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Running in place: Alaska's economy holds its own - barely.

While the Alaska economy could have been worse, it certainly could have been better, and most business people will be glad to see a new year -- and new opportunities -- in 1993.

If the state's economy did better than some expected, that was because nobody expected very much. Holly Stinson, labor economist for the Alaska Department of Labor, says employment growth was forecast at a miniscule .8 percent, but she expects 1992's final growth figure to be 1.5 percent.

"Where we're hurting is the goods producing sector," she notes. "It's the producers, but even more it's oilfield services, which was down over 1,300 jobs or 20 percent as of September." Stinson says job growth was recorded in seafood processing (3 percent), while trade and services and retail have been largely flat. Also showing growth was government (3 percent), especially local government as the state's growing population created jobs for teachers.

Other observers agreed that the state's 1992 performance was uninspiring. "The best word to describe Alaska in 1992 would be flat," says Scott Hawkins, president of Anchorage Economic Development Center. "The only notable exception is Fairbanks, which turned in a better than decent performance on retail." Hawkins says job growth in Anchorage slowed to "a crawl," and predicts less than .5 percent growth for the city.

Statewide, Hawkins agrees that the oilpatch, which laid off a thousand high-paying jobs, is the biggest drag on the economy. "I think what we're seeing as the oil industry downsizes is a preview. Depending on oil prices, what we see there is what we'll see generally in two or three years.

"The 1990s have arrived for Alaska," Hawkins says. "The idea that the oil industry is on the way out is no longer just a pastime for pessimists. Now it's all the more urgent to focus on other industries. ANWR is out of our control. We need to bring the seafood industry on shore, encourage more air cargo and build new resorts," he urges.

Hawkins points out that although the state's economy may have been sluggish this year, by comparison with the rest of the country, Alaska isn't doing so bad. "We probably did a touch better than the rest of the country. We will close the year with positive employment growth of 1 percent or so, and that's not true for the country as a whole," he says. Hawkins also notes that Alaska, unlike the Northeast and California, has not lost jobs due to military cutbacks, but actually gained as some 1,000 new troops arrived at Elemendorf Air Force Base.

The following industry reviews are based on assessments by government and industry analysts on how critical economic sectors fared.

Oil & Gas

While the decline of Prudhoe Bay continues, observers could point to Arco's Kuvlum discovery in the Beaufort Sea as proof that the Alaska oil industry is by no means dead. Jim Weeks, Arco senior vice president for Prudhoe Bay, says, "Everybody's excited about Kuvlum, but it's too early to start counting dollars. We really have no way of knowing about it until we drill more wells, but it's very positive news.

"The state of Alaska says it gets no royalties from Kuvlum, but there will be a pipeline to Point Thompson, which will allow it to be developed and keep wellhead prices lower and keep the pipeline flowing. Kuvlum will have a lot of positive influences," Weeks explains.

He says 1992 was significant to the industry in other ways. "I'd characterize it as a good year in some aspects and a rough year in other aspects. We demonstrated that Prudhoe Bay could reduce costs. It extends the life of the field and means more revenue for the state."

According to Weeks, until the decline began, North Slope producers concentrated on making their production limits, which fostered a damn-the-torpedoes attitude toward expenses. With production down, managers are paying more attention to costs.

Weeks says agreements between Arco and co-operator BP Exploration (Alaska) have been crucial to cost cutting and North Slope consolidation. "A lot of it has to do with cooperation with BP. That wasn't possible two years ago. It was not open before," he explains.

The new harmony has speeded up work on the gas-handling expansion project (GHX-2) necessary to keep production going. Weeks notes that the financing, designs and deliveries for the huge project were all finished early, and the project should be up and running by the end of 1994.

Concerning the recent consolidation of suppliers on the North Slope, Weeks says that although it's tough, it's something everyone should have anticipated. "As an industry, we've done a poor job of managing Deadhorse because we were so focused on production. There was two or three times as much equipment there as needed. Now we can include contractors in our long-range plans. We're trying to manage it a little better, but the market would eventually take care of it."

Weeks notes that Point MacIntyre is slated to begin production in August and that new wells will continue to be added to the North Slope. He also says a second follow-up well for the Cook Inlet Sunfish well will be drilled in 1993.

TIMBER

Alaska's timber and wood products industry played a waiting game in 1992. Market demand continued strong, prices were fair to very good and logging a lucrative business for those with a supply of trees. But many analysts remain concerned about the industry's ability to secure future supplies from public lands and some fear a substantial shortage of wood building materials could occur once the economy regains momentum, thereby slowing recovery in some areas.

A revised management plan for the Tongass National Forest wasn't due out until year's end and efforts to promote logging on state lands were apparently bogged down by high-level turnover in the Hickel administration and a resulting loss of focus over several months.

Loggers in Southeast Alaska are hoping the new forest plan there will help protect jobs in the region by ushering in a new era of certainty in timber supply. However, job loss in this sector continued as the volume of Native-owned timber declined, a trend expected to continue for the next several years.

On the state front, Louisiana Pacific Corp. withdrew a proposal to build a wood products processing facility near Fairbanks when word of the plan became public against its wishes. The $45 million plant would have generated nearly 500 jobs and a $30 million annual payroll, drawing on extensive stands of untapped Interior aspen and cottonwood for the manufacture of waferboard.

In a related non-development, a proposal by another firm, FibreForm Wood Products Inc. has apparently languished in the state's natural resources department since Gov. Hickel shuffled commissioners earlier in the year. The proposal from the Los Angeles firm is reportedly now under review by Department of Natural Resource's chief Glenn Olds.

According to one analyst, the state is proceeding slowly with plans to tap Interior forests in hopes of forestalling the kind of political opposition to a wood-products industry on state lands that brought logging in the Matanuska-Susitna Valley to a virtual standstill.

Chugach Alaska Corp. continued efforts throughout the year to form a partnership that would allow its Seward sawmill to reopen, and Chugach president Mike Brown remained optimistic about prospects for the facility. Should Chugach succeed, the resulting employment would help ease the loss of 500 industry jobs in Alaska in the last year. Meanwhile, mills in Klawock and Haines remained closed this year.

One bright spot in the timber sector this year was the approval of a loan to support the export of wood chips from the beetle-infested forests of the Kenai Peninsula. Also, plans moved forward to harvest spruce trees on Montague Island in Prince William Sound.

RETAIL

Just when things started looking good for retailers in Alaska following a difficult recession-driven shakeout, news of the arrival of huge national retailers shook up the market again, at least psychologically, at least temporarily.

At year's end the list of chains preparing or prospecting to open shop in Alaska was still growing (with rumors that yet another home-supply outlet was eyeing a run against Eagle Hardware, Spenard Builders Supply, Fred Meyer and others). But the shock has worn off and the savvy recession survivors of Alaska's retail sector were busy sizing up their competition-to-be and analyzing overhead reduction and inventory control options.

Observers Bill Dolence, manager of Anchorage's Dimond Center, most Alaskan retailers have become avid students of niche development and marketing. They're philosophical about new competition.

"Everyone has the same question, where will the business come from," says Dolence. The Dimond Center is virtually in the middle of a south Anchorage retail explosion, and just across the street from the site of a new Kmart store rising through the snow. But he says most mall merchants see the activity as a traffic draw from which they will ultimately benefit. "They'll just have to sharpen their pencils and be better merchants."

According to Dolence, despite Dimond Center's loss of Sportswest, at least a half dozen national chain stores have opened or expanded in the mall recently.

While retail indicators are imprecise or hard to come by, mall managers and store owners report that retail sales in 1992 reflected the overall health of the Alaskan economy this year: not inspiring but up a little bit. According to the Alaska Department of Labor, statewide retail employment grew from 40,600 in 1991 to 41,300 late this year. Average weekly hours and earnings in this sector also increased over last year.

According to analysts, the statewide increase is largely attributable to the opening of new national retail outlets in Fairbanks. In Anchorage, retail employment actually dropped, but this loss is seen as temporary while the city awaits the opening of its own batch of new stores.

REAL ESTATE

This year was not nearly as good as people had hoped, especially given low interest rates. But it wasn't a bad year. It was marked by stability, modest new home starts and improving dispositions among bankers, builders and brokers. Buyers were balky, apparently waiting out the turmoil of election, and there was some nervous profit-taking by sellers who, having waited out the state recession, didn't want to risk a future clouded by the national recession.

Data compiled by Multiple Listing Service Inc. and Alaska Housing Finance Corporation indicate delinquencies were comparable in 1992 to the previous year, and AHFC's inventory of foreclosed properties dropped dramatically. On a statewide basis, new listings are close to last year's levels and total active listings were slightly higher in 1992.

"It's real balanced," notes Ron Pollock, broker for 2001 Realty of Anchorage. "This to me indicates a real stable real estate market with a lot of buyers and a lot of sellers, and neither really having the upper hand."

It's a market, Pollock says, in which sellers have to remain competitive but are receiving up to 98 percent of their asking price.

Bob Shake, loan vice president for Northrim Bank, reports a softening in the spec market for new homes above $250,000, but says builders have been pleasantly surprised by the rate of pre-sales in all price ranges. Especially strong was the entry level price range up to $135,000, analysts say.

Realtors are hoping that with the election over and with increased employment in the coming months, housing sales will increase substantially.

While vacancy rates for Anchorage apartments of 20 or more units remained virtually unchanged at less than 2 percent, during the year, rents continued to climb, sometimes as high as 5-10 percent.

In the commercial real estate arena, 1992 raised fears that Anchorage's market for retail space could become dramatically overbuilt with the entry of large national chains. Such a surplus would only develop, however, if the newcomers caused substantial failures on the part of existing shop owners. While there are concerns about this impact, there is no consensus that such an outcome is likely. While there's been movement in the office market, there is as yet no impetus for new office construction in Anchorage.

Commercial real estate markets in Fairbanks and Juneau, for both office and retail space, were stable and healthy during the year.

In Anchorage, the vacancy rate was comparable to last year's, while leases remained relatively flat, with signs of softening, analysts say.

MINING

With world mineral prices lower than desired but holding steady, mining employment remained stable this year, and production levels at key mines--namely Red Dog and Greens Creek--remained stable. Progress continued in the permitting of two new mines in Southeast Alaska and exploration continued at important gold-bearing sites in the Interior.

According to state officials, production at the Valdez Creek mine in the Alaska Range topped 100,000 ounces this year, a record for the site.

Although exploration expenditures in the state have recently declined, depressing employment levels, industry experts note that they have not dropped at the same dramatic rate as exploration spending outside of Alaska. And 1992 saw encouraging signs that a number of large mining companies are returning to Alaska to conduct new exploration work. Some are looking at new ground, while others are applying refined technology to scour previously explored acreage.

COMMERCIAL FISHING

Alaska's commercial fishermen had a pretty good year overall. Herman Savikko, information officer with the Alaska Department of Fish and Game, says the state's salmon fishers pulled in 670,000,000 pounds of salmon of all species -- about 133 million fish -- to fall within the industry's 10-year average.

"What was significant about this year was the value," says Savikko. "This catch was worth about $560 million, so some fishermen did quite well, although the results kind of scattered around the state."

According to Savikko, the Alaska herring fishermen also did well, catching $30 million. He says the herring industry should prosper for the next three years.

More than 50 million pounds of halibut, worth at least $50 million, were landed by Alaska fishermen in 1992. Savikko calls the dollar-a-pound price "not real good," but points out that a new system is being considered.

Alaska's groundfish fisheries reeled in about 4 billion pounds of fish valued at one-half billion dollars.

The news on shellfish was mixed. About 300 million pounds of snow crab and about 35 million pounds of bairdi Tanner crab was harvested. King crab, however, declined from last year's 17 million pounds to 10 million pounds. "This is not a healthy fishery," says Savikko, and he warns of the possibility that Fish and Game could close down king crab harvesting to allow stocks to recover.

"Generally speaking, it was a pretty good year. Alaska fishermen took in about 4 1/2 billion pounds of critters worth well over $1 billion," Savikko says.
COPYRIGHT 1992 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Richardson,Jeffrey; Gerhart, Clifford
Publication:Alaska Business Monthly
Date:Dec 1, 1992
Words:2458
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