Alaskans’ confidence in their local communities’ economies and their family household finances slipped in the second quarter of 2010; also, more Alaskans now say that local and statewide economic conditions are worsening than say conditions are getting better.
The second quarter of Northern Economics’ Alaska Confidence Review shows confidence in Alaska’s economies declining from the first quarter. Some of the more interesting results include:
·         As in the first quarter of 2010, a majority of Alaskans would not describe the current condition their local community’s economy as good and said that conditions are not improving over time:
o   The portion of respondents who rated their local community’s economy as good or better fell by 3 percentage points to just over 35 percent, while the portion who rated their local economic conditions as poor or worse increased by nearly the same amount to 18 percent.
o   While 60 percent of respondents said they felt the economic conditions in their local communities was staying the same, the portion that felt things were getting worse increased by 8 percentage points to nearly one quarter of the respondents. Less than 15 percent of respondents felt things were getting better in their local community.
·         Alaskans’ rating of the state’s current economic condition stayed steady in the second quarter. A majority of Alaskans would not describe the overall state economy as good or improving. Only 32 percent of respondents rated Alaska’s economy as good or better, while just over 16 percent rated the economy as poor or worse.
·         At the same time, more Alaskans felt that economic conditions in the state are worsening. More than one-quarter of respondents said economic conditions in the state are getting worse. Most of the increase in this category came from respondents who felt that conditions were stable in the first quarter; the portion of respondents who felt things were getting better overall stayed roughly constant in the second quarter.
·         While Alaskans still feel comparatively good about their personal finances, the percentage of respondents who rated their family’s financial situation as secure or very secure fell to 50 percent in the second quarter from 60 percent in the first quarter. Respondents who felt their family’s financial situation is getting better outnumbered those who felt it is getting worse by just five percentage points.
The data supporting Northern Economics’ Alaska Confidence Review are generated via The Alaska Survey, a joint venture between Ivan Moore Research and Northwest Strategies. This quarterly statewide survey of more than 750 Alaskans is the first regularly conducted survey in Alaska to include a substantial sub-sample of respondents who only use cell phones.

In the midst of all the economic doom and gloom these days, it’s nice to hear some good news, this time in the form of a little good press from a long way away! The New York Times Travel section online is running a slideshow highlighting some of the attractions of Anchorage’s downtown. Specifically, the piece features the shops and restaurants of the G Street/4th Avenue area: “Most dream vacations to Alaska revolve around wilderness hikes or cruises past mountains and glaciers. But changes in downtown Anchorage offer visitors a few reasons to linger in the state’s most populous city.”

The story came to our attention through friends whose shop, Suzi’s Woollies, is across the street from one of the merchants featured in the story, Modern Dwellers Chocolate Lounge. Ben and Suzi learned about it when two vacationing New Yorkers stopped in, told them they were on the street because they’d seen the slideshow, and bought three sweaters!

The merchants of G Street have been working for years to promote their blocks between 3rd and 5th Avenues as an arts district, and last year were formally recognized by the Municipality with official street signs to that effect. Over the past couple of years a number of specialty boutiques and artisan food outlets have clustered in the area. Here’s hoping the virtuous cycle continues of merchants with unique offerings drawing more foot traffic, thereby encouraging more creative ventures to open shop, and thus tempting yet more visitors to explore the city and grow our economy—ultimately making the city more appealing for local residents and visitors alike.

And hooray for the little boosts from afar along the way!

While not everyone at Northern Economics, Inc caught World Cup fever, enough of us have fallen under the spell of the quadrennial international competition that the US teams’ loss to Ghana will make work a little somber come Monday morning. Some of our staff will argue that the increased productivity around the office is a good thing, but those of who’ve lived and died with the US team over the last two weeks know that producitivity can only carry you so far; everyone needs a little excitement and a reason to believe now and again (see below).  There are some new fans of US soccer at NEI and we’re already looking forward to 2014. Until then, our vuvuzelas fall silent.

People are funny when it comes to numbers. Recently behavioral economists (the formerly unholy combination of psychology and economics) have established that the more precise a number is when presented to an individual, the more likely that person is to cognitively accept the number. In other words, if you want an audience to believe the numbers you are presenting them, then you should provide numbers that appear very precise (e.g., not ending in a lot of zeros) without appearing ridiculous. In effect, by doing so you are implying a greater confidence in your numbers. For good and for bad, practicing economists recognized this psychological effect some time ago. Responsible researchers realize that numbers need to be presented in a manner that accurately reflects the precision of their estimates (or lack thereof). For example, we wouldn’t want to say it would cost $356,786,294 to build a bridge because we know that there is some inherent inaccuracy in the estimation procedure and costs and designs will likely change between the publishing of the report and the building of the bridge. We would be more likely to report that the bridge would cost roughly $350 million plus or minus a certain amount. While this example is a bit extreme, less responsible researchers have used this trick of implied precision to bolster confidence in their estimates.

Enough about economists. The fun comes when we realize that other groups consistently use this trick of implied precision to make the average consumer less likely to negotiate and to boost their profits.

Researchers at Cornell University recently looked at homebuyers’ responses to certain levels of precision within pricing. The study, called “The Price Precision Effect: Evidence from Laboratory and Market Data,” found that buyers’ end up paying more for a house when more precise numbers are used, even when the more precise initial asking price is slightly lower than the initial asking price which uses a lot of zeros. For example, a house listed at $124,880 would sell at a higher price than one listed at $125,000, even though the initial value of the “precision price” is lower. (Mathematically, of course, both of these numbers are equally precise, but to the human mind the one with fewer zeros is “more precise.”) Part of the effect of this “more precise” price is that it signals to the buyer that the seller has a very specific value for their home while the “less precise” number signals room for negotiation. It’s the presence of those zeros that trigger this effect. So, when you see a home listed for a number that doesn’t include a lot of zeros you’re likely dealing with a savvy seller who understands the psychology of numbers. (Of course, retailers have long used a similar, but slightly different psychological trick for years, listing items at, say, $5.99 rather than $6.00.)

Interestingly, the researchers discovered that this precision effect even caused people to incorrectly perceive higher numbers as lower—for example, judging a home price of $395,425 to be smaller than a price of $395,000. Realtors and shopkeepers aren’t the only groups that use this trick. Insurance companies also use it to speed payment settlements and lower cognitive resistance in individuals seeking payment. One of our economists recently experienced this method when an insurance company offered a seemingly precise number for a totaled vehicle. The company offered a number such as $9,427 instead of offering $9,400 or $9,500. Why? Offering the “more precise” number creates a signal that the company has truly taken the time to value the vehicle and is offering the best price possible. If the company offers a more rounded number it signals room for negotiation—something which is not usually in a for-profit company’s best interest.

So, the next time you’re making a large purchase or attending a presentation and someone offers you a number that appears very precise for the circumstances ask yourself why they’re presenting the number in that manner and whether they can truly know that value or estimate to that level of precision or whether there’s another factor at play.

Eventually something has to give in the markets for oil and natural gas if the price ratio between the commodities is to return to its historic range. Or, does it? The current ratio of 21-to1, as expressed by $ per barrel of oil (bbl) divided by $ per thousand cubic feet of gas (mcf), is the highest ratio seen in a decade. Economists have traditionally paid attention to this ratio as oil and natural gas are substitutes for each other in the US utility and industrial sectors. When one of the commodities has become disproportionately cheap or expensive, manufacturers and utilities have switched over to the cheaper fuel. Historically, the price ratio between the two commodities has ranged between 5-to-1 and 10-to-1. This ratio is grounded in the fact that it takes roughly 6,000 cubic feet (6 mcf) of natural gas to equal to the energy contained in one (1) barrel of oil. In a perfect world, dual fuel capable utilities and manufacturers would switch to natural gas any time the ratio rose significantly above six (thus raising the demand for natural gas) and switch to oil any time the ratio dropped significantly below six. The fuels are not perfect substitutes for each other and each is subject to its own supply and demand forces; so the ratio never sits exactly at 6-to-1 for very long.

Figure 1. Ratio of Natural Gas and Oil Prices (click link for full-size image)

With an price ratio over three times the energy ratio of the two commodities, economists would normally expect market forces to bring the ratios back to something closer than normal either through an increase in natural gas prices, or a decrease in oil prices, or both. While that return to normal is likely to happen in the long run, in the short run the natural gas market and the oil market are marching to two completely different drummers.

• The natural gas market is responding to the market fundamentals. Aggressive drilling programs since 2005 and advances in horizontal drilling technology have increased domestic supply while industrial and utility consumption levels have cratered with the aggressive recession. The result is the price for gas have fallen from a normal seasonal range of $6 to $10 per mcf to less than $3 per mcf and storage levels have hit an all-time high. A mild hurricane season and winter could result in natural gas fields reducing production.


• The oil market is also responding to market forces, but forces of a completely different stripe. While demand for oil is down worldwide, the long-term expectation is for oil demand and prices to increase. This disparity (known as “contango”) between the current price of oil and long-term options contracts has made it profitable to park tankers filled with oil and delay delivery until a later date. The result of these delays is artificially inflated current demand for oil, which then leads to increased short-term prices, thus reducing the incentive to store the oil. The other factor affecting oil prices is that the average marginal cost of producing oil has risen substantially in recent years, which puts a floor under the price because producers remove productive capacity when the price of oil falls too low.

So, what are our expectations? There are a number of factors out there which could affect the markets either singly or in combination:

• One possibility is that so much oil gets “parked” for future delivery that it depresses prices when consumer and industrial demand for oil returns. Given the limited numbers of tankers that can be “parked”, this scenario does not reduce oil prices so much as it limits the rise in oil prices in the future for a very short period.


• If US industrial and utility production continues at reduced levels, then the price of natural gas stays depressed. We do not see natural gas prices recovering without these sectors starting to recover from the recession.  Watch the Institute for Supply Management’s (ISM) monthly index numbers for a sustained change above 50. In particular, watch the ISM sub-index for employment. When employment grows we’ll know that industry has confidence in the economic recovery.


• Horizontally drilled wells provide the bulk of new production in the US. These wells have traditionally exhibited steep decline rates. Right now companies aren’t drilling enough new wells to fully replace current supply. The lack of current drilling will moderate supplies in the medium and longer term. However, without an increase in demand, the effect of reduced supplies will be limited. If demand increases sharply, then the natural gas price could spike.

We see these factors as medium and longer term issues. In the short run we don’t see the oil/natural gas price ratio returning to “normal” as long as the US industrial sector remains depressed and the market expects oil prices to return to higher levels. We do believe that the longer these two markets remain out of sync the more violent the “snap back” is likely to be in the end.

The tourism industry in Alaska provides around 40,000 jobs and was worth $1.7 billion to the state economy in 2008. As 2009 advances, the tourism industry is experiencing considerable downturn and it seems that this will continue through the next year, according to some projections.

Tourism is one of the state’s top industries in terms of revenue and employment. The revenue from tourism is substantial and can be explained by the number of visitors to Alaska each year. During the 2000-2001 visitor season, over 1.4 million visitors came to Alaska. This number has been increasing over the years. Just over 1.7 million out-of-state visitors came to Alaska between May and September in 2008. However, the major concern is how badly the tourism industry will be affected by the recent economic recession, since tourism is important for state’s revenue and employment.

According to an online article, “Tourism Industry Likely Poised For A Dismal 2009,” state revenue from tourism might decrease substantially in 2009 and some businesses that are closely related to tourism and visitors are already reporting a 30 percent decline in performance compared to last year at this time. Dave Worrell with the Alaska Travel Industry Association is projecting a decline in tourism for 2009 of 10 to 15 percent, which represents more than $200 million of spending.

Another article in the Wall Street Journal, “Alaska Fights a Tourism Cold Front,” also talks about the decline in tourism and missing the “Palin Effect” on tourism. Travel companies were expecting a strong season for Alaska after Gov. Sarah Palin’s turn in the presidential-campaign spotlight.  But in early May, which is the start of peak tourism season, some hotels, cruise lines, and tour operators in the state complained that reservations were down as much as 50 percent from last year when all resorts and cruises were fully booked by this time. As a result, tourism agencies and all cruise lines are offering substantial discounts, reaching 25 to 50 percent. The $1.45 billion cruise industry is critically important to tourism. Operating in Alaska for cruise companies has become less profitable, as prices have come down substantially.

Since January 2009, the numbers of both the employed and unemployed in Alaska are increasing according to figures released by the Alaska Department of Labor and Workforce Development (ADOLWD)  on Thursday, March 5. While the unemployment rate, which was 7.9 percent in January, has increased by 1.5 percent, the number of payroll jobs increased by 5,200 during the same period, which is hand-in-hand with ADOLWD’s long-term employment projections.

According to the ADOLWD’s 10 year employment projection (2006-2016), Alaska’s employment is projected to increase about 14 percent from 314,051 to 357,819 between 2006 and 2016. This is an increase of nearly 44,000 new jobs.

The report is not projecting business cycles, but merely identifies the general directions of movements and some measures of the magnitudes of changes in the labor market. According to the article, if the current recession becomes a depression, then these 2016 projections may prove overly optimistic. Likewise, if the economy quickly reverses and experiences rapid growth, these projections may be understated.

The study presents projected job openings created by both increasing demand for an occupation and replacement of workers leaving an occupation, plus calculated growth rates over this 10 year period and statewide mean wages, and includes the following topics:

Alaska’s Job Growth by Industry

-          The average growth for the economy is expected to be 14 percent.

-          The health care and social assistance industry is projected to outperform the average growth with nearly 25 percent growth.

-          The utilities industry and professional, scientific and technical services are projected to grow at nearly 28 and 25 percent respectively

-          Other industries posting well-above-average gains include mining, and arts, entertainment and recreation.

-          Industries that will underperform are: government, manufacturing and information services. The agriculture-related industries also will continue to decline further.

Changes in Alaska Industry Employment

-          Some occupations in high demand today didn’t exist a generation ago and some occupations today are experiencing significant employment declines.

Job Openings by Occupational Category

-          The greatest number of newly created jobs will come from construction and extraction, which includes many mining related occupations.

-          Office and administrative support, food preparation and serving, sales occupations and occupations related to health care industries follow close behind.

-          Transportation and material moving openings are expected to remain high.

Growing and Declining Occupations

-          Occupations concentrated mostly in industries with both large employment and rapid growth will provide many of the employment opportunities in the future.

-          Network systems analysts and environmental engineering technicians hold two of the top three spots as Alaska’s fastest-growing occupations.

-          Declining occupations can be found across both large and small industries. Their declines often reflect changes in technology and the way the jobs are performed. 

Education and Training Levels

-          60 percent of projected openings will require less than a year of on-the-job training.

-          18.4 percent will require a Bachelor’s degree or above.

-          17 percent moderate-term on-the-job training.

-          9.7 percent Associate degree or vocational training.

-          7.3 percent long-term on-the-job training.

-          4.4 percent experience in a related occupation.

The article is accessible on Alaska’s 10 Year Occupational Forecast.  Additional information about all occupations can be found on Research and Analysis’ Web site at laborstats.alaska.gov. In the blue bar on the left, click on “Occupational Information,” then “Occupational Forecast” for 2006 and 2016 employment estimates, the number of growth and replacement openings, growth rates, links to other occupational data, help with understanding the methods used and what the data means, plus links to other data produced by Research and Analysis.

Important Note: Alaska’s employment patterns parallel those of the U.S. in many industries, and are affected by similar forces. Therefore, many U.S. economic indicators and forecasts were considered in the creation of these Alaska projections

My name is Said Yusupov. I am from Chechnya. I lived in Grozny and graduated from high school there. After graduation, I made the transition to Bogazici University at Istanbul, Turkey where I have spent 6 years studying Economics and English. After I graduated from the Economics department I moved to Alaska.

I am currently an MBA student at UAA and I am planning to start the MSPM program next spring semester.

I have an easy going personality and respect for others. Some of my friends say that I am too serious but it helps me to concentrate on my work and I am hard working.

I am very glad to have an opportunity to do an internship at Northern Economics. Friendly people and a warm working environment are very important at a work place and I saw that here from my first day.

Northern Economics prepared a report titled, “The Seafood Industry in Alaska’s Economy” in January. The purpose of the report is to describe the economic importance of Alaska’s seafood industry, primarily the industry’s significance to the state economy. The report was funded by a broad spectrum of industry groups with the intent of providing an objective assessment of the industry.

Alaska’s seafood industry is the largest private sector employer and job provider and generates revenues for the state and its communities. The report emphasizes Alaska’s role as one of the nation’s leading seafood producers and includes the following topics:

• Historical overview of the growth of Alaska’s seafood industry


• Economic impacts of Alaska’s seafood industry by:

• Region of industry activity


• Residency of participants


• Fisheries jurisdictional area


• Major target species or species group

Some highlights from the report include:

Importance of Alaska to the Global Seafood Market

• Alaska landings of traditional global groundfish species groups and flatfish accounted for about one-fifth of the world harvest of these species groups in 2006


• Alaska is the top producer of wild salmon, producing nearly 80 percent of the world supply of wild king, sockeye, and coho

Importance of Alaska Seafood to the U.S.

• In 2007, Alaska accounted for over 62 percent of the volume of the commercial seafood harvested in the United States


• Alaska as a single state led all other multi-state regions in the US in terms of ex-vessel value with over 37 percent of the US total


• Alaska landings accounted for over 90 percent of the U.S. Pacific Ocean herring harvest and over 75 percent of the US commercial catch of Pacific Halibut in 2007


• In 2007, Alaska had two of the country’s three top fishing ports ranked by total harvest value

Importance of Alaska Seafood to Alaska

• The total estimated ex-vessel value of Alaska’s commercial harvest was $1.55 billion in 2007


• The estimated wholesale value of Alaska’s commercial seafood industry was $3.6 billion in 2007


• With an estimated workforce of 56,606, the seafood industry employs more workers than any other industry sector in Alaska. The retail and wholesale trade sector follows with a workforce of 56,445


• The value of Community Development Quota group assets in the aggregate increased from about $13.3 million in 1992 to over $415 million in 2005

The report is accessible from the Marine Conservation Alliance’s website (PDF).

The report has received extensive press coverage, including in the Alaska Journal of Commerce and Anchorage Daily News:

• Alaska Journal of Commerce: Commercial fisheries pack a $6 billion impact in Alaska (Bauman)


• Anchorage Daily News: U.S. Seafood Output Poised to Increase (Welch)

Northern Economics, Inc. presented its annual statewide economic forecast for 2009 at World Trade Center Alaska Economic Forecast luncheons on January 20, 21, and 22. Marcus Hartley presented the forecast on January 20 in Fairbanks, followed by presentations by Pat Burden in Anchorage on January 21 and Juneau on January 22.

Data presented in the 2009 forecast reflected the following trends in Alaska’s current economy:

• Jobs declining by about 3,400 or 0.6% of total jobs in 2008 (Jobs include military and self-employed residing in Alaska)


• Earnings declining by about $400 million or 1.5% (Includes wages and salaries, proprietor’s income, and contributions to pensions and social security)


• GSP dropping $14.1 billion or 26.4%, primarily due to lower crude oil prices and coming off of a peaking GSP due to high oil prices (GSP includes the value of goods and services less the cost of goods used in their production)

See below for links to coverage we’ve received in the press:

• Anchorage Daily News: Recession expected to catch up to Alaska this year


• Fairbanks Daily News Miner: Recession forecast to hit Alaska in 2009


• Juneau Empire: Economists stands by prediction of government growth in 2009


• KTUU: Job Losses Expected for Alaska


• ABC Alaska News: Alaska Economic Outlook


• Alaska Progress Report: Alaska Economic Outlook 2009


• Kansas City InfoZone: Tracking the Recession: Gloom in Alaska