• 2016 Alaska's Construction Spending Forecast

      Cravez, Pamela; Goldsmith, Scott (Institute of Social and Economic Research, University of Alaska Anchorage, 1/1/2016)
    • 2017 Alaska's Construction Spending Forecast

      Cravez, Pamela; Goldsmith, Scott (Institute of Social and Economic Research, University of Alaska Anchorage, 1/1/2017)
    • Alaska's Construction Spending 2015 Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2015-01-01)
      OVERVIEW The total value of construction spending “on the street” in Alaska in 2015 will be $8.5 billion, down 3% from 2014.1,2,3 Wage and salary employment in the construction industry, which increased an estimated 6 percent last year, to about 17,600, will decline slightly in 2015.4 Oil and gas sector spending will fall 2% to $3.8 billion from its record level of $3.9 billion last year. Other spending will be $4.7 billion, a decline from $4.9 billion last year. Private spending, excluding oil and gas, will be about $1.7 billion, down from $2.0 billion last year—while public spending will increase from $2.9 to $3.0 billion. Construction spending in Alaska in 2015 is expected to be strong in spite of the drop in the price of oil from more than $100 per barrel in the summer of 2014 to between $45 and $50 today. However, the longer the price stays low, the greater the risk that some projects will be cancelled or postponed. It is impossible to predict what will happen to the oil price, because world supply has outstripped demand. The price will stabilize, and perhaps begin to increase, only when the low price stimulates more demand and eliminates high cost production, a process that could take more than a year. A further complication is the unpredictability of the role of OPEC in determining oil supply. In particular Saudi Arabia, the largest producer, could decide to restrict supply for political or strategic reasons. Because of the drop in the price of oil, the state is facing a general fund budget deficit of about $3 billion for the current fiscal year (FY2015) and is projected to have a similar deficit in FY2016 (which begins July 1 of this year). However, this will not have a large negative impact on state government construction spending this year for several reasons.
    • Alaska's Construction Spending 2016 Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2016-01-01)
      The total value of construction spending “on the street” in Alaska in 2016 will be $7.3 billion, down 18% from 2015.1,2,3 Oil and gas sector spending will fall 25% to $3.1 billion from its record level of $4.2 billion last year. All other construction spending will be $4.2 billion, a decline of 11% from $4.7 billion last year. Private spending, excluding oil and gas, will be about $1.4 billion, down 24% from $1.8 billion last year—while public spending will decline 6% to $2.8 billion from $2.9 billion. Wage and salary employment in the construction industry, which increased an estimated 6 percent last year to almost 18,000, will decline slightly in 2016.4 The decline in construction spending in Alaska in 2016 can be traced directly to the precipitous drop in the price of oil over the last 18 months, after the previous period of unprecedented high prices a few years earlier. In mid- 2014 the price was above $110 per barrel, but as this report is being written the price has fallen below $30 for the first time in 12 years. Furthermore, the short-term outlook is for the price to remain low, or even decline further, because supply continues to outstrip demand and inventories continue to accumulate. The longer term outlook for price also continues to fall, because of the resilience of production in the face of the falling price. The high price stimulated increases in construction spending across all sectors of the Alaska economy, particularly among oil and gas companies and the state government. The low price is now beginning to reduce construction spending within the economy, except for federal spending and spending by basic industries that benefit from lower oil prices. So far the price drop has been felt most directly in the oil and gas sector. Although many companies announced optimistic investment programs for 2016, most, if not all, have recently announced cutbacks or postponements. The longer the price remains low, the greater the likelihood of further cutbacks in the oil patch. Because of the oil price drop, a deficit of $2 billion opened in the state general fund in FY2014, and it has increased to $3.5 billion for each of the last two years. Although the state has been fortunate to have sufficient cash reserves to offset this revenue shortfall in the short term, it has meant a dramatic decline in new state funding for capital projects. Whereas the general fund capital appropriation in FY2013 was more than $2 billion, in this past year it was only enough to cover the required match on federal transportation grants. And looking ahead, there is very little prospect for a significant increase in the capital budget in the coming years. But the sharp decline in the state capital budget over the last three years has so far had limited effects on construction spending. This is because it takes considerable time for appropriated funds to become “cash on the street.” Several billion dollars of capital appropriations remain “in the pipeline,” which will keep state spending from falling dramatically this year. However, the amount of construction spending will be winding down in many communities like Juneau, Kodiak, and Fairbanks (excluding Eielson Air Force Base) because of declining state spending. Because of the size of the state budget deficit, it is possible that some projects in the pipeline that have not yet been approved could be cancelled. However, this will be moderated by concern over the negative impacts on the economy from such cancellations. Spending for national defense will be higher this year. And fortunately, federal spending not related to defense—mostly consisting of grants, both to the state for transportation (roads, harbors, railroad and ferry system) and sanitation projects and to non-profits for health facilities and housing—is not sensitive to the price of oil. Since 2013 the Alaska economy has underperformed compared with the national average in spite of the stimulus of high oil prices that led to record high levels of employment in the oil and gas and construction sectors. Job growth has been less than 1% annually and is forecast to be negative in 2016. State population has not increased in the last two years. This slowdown, combined with the heightened uncertainty about the future direction of the economy, brought on by the sudden fall in the oil price, will slow new private investment—particularly in the commercial and residential construction sectors as investors adopt a “wait and see” attitude, in regard to both the private economy and the ability of the state government to deal with the deficit. The decline in private construction spending this year is also partially due to the completion of a number of large utility and hospital projects. As in past years, some firms are reluctant to reveal their investment plans, because they don’t want to alert competitors; also, some have not completed their 2016 planning. Large projects often span two or more years, so estimating “cash on the street” in any year is always difficult because the construction “pipeline” never flows in a completely predictable fashion. Tracing the path of federal spending coming into Alaska without double counting is also a challenge, and because of the complexity of the state capital budget, it is always difficult to follow all the flows of state money into the economy. We are confident in the overall pattern of the forecast. However, as always, we can expect some surprises as the year progresses.
    • Alaska's Construction Spending Forecast

      Goldsmith, Oliver Scott; Cravez, Pamela (Institute of Social and Economic Research, University of Alaska Anchorage, 2017-01-01)
      The total value of construction spending “on the street” in Alaska in 2017 will be $6.5 billion, down 10% from 2016.1, 2,3 Oil and gas sector spending will fall 15% to $2.4 billion, from $2.9 billion last year. All other construction spending will be $4.0 billion, a decline of 7% from $4.3 billion last year. Private spending, excluding oil and gas, will be about $1.6 billion, up 2% from last year—while public spending will decline 12% to $2.5 billion. Wage and salary employment in the construction industry, which dropped by 8.5% in 2016 to 16.2 thousand, will drop another 7.4% in 2017 to 15 thousand, the lowest level in more than a decade.n 2016 the Alaska economy slipped into a recession that is expected to continue at least through 2017. Total wage and salary employment fell in 2016 by 6.8 thousand, about 2%. This year it is anticipated the decline will be 7.5 thousand, or 2.3%, which will return the economy to the 2010 level.5 Weakness in the economy is also reflected in a net outmigration of population over the last four years.