#1Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? How do oil prices influence Alaska and other energy-dependent states? Mouhcine Guettabi, PhD Associate Professor of Economics University of Alaska Anchorage Presentation for 2018 Alaska Chamber Fall Forum 10/24/2018 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#2Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Outline 1 Setting the stage 2 Let's quickly look at where this oil decline has left the state 3 What about Alaska's important economic base? 4 Why have some states recovered? 5 Aggregate relationship between oil prices and employment 6 Where does this leave us? • General takeaways • Steps forward 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#3Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? • The Alaska economy is heavily dependent on the oil sector both in terms of private sector jobs and government funding. Why is the state in trouble? Before the end of 2014, oil prices were elevated for a long period of time when the price exceeded $100 for multiple months. However, starting June 2014, oil prices experienced a deep drop averaging only $54.26 in the 4 years since. This is much lower than the $84.47 they averaged between 2006 and July 2014. M 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#4Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? When did the economy feel the effects of the oil price decline? While oil prices started declining in June of 2014, the first month of negative employment growth did not occur until October 2015. The state has essentially lost jobs in every month since that initial decline. This has also resulted in a precipitous drop in government revenues, which has forced the state to use savings to fill the fiscal gap. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#5Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? In one picture Figure 5. Unrestricted General Fund Petroleum Revenues, FY 1975-2018 (In Millions of Dollars) $11,445 Adjusted for inflation ($2016) $9,956 $9,382 $7,995 $4,518 $1,340 $3,575 $345 $2.572 $90 Not adjusted for inflation 5913 1975 1982 1987 1991 1999 Source: Alaska Legislative Finance, September 2017 $8.869 2008 2012 $1,223 $1,110 2016 >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#6Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Summary takeaway Monthly employment in thousands January- February March- April- 300 320 340 360 TTT Mouhcine Guettabi, PhD May- Alaska's non seasonally adjusted All monthly employment between 2014-2018 Between June 2015 and June 2018, employment declined by 11,400 jobs. June- July- August- September- October month 2014 2016 2015 2017 2018 Oil dependence and economic activity November December 592#7Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Source of current weakness Monthly employment in thousands January- February- 32 34 36 38 40 TIT Alaska's non Seasonally adjusted Retail monthly employment between 2014-2018 March- April- May- June- July- August- September- October Novmber- Mouhcine Guettabi, PhD month 2014 2015 2016 2017 2018 Oil dependence and economic activity December 592#8Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Overall employment relative to other energy states Employment in Oil states relative to June 2014 Employment in June 2014=1 .92 .94 .96 .98 1 1.02 As of June 2018, employment in Alaska was 96.6% of what it was in June 2014 92 2014 2015 Alaska 2016 2017 2018 year Alaska North Dakota West Virginia Louisiana Oklahoma Wyoming 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#9Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Oil employment relative to other energy states Mining and logging employment in Oil states relative to June 2014 Employment in June 2014=1 .5 .6 .7 .8 .91 2014 The sector as of June of 2018 lost a total of 4,300 jobs putting it at 75.5% of its size in 2014 2015 Alaska 2016 year 2017 2018 Alaska North Dakota West Virginia Louisiana Oklahoma Wyoming பச 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#10Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What about construction? Employment in June 2014=1 Construction employment in Oil states relative to June 2014 As of June 2018, employment in construction was 86.4% of what it was in June 2018 2014 2015 Alaska 2016 year 2017 2018 Alaska North Dakota West Virginia Louisiana Oklahoma Wyoming 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#11Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Was government employment affected? • Alaska's government employment went from 83,100 in June 2014 to 80,300 in June 2018 Gov. employment in Oil states relative to June 2014 Employment in June 2014=1 .98 1 1.02 1.04 1.06 1.08 2014 2015 Alaska North Dakota West Virginia Mouhcine Guettabi, PhD 2016 year 2017 2018 Louisiana Oklahoma Wyoming Oil dependence and economic activity 592#12Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Let's compare the job losses across the energy states ⚫ During the 1980's recession Wage and salary employment declined by 3.67% in the 1986 and another 3.79% in 1987. That totaled almost 19,000 jobs from what was a 260,000 private sector economy. State Cumulative declines Share of overall employment decline Alaska (Oct 2015 to Oct 2017) 11.200 3.46% Louisiana (Oct 2015 to Oct 2017) North Dakota (May 2015 to May 2018) Oklahoma(January 2016 to January 2017) Wyoming (May 2015 to May 2017) 25,900 1.30% 25.200 5.79% 17,900 1.11% 14,000 4.94% 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#13Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Length of the recession by state • North Dakota, Alaska, and Wyoming have had the longest recessions. State Consecutive months of year over year declines First month of negative growth Alaska Arkansas Colorado Kansas Louisiana Montana New Mexico North Dakota. Oklahoma Texas 34 0 0 2 21 October 2015 4 37 18 0 Utah Wyoming 0 N.A N.A December 2015 September 2015 N.A October 2016 May 2015 November 2015 N.A N.A 27 May 2015 AD> M 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#14Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Has the recession ended everywhere? • Louisiana, Wyoming, and Oklahoma have all had multiple months of positive growth. State Recession has ended? First month of positive growth N. of positive months Alaska No. Louisiana Yes N.A October 2017 10 North Dakota Maybe Oklahoma Yes June 2018 May 2017 15 Wyoming Yes August 2017 12 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#15Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Did people leave? ⚫ The table below show net migration from each of the energy-depdendent states using IRS data. • Alaska has had fewer people moving in than moving out since 2012. State 2011 2012 2013 2014 2015 2016 2017 Alaska 702 -434 Louisiana 6.119 5.498 North Dakota 6,174 11,654 Oklahoma 12.103 14,661 Wyoming 485 5.964 19,024 2.941 -2,178 -8,022 -5,077 -2.557 -8,381 4.203 1.434 915 -5,020 -19,819 18.051 10.264 11.733 -4,684 -5,164 10.068 15.466 2,894 -3,148 -2,187 -1,224 -3,823 -8,285 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#16Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? Share of GDP coming from oil State 2010 2011 2012 2013 2014 2015 2016 2017 Louisiana Montana New Mexico Oklahoma Texas Utah Alaska 31.8% 35.2% 35.19% 32.61% 28.63% Arkansas 3.03% 3.64% 3.14% 3.35% 3.47% Colorado 5.08% 5.73% 5.21% 5.60% 6.32% Kansas 1.65% 1.78% 1.86% 1.91% 1.79% 0.97% 0.63% 9.31% 9.78% 8.97% 8.13% 7.43% 4.92% 6.54% 7.42% 7.37% 7.13% 6.36% 10.45% 12.11% 11.90% 13.20% 13.85% 10.06% North Dakota 8.36% 12.64% 16.33% 17.95% 18.35% 12.29% 13.16% 15.95% 14.51% 18.12% 19.62% 13.82% 10.71% 12.12% 12.61% 13.96% 14.55% 9.34% 6.95% 8.46% 3.67% 4.07% 3.66% 3.47% 3.55% 2.09% 1.64% 1.75% West Virginia 14.5% 16.59% 13.4% 14.0% 14.11% 11.58% 10.24% Wyoming 34.6% 35.18% 29.27% 28.86% 26.9% 21.25% 19.85% 23.33% 18.63% 2.12% 4.26% 15.28% 18.59% 1.43% 3.17% 3.79% 1.40% 0.71% 3.90% 4.66% 4.89% 4.06% 4.03% 8.07% 9.96% 9.03% 11.72% 10.22% 12.09% 12.87% M 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#17Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? ⚫ Stickiness of oil shocks varies from state to state. For example, Wyoming and North Dakota are more sensitive to negative shocks than they are to positive ones. ⚫ The oil dependence, as measured by the share of GDP coming from Oil and Gas and Mining varies greatly across these 13 states. Alaska, Wyoming, Oklahoma, and North Dakota are the four states most dependent on the oil sector. In 2014, they had 28.63%, 26.9%, 19.62%, and 18.35% of the value produced coming from the sector. AD> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#18Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? ⚫ Stickiness of oil shocks varies from state to state. For example, Wyoming and North Dakota are more sensitive to negative shocks than they are to positive ones. ⚫ The oil dependence, as measured by the share of GDP coming from Oil and Gas and Mining varies greatly across these 13 states. Alaska, Wyoming, Oklahoma, and North Dakota are the four states most dependent on the oil sector. In 2014, they had 28.63%, 26.9%, 19.62%, and 18.35% of the value produced coming from the sector. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#19Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? • The share of government revenues coming from oil specific taxes varies a great deal. • Non oil sectors were much more robust in other states. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#20Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? • The share of government revenues coming from oil specific taxes varies a great deal. • Non oil sectors were much more robust in other states. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#21Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What else can we say about the relationship between oil prices and employment? • We assess how fluctuations in oil prices over the period from 1991 to 2018 affect monthly employment changes. • We calculate that a 10% change in oil prices results in a 1.7% change in employment across these oil dependent states in the long run. For Alaska, using 2018 employment numbers, that would amount to about 4,515 increase in jobs as a result of a 10% increase in oil prices. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#22Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What else can we say about the relationship between oil prices and employment? • We assess how fluctuations in oil prices over the period from 1991 to 2018 affect monthly employment changes. • We calculate that a 10% change in oil prices results in a 1.7% change in employment across these oil dependent states in the long run. For Alaska, using 2018 employment numbers, that would amount to about 4,515 increase in jobs as a result of a 10% increase in oil prices. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#23Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What else can we say about the relationship between oil prices and employment? • We assess how fluctuations in oil prices over the period from 1991 to 2018 affect monthly employment changes. • We calculate that a 10% change in oil prices results in a 1.7% change in employment across these oil dependent states in the long run. For Alaska, using 2018 employment numbers, that would amount to about 4,515 increase in jobs as a result of a 10% increase in oil prices. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#24Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Outline Setting the stage 2 Let's quickly look at where this oil decline has left the state 3 What about Alaska's important economic base? 4 Why have some states recovered? 5 Aggregate relationship between oil prices and employment 6 Where does this leave us? • General takeaways Steps forward 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#25Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • We show that the current recession has slowed but we are far from a full recovery as employment levels are considerably below where they were four years ago. It does, however, appear that Oil and Gas, Professional and Business services, and Construction have stabilized. • Oklahoma and Louisiana had shorter bouts of negative growth and have had fairly robust recoveries. North Dakota, Wyoming, and Alaska have had the longest and deepest recessions. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#26Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • We show that the current recession has slowed but we are far from a full recovery as employment levels are considerably below where they were four years ago. It does, however, appear that Oil and Gas, Professional and Business services, and Construction have stabilized. • Oklahoma and Louisiana had shorter bouts of negative growth and have had fairly robust recoveries. North Dakota, Wyoming, and Alaska have had the longest and deepest recessions. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#27Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • We show that the current recession has slowed but we are far from a full recovery as employment levels are considerably below where they were four years ago. It does, however, appear that Oil and Gas, Professional and Business services, and Construction have stabilized. • Oklahoma and Louisiana had shorter bouts of negative growth and have had fairly robust recoveries. North Dakota, Wyoming, and Alaska have had the longest and deepest recessions. >> M 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#28Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • Government employment is an important part of the Alaska economy. As of June 2018, federal/State/local employment combined to be 80,300 as of June 2018. • This most recession which started in October 2015 has cost the state between 12,500 and 13,000 jobs. • Capital spending is a very important driver of construction activity but has been bare bones for multiple years. • The state has also used a significant portion of its savings to fill the gap created by the loss of oil revenues. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#29Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • Government employment is an important part of the Alaska economy. As of June 2018, federal/State/local employment combined to be 80,300 as of June 2018. ⚫ This most recession which started in October 2015 has cost the state between 12,500 and 13,000 jobs. • Capital spending is a very important driver of construction activity but has been bare bones for multiple years. • The state has also used a significant portion of its savings to fill the gap created by the loss of oil revenues. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#30Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • Government employment is an important part of the Alaska economy. As of June 2018, federal/State/local employment combined to be 80,300 as of June 2018. ⚫ This most recession which started in October 2015 has cost the state between 12,500 and 13,000 jobs. ⚫ Capital spending is a very important driver of construction activity but has been bare bones for multiple years. • The state has also used a significant portion of its savings to fill the gap created by the loss of oil revenues. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#31Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward • Government employment is an important part of the Alaska economy. As of June 2018, federal/State/local employment combined to be 80,300 as of June 2018. ⚫ This most recession which started in October 2015 has cost the state between 12,500 and 13,000 jobs. ⚫ Capital spending is a very important driver of construction activity but has been bare bones for multiple years. The state has also used a significant portion of its savings to fill the gap created by the loss of oil revenues. M 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#32Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Outline Setting the stage 2 Let's quickly look at where this oil decline has left the state 3 What about Alaska's important economic base? 4 Why have some states recovered? 5 Aggregate relationship between oil prices and employment 6 Where does this leave us? • General takeaways • Steps forward 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#33Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Dare to provide thoughts on the future? • The future of Alaska economic development will rest on the success of the traditional basic sectors and the pursuit of new opportunities. • Most importantly, it will depend on whether the state can address its leaky bucket by ensuring that more of the value generated in Alaska stays in state. • That will require evaluating opportunities where import substitution is possible and ensuring there is a qualified workforce that can take advantage of employment opportunities. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#34Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Dare to provide thoughts on the future? • The future of Alaska economic development will rest on the success of the traditional basic sectors and the pursuit of new opportunities. • Most importantly, it will depend on whether the state can address its leaky bucket by ensuring that more of the value generated in Alaska stays in state. • That will require evaluating opportunities where import substitution is possible and ensuring there is a qualified workforce that can take advantage of employment opportunities. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#35Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Dare to provide thoughts on the future? • The future of Alaska economic development will rest on the success of the traditional basic sectors and the pursuit of new opportunities. ⚫ Most importantly, it will depend on whether the state can address its leaky bucket by ensuring that more of the value generated in Alaska stays in state. • That will require evaluating opportunities where import substitution is possible and ensuring there is a qualified workforce that can take advantage of employment opportunities. 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#36Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What about diversification? General takeaways Steps forward It is important to separate revenue diversification from economic diversification. • The recent decision to use the earnings reserve to fund a portion of government should make the state revenues more resilient to future oil price declines. • The Alaska disconnect will eventually need to be addressed. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#37Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What about diversification? General takeaways Steps forward It is important to separate revenue diversification from economic diversification. • The recent decision to use the earnings reserve to fund a portion of government should make the state revenues more resilient to future oil price declines. • The Alaska disconnect will eventually need to be addressed. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#38Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? What about diversification? General takeaways Steps forward It is important to separate revenue diversification from economic diversification. • The recent decision to use the earnings reserve to fund a portion of government should make the state revenues more resilient to future oil price declines. • The Alaska disconnect will eventually need to be addressed. >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity#39Setting the stage Let's quickly look at where this oil decline has left the state What about Alaska's important economic base? Why have some states recovered? Aggregate relationship between oil prices and employment Where does this leave us? General takeaways Steps forward Thank you Thank You Mouhcine Guettabi Phone Number: 907-786-5496 email: [email protected] >> 592 Mouhcine Guettabi, PhD Oil dependence and economic activity