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Boom and bust? How about steady and stable? Anchorage boasts nearly two decades of uninterrupted job growth.

The end of 2006 marked the completion of 18 years of uninterrupted job growth for the Anchorage economy, a claim few cities in the world can make. In January 2007, the Anchorage Economic Development Corp. (AEDC) will again present our annual economic forecast for the Anchorage economy. All indications are that jobs in 2006 exceeded our last forecast, and it is a good bet that Anchorage will continue its string of uninterrupted job growth at least through 2007, and likely on into future years.

Alaska has only recently enjoyed long-term, stable job growth. Much of Alaska's, and therefore Anchorage's, economic growth prior to 1989 followed a boom/bust pattern. Alaska's economic history was tied to the value of one commodity or another. Gold rushes, huge copper deposits, plentiful Alaska wild salmon and crab, rich timber resources, and most recently, oil and gas have fueled historic job growth. Unfortunately, our past growth in employment came in violent upward spurts followed by job vacuums when commodity prices declined or resources ran out, a difficult dynamic for any economy to absorb.

FROM BUST TO BOOM?

To a significant extent, this boom/bust dynamic changed in 198!). Alaska was still deep in the economic slump, which began when prices fell to below $10 per barrel of Alaska crude for the first time in 1986. Unemployment rates soared in Alaska. Rental vacancies rose from less than 5 percent in the previous five years (1980 to 1985) to over 25 percent by 1987, and widespread mortgage defaults led to the loss of several Alaska financial institutions. While economic developments like the Red Dog Mine and the FedEx hub were beginning to move forward at this time, it took the Exxon Valdez oil spill to turn the Alaska economy in a positive direction; Exxon injected nearly $2 billion into cleanup efforts beginning in 1989. While clearly a preventable ecological disaster, the truth is that this event marks the beginning of Anchorage's 18 years of continual job growth.

The price of Alaska crude has been at $10 per barrel twice since 1989, in 1992 and again in 1998. Yet, these were both years of job growth in Anchorage. Admittedly, the rate of annual job growth in the last 18 years has not been as rapid as in the upward swings of earlier boom/bust cycles. Ranging from a high of about 1.8 percent to a low of 1.2 percent, the growth has been predictably steady, and most importantly, sustainable. And while the primary causes of job growth in any given year have varied, this overall trend is the result of increased economic diversification.

HARD HIT BUT SAVED BY DIVERSITY

For instance, when oil prices again returned to sub-$10 levels in 1992, the state's oil companies were forced to make extensive layoffs of professional employees. By the end of that year, oil industry jobs dropped by about 900, but the ranks of the professional services sector in Alaska rose by 800 in the same year. Many of these oil industry engineers and technical experts opened a variety of professional services companies. In the early 1980s much of the engineering and consulting work in Alaska was done by out-of-state firms. Today it is rare to see an out-of-state engineer, architect or other consulting firm working on an Alaska project. Oil company layoffs in 1992, amazing as it sounds, actually contributed to Anchorage's economic diversification. What's more, the establishment of a strong professional services sector in Alaska made the state an easier place to execute projects since we now had a broad base of local expertise.

Oil and gas continue to be the industrial underpinnings to our increasingly diversified Alaska economy. While state government continues to depend on revenues from this industry for 90 percent of its income, only one-third of jobs in Alaska depend on the industry, including economic multiplier effects. But without this base, few of the other job sectors mentioned here would be able to exist and thrive.

RETAIL EXPANDS

Beginning in the early 1990s and continuing today, the combination of relatively low competition in the retail sector, Alaskans' high disposable income, and a stabilizing Anchorage economy led to significant investment in retail businesses in Anchorage. While service-sector jobs are often criticized for their relatively low wage rates, expanded retail options have contributed significantly to lowering the cost of living in Anchorage. In fact the ACCRA Cost of Living Index, which measures costs for a standardized middle-class family in 311 cities across the country, indicates that the cost of living in Anchorage is very close to the cost of living in Seattle and Portland. Anchorage is indexed at 119.5 as compared with 115.3 for Seattle and 116.8 for Portland. And not all retail jobs are low paying; Costco jobs, for example, are often cited for their higher pay and benefits package. Service-sector jobs also supplement household income and offer employment opportunities to those who cannot work at a full-time job.

HEALTH CARE INDUSTRY GROWING

Growth in the health care sector has been an even bigger contributor to our 18 years of job growth. In addition to our stable economy, which helps justify long-term investment in health care facilities, two other key factors contribute to the growth of health care employment in the Anchorage economy. First, Alaska has a relatively high proportion of residents with some form of health insurance. But probably the most important factor is that Anchorage has one of the highest percentages of baby boomers in the country, and like it or not, this sector of our population is aging and will likely have health challenges in the future. Health care is a particularly good contributor to Anchorage job growth since many of these jobs are high paying, and, unlike retail, much of the health care product that is provided to Alaska patients is actually created here.

RETAIL AND HEALTH CARE IMPORTANT STATEWIDE

The retail and health care sectors in Anchorage are also important services to the rest of Alaska. While in recent years there has been additional retail and health care-sector expansion in other hub communities in Alaska, Anchorage remains the primary center for retail and health care services for most Alaskans. Doing business with the rest of the state has been estimated to account for at least one in nine jobs in Anchorage. Providence Alaska Medical Center has a major expansion currently under way and Alaska Regional Hospital and the Alaska Native Medical Center continue to grow. Two new major shopping centers are currently in development for the Anchorage market. Lastly, the growth of the health care and service job sectors also represents a significant import substitution of goods and services previously purchased from Seattle and other markets.

AIR CARGO EXPANDS, TOO

Air cargo is today a well-known sector of the Anchorage economy. While in recent years overall job counts in the transportation sector have not been growing due to contractions and consolidations by passenger carriers, traffic at the Ted Stevens Anchorage International Airport (TSAIA) has been steadily growing. Both FedEx and UPS are in the process of expanding their Anchorage airport presence and multi-user facilities like the Lynxs Cargo Ports are planning expansions. Today, approximately 650 wide-body aircraft land at TSAIA each week, including 38 international carriers. As measured by landed cargo weight, TSAIA is the second busiest cargo airport in the world just behind Hong Kong. Air-related jobs in Anchorage are estimated by the TSAIA to account for about one in 10 jobs in Anchorage.

Growth in tourism, construction and professional services also has contributed significantly to Anchorage's job growth. Government spending has added greatly to the project spending in Alaska keeping the professional services and construction industries actively engaged. And the transportation sectors in Anchorage have helped move the goods and materials to make all sectors of the Anchorage and Alaska economies flourish.

FEDERAL SPENDING

A future reduction in Federal spending, with the eventual retirement of Alaska's senior senator Ted Stevens, is often raised as a potential weakness in the Anchorage economy. However, since the federal government owns about 60 percent of Alaska (or 219 million acres with 146 million of these established as parks and preserves and 73 million acres as military bases and other holdings), it reasonable to expect the federal government to continue significant levels of spending in order to maintain its very sizable Alaska assets.

MOVING BEYOND ALASKA

But perhaps the most significant and least appreciated trend in Alaska's economy is efforts by a variety of Alaska companies to grow their business by serving markets outside of Alaska. Far and away, the most successful at this have been a number of Alaska's Native corporations. In the Alaska Business Monthly's 2006 Top 49ers listing, 18 Alaska Native corporations were ranked among the leading Alaskan-owned and -operated businesses in the state, based on gross revenues for 2005. They make up 61.34 percent of the reported revenue and 68.51 percent of the employees for the entire list of 49 companies. One of the most interesting facts to be gleaned from this list is that of the 33,,520 employees working for Alaska Native corporations in 2006, 22,542 employees were not working for them in Alaska. Essentially, these companies are reversing the Alaska economic model. Instead of coming to Alaska, extracting a resource and channeling that value to shareholders outside of Alaska, they are developing market opportunities outside of the state and returning that value to their shareholders in Alaska. And it's not just Native corporations doing this; companies like Lynden, VECO, and Carlile Transportation Systems have also been very successful in developing their Outside markets. Even Alaska's Permanent Fund fills this diversifying function since virtually all of its investments are outside of Alaska, but it returns the earnings to its shareholders in Alaska through the Alaska Permanent Fund Dividend which largely gets spent in Alaska.

As Alaska moves into 2007, our trend of relatively slow but sustainable job growth will likely continue. But Alaska has some very big challenges on its horizon. Our aging work force must be quickly replaced with qualified workers. And as large projects like the gas pipeline and offshore oil and gas development move closer to reality, Alaska must provide large numbers of additional qualified workers. But, even more importantly, we must assure that we do not revert to our old boom-and-bust ways.

GAS LINE AND DIVERSITY

When those gas pipeline jobs come, we need to make sure that FedEx still has package sorters, that our tourism industry still has qualified workers in its hotels and restaurants, that our hospitals can maintain appropriate staffing, and that our services sector can still field qualified employees. As the campaign rhetoric proclaims, we want a gas pipeline on Alaska's terms, providing jobs for Alaskans-we do. But let's be careful what we wish for; providing qualified Alaskans for those 8,000 pipeline jobs will be a tough order to fill. We need to work on building a qualified work force as earnestly as we work on the contract negotiations for the pipeline. Let's be careful not to "throw the baby out with the bath water," sacrificing our diversified economy that has given us 18 years of uninterrupted job growth for the promise of short-term pipeline construction jobs.

Robert Poe is president and CEO of the Anchorage Economic Development Corp. He has had a 26-year career in Alaska in both the private and public sectors, serving four Alaska governors in a wide variety of positions from transportation and administration, to international trade, industrial development and energy.
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Author:Poe, Bob
Publication:Alaska Business Monthly
Date:Jan 1, 2007
Words:1924
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