Closures, tanking oil and uncertainty bombard Alaska’s economy

Passengers walk a downtown Juneau dock where three cruise ships are tied up June 11, 2017. (Photo by Ed Schoenfeld/CoastAlaska News)

As coronavirus spreads around the world, economic uncertainty is ramping up. Alaska is particularly vulnerable. The state’s economy relies heavily on oil exports and the tourism industry, and both are taking big hits right now.

Thousands of people are out of work this week. And, even if the spread of the virus slows, the summer tourism industry could be in big trouble.

This is the time of year when Alaskans start gearing up for the summer. It is a busy time. And normally, there are a lot of jobs. But this year is different.

“You know, I’m in a really good position with my jobs at this point in time, with what’s currently being affected,” said Colton Welch, sarcastically.

Welch lives in Juneau and works for a company that offers guided hikes and whale watching tours. He makes most of his income in the summer. In the off-season, Welch works as a substitute teacher. That job is on hold right now, because public schools across the state are closed.

Welch says he’s not worried about losing his tourism job. But, he is concerned about the possibility of having an abbreviated season because of disruptions in the cruise industry. And he’s worried about all of the other people who typically come to Alaska for work in the summer.

“Southeast Alaska has this wonderful quality where the people who are really enchanted by it seem to try to make it work,” said Welch. “But I could see some people who really, without any other option…at least in my neck of the woods, I could see that being very problematic.”

Related: Read more coronavirus coverage from Alaska Public Media.

State economists say Alaska’s economy will be disrupted by the coronavirus, even if it doesn’t spread here in the same way it has in other states.

“Alaska’s economy is immensely dependent on tourism,” said Mouhcine Guettabi, an economist with the University of Alaska’s Institute of Social and Economic Research. “Therefore we can very realistically expect a non-negligible negative effect on the economy over the next few months.”

Alaska’s economy also relies heavily on the oil industry. And right now, prices are really low. That’s because of tensions between Russia and Saudi Arabia, and low demand as the world tries to fight the spread of the coronavirus. Still, Guettabi says he doesn’t expect to see major job loss in the industry right now. It will depend, he says, on how long prices stay low, and what kind of stimulus packages are implemented.

Guettabi works with another economist, Kevin Berry. Berry studies how people respond to environmental risk. And, he says, the risk of getting sick tends to keep people at home.

“One of the issues is that if there are a lot of people staying home this year, we don’t just get to push trips and activity into the fall, we kind of just miss this season,” said Berry. “Because people are not going to postpone a trip from say, June, and come instead in October or November. They’re just going to not come this year. So the tourism industry is very vulnerable to these sort of behavioral responses where people want to avoid getting sick.”

This very real worry for the future comes as steps to keep people separated and slow the spread of coronavirus are disrupting the economy now.

This week, thousands of employees were laid off as restaurants, bars and breweries across the state were told to end dine-in service. The state mandate also closed entertainment facilities including theaters, gyms and fitness centers, bowling alleys and bingo halls. The order lasts until April 1.

Berry says these policies will cost Alaskans a lot of money. But, he says, doing nothing would cost a lot more.

“We have to always keep in mind the opportunity cost,” said Berry. “Where not closing businesses, not closing schools, not discouraging travel and not sort of discouraging the tourism season could potentially lead to a much larger outbreak, an overwhelming of the healthcare system, and a lot worse consequences.”

Both economists say businesses and employees are going to need help.

“So that this short run, sort of black swan event doesn’t cause a lot of profitable, otherwise healthy businesses to end,” said Berry. “And you can think of similar issues for individuals too. How many waiters, waitresses, cooks and other people who work hourly jobs who are about to see their jobs shut down for a month could potentially end up homeless because of this?”

Both the state and federal governments are looking for ways to help Americans financially.

On Tuesday, Governor Mike Dunleavy announced the creation of an economic stabilization team. The group is tasked with mitigating the impacts of the coronavirus on the state’s economy.

The legislature is also considering different options for helping communities impacted financially.

On Wednesday, the federal government took one step to help mitigate the financial burden of the pandemic. President Trump signed the Families First Coronavirus Response Act into law.

Guettabi says federal action is important, because Alaska doesn’t have a lot of money. He says the state could end up making a big withdrawal from the permanent fund.

Guettabi says leaders need to act quickly.

“There needs to be coordination between the public health response and the potential fiscal response both at the federal, state and local levels,” said Guettabi. “To try to help these businesses, try to help these hourly employees, make sure they’re not being left behind.”

Beyond the tourism industry and business closures, Geuttabi says there are other realms of the economy that are either not doing well already, or could take a hit.

“If we’re looking at a multi-month or year-long recession that could have very significant consequences on the markets in which Alaska sells its resources,” said Geuttabi, referring to resources like fish, another important source of summer jobs and revenue in Alaska.

“And then you couple that with the significant shock that oil has undergone. And Alaska’s economy is being hit from multiple directions,” said Geuttabi. “Tourism, fisheries, oil, through the tension between Russia and Saudi Arabia.”

Plus, Geuttabi says, big declines in the stock market are impacting the permanent fund.

“It’s a precarious time,” said Geuttabi.

How the state emerges will depend on a lot of different factors. But according to Berry, the first step to getting back to normal is happening right now, as leaders invest in fighting the virus and slowing its spread.

Next, he says, it’s important to prevent short-run policies from having long-run negative impacts.

And finally, stimulate the economy and get back to normal as soon as possible.