ago levels,' he says.

Adds Breedlove, 'All sectors of the economy appear to be rising.' Between mid-1988 and mid-1989, Anchorage employment grew by 5.2 percent, while population gained 1.3 percent. From mid- 1989 to mid- 1990, Breedlove points to a 4.5 percent growth in employment. At the same time, the city's population grew another 3.7 percent.

Breedlove projects that trend will continue, noting that growth in the last year is comparable to that which occurred from 1983-84, just prior to the banner year of 1985. Breedlove feels population growth could exceed employment growth in 1991.

But if you're still not convinced and keep making sidelong glances at all those sale signs and vacant lots, don't take his word for it. Consider these omens from the past year:

After cutting the number of teachers in the wake of state budget cuts, the Anchorage School Board voted to hire 53 teachers for 1991 when a 3.4 percent increase in enrollment for 1990 caught administrators by surprise.

Telephone hookups in the first half of the year were running 3.8 percent higher than in 1989.

Employment in the trade and service sector overall gained nearly 6.5 percent, while retail trade employment alone posted growth of 3.71 percent, according to data published by the Anchorage Economic Development Corp.

On the heels of the new cargo-handling facility erected by Federal Express, United Parcel Service was awarded air cargo rights in Japan, a crucial milestone in its Anchorage expansion efforts.

Even in the area of real estate, housing inventories continued to decline and the rental market continued to tighten. In fact, in October some agencies attributed an unexpectedly high number of homeless in Anchorage to a greater willingness on the part of area landlords to evict tenants coming up short of rent money in a rebounding apartment market.

According to the Anchorage Development Report,' published by the Anchorage Economic Development Corp., building permit valuations were up 94 percent in 1990. In October, pending housing sales were up 17 percent over the same period last year.

Lingering Symptoms. To a certain extent, however, Anchorage's improvement reflects not how good things are now, but how bad they were. For example, despite the apparent implications of a rise in building permits, in real terms the increase in 1990 is almost insignificant," says economist Scott Goldsmith of the Institute of Social and Economic Research.

Goldsmith notes that vestiges of the recession are bound to linger. 'It was a very sudden, pretty dramatic reversal, so there are legacies of that still around even as things begin to pick up. It looks like it's finally bottomed out,' he says.

According to Goldsmith, many of the city's reviving indicators can be attributed in significant measure to the $2 billion layout by Exxon for oil-spill cleanup expenses. While that amount was not all spent in Anchorage, he points out, 'Even a small part of that hitting the Anchorage area would be having an effect. And that has a multiplier like anything else.'

Goldsmith calls this the down side of the current recovery,' masking the time and effort yet required to put the city's economic house in order. But Goldsmith agrees with other analysts that recovery is spreading to every sector of the economy and is being fueled by a range of factors and developments.

Scott Hawkins, president of the Anchorage Economic Development Corp., says, "The growth is being driven by renewed increases in state government spending, strength in oil-field related employment, and local activity such as construction of air-cargo facilities at Anchorage International Airport."

According to Neal Fried, a state labor economist, 70 percent of jobs in the Anchorage market are in the trade and services sector, which tends to reflect the economic mood of the community and shifts in indicators such as change in discretionary spending. Fried says gains in these sectors have caught the experts off guard.

Noting 1990 growth in wholesale and retail trade and services of between 4 and 5 percent, Fried says, We haven't quite made up the losses in retail trade, though we're pretty close. In services, they've more than made up the losses. They really roared ahead in 1989. We've gone beyond 1985 levels." He adds that the combined impact of growth in these sectors represents "a heck of a lot of jobs."

While Anchorage residents - and other Alaskans - heaved an ambivalent sigh of relief as the Middle East crisis filled state coffers with unexpected oil revenues, they also could take some moral comfort from the fact that beyond the oil price increase and the oil spill crisis, the economy was rebuilding on a more diversified foundation. Because the fortunes of Anchorage, as the state's center of finance and commerce, are tied so inextricably to events unfolding elsewhere in the state, positive developments in the mining, timber, fishing and military sectors over the past couple of years have played their parts in a healthy 1990.

Not to be overlooked in this regard is the oil and gas sector. Despite doubts about future oil exploration in Alaska and the specter of future job cuts by BP Exploration and Arco Alaska, Anchorage has benefited from increased efforts by the industry to extract more black gold from the declining Prudhoe Bay field.

Goldsmith points out that efforts to enhance recovery are capital and labor intensive. He also notes that while a declining field means reduced royalty payments to state coffers, wringing the last drops out of Prudhoe will mean continued private-sector employment strength, both on the North Slope and in Anchorage, where oil companies maintain their Alaska headquarters.

Between the immediate efforts at Prudhoe and the more speculative potential of opening the Arctic National Wildlife Refuge lie other quite realistic prospects. Continuing uncertainties in the Middle East may make marginal Alaskan fields feasible to develop, and a number of companies have stepped up their drilling programs on Anchorage's front porch, in Cook Inlet.

The industry's here for the long haul. I wouldn't underestimate the importance of that industry for the future of the economy,' Goldsmith says.

Future Financing. While there's no doubt that Anchorage's banks are also here for the long haul, their role in the recovery is less clear. Fried notes one school of thought is that banks surviving the recession, albeit strongly positioned in a reduced field of competition, may be wary of loaning money for new initiatives or that signs of monopolizing might begin to appear.

Although eight banks went by the wayside in Anchorage alone during the latter half of the 80s, dragged down largely by the collapsing real estate market, 1990 gave Alaskan banks their second straight year of post-recession profitability. From little First Bank of Ketchikan, with its six Southeast branches, to expanding Key Bank, which just opened its 19th branch (in Kodiak), bank officials are closely following improvements in the economies of Anchorage and the state as a whole. All are looking for places to invest their earnings.

Fried thinks a third year of recovery may help banks overcome any residual timidity that might dampen growth in other sectors looking for venture capital or another sort of financial participation. And he expects that even if Outside banks don't rush to open Anchorage branches, the improving economic climate in Anchorage and elsewhere in Alaska is bound to attract their attention, giving local institutions a run for their money.

Capital flows very easily. Banks are going to be shopping around for money. One of the big tests will be if we see an acceleration in home construction,' Fried says.

How Anchorage banks opt to lead or follow the city's economic recovery will have a big impact on a number of other sectors. If jobs and population continue to grow, ultimately fueling demand for a new generation of housing starts, lending policies will be a crucial factor in how growth will be accommodated.

Another important area that may be affected by the posture of Anchorage banks is tourism. There is growing concern that for this industry to grow, additional infrastructure - hotels, recreation areas and other facilities - are going to be needed. Maximizing local economic opportunities in the travel industry may depend on the thoughtful and enthusiastic participation of local banks.

Although analysts of the Anchorage economy are reluctant to look too far into the distance - the variables are simply too many and too unpredictable - there is consensus that the city's economic health and vitality will continue their improvement for the next couple of years.

What can't be known with certainty is how well Anchorage's economic immune system can continue to fight off chronic viruses of a community dependent in such large measure on industries driven by factors and market forces far from local shores. Many place their hope in the vaccine known as diversification. But even this wonder cure for a cyclical syndrome carries no guarantee and may have negative side effects of its own.

As the election year draws to a close, a lot may depend on the savvy and initiatives of new medical teams in Anchorage and in Juneau, and on their bedside manner with a recovering patient still wobbly in the knees.
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Title Annotation:Economic Review & Forecast
Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Dec 1, 1990
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