Alaska’s economy is headed for an ‘income cliff’ at end of July

The first two months of this pandemic were miserable for Laile Fairbairn, not to mention her employees. Fairbairn is an owner and manager of a group of four Anchorage restaurants – Snow City Café, Crush, the Spenard Roadhouse and South Restaurant + Coffeehouse. She had to lay off most of the staff. The restaurants closed for a month, she said, and then they had to figure out how to safely reopen.

“The anxiety was just so intense and not really knowing how to deal with it all,” she said. “But, you know, we’ve all kind of figured it out (and) normalized a bit.”

Now, the picture is much brighter for her businesses. She’s hired back a core workforce. With fewer tables to allow more social distance, Fairbairn said they have just enough customers.

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“Would we rather be busier and back to 100%? Sure,” she said. “But at this time, it feels like we have the right business level for what the community wants and what we want.”

Watching the lunchtime rush at the Spenard Roadhouse, it’s easy to forget that Alaska’s unemployment rate is much higher than it was during the state’s crushing recession in the 1980s. Back then, banks failed and it seemed Alaska could barely keep the lights on.

Economists say a big reason money is still flowing to shops and restaurants is that the federal government is paying an extra $600 a week to augment unemployment checks. Collectively, Alaskans received $130 million in unemployment benefits in April. That’s grease in the gears of the local economy

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“Spending is starting to pick up, in large part because people’s balance sheet stayed whole or near whole, meaning people actually have money to spend,” said UAA Associate Professor Mouhcine Guettabi.

Some 46,000 Alaskans who lost their jobs are getting benefits that, for many, are equal to or even more than what they made when they were working. It insulates the economy from the shock of the unemployment spike.

And it’s about to end. The last of the $600 weekly unemployment payments are due July 25. The hard stop creates an “income cliff” Guettabi and other economists are concerned about.

Many Alaskans will still have state unemployment, but it averages just $250 a week. Guettabi said the calculus will change for many households at the end of July, and the economy will feel the pinch

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“So are people still going to get takeout? Or are they still gonna splurge on items at the retail shop? I think that the answer is obviously ‘no,'” he said.

Anchorage Economic Development Corporation President Bill Popp wants Congress to continue pandemic unemployment benefits in some form.

“That assistance is a critical element to carrying us through the very difficult time we’ve been going through,” Popp said. “It’s keeping cash in the economy and keeping other workers who’ve got jobs still employed, as well as keeping businesses that otherwise might be more at risk of going under a little in a little better position.”

According to one economic analysis, if the $600 pandemic unemployment payments continued for a year, the spending would support the jobs of 12,000 Alaskans. Without that money keeping households afloat, Popp predicts the business atmosphere in Alaska’s largest city will feel different.

“I can’t tell you how many businesses are likely to close. I can tell you though, that it is going to be noticeable. It is going to be painful and it’s gonna be a tough winter.”