In this week’s ATB Economics Weekly Wrap…

• Spring break - job growth pauses 
• Getting sentimental about…the economy
• Tackling Canada’s productivity problem
• Barreling ahead - the Trans Mountain Expansion Project
• Next week:  Bank of Canada rate announcement 
• Interesting Fact: Alberta’s population closing in on 5 million 
• Chart of the Week: Alberta gains residents from all provinces and territories

In today’s Wrap, we dig into today’s March employment numbers, the latest business and consumer sentiment readings, and the jaw-dropping population data released last week. We examine two questions: How many years will it take Alberta to reach the 5 million mark? And from what parts of Canada did Alberta draw new residents from last year?

Spring break - employment growth pauses

Alberta employment took a breather last month, following five consecutive monthly increases. Employment edged back slightly (-3,200) in March, but this only partially reversed February’s impressive gain of 17,400.

The March break was not surprising. As outlined in our latest Alberta outlook report, we believed that recent growth in Alberta employment would be difficult to sustain and were calling for a marked slowdown. Our forecast for the year (3.0% employment growth) looks reasonable given year-to-date readings (+3.7%) and expectations for the pace to slow.

Looking underneath the surface, the employment details were better than the headline. All the March losses were in part-time positions (3,500) and private sector jobs were up a healthy 14,800. At the industry level, service sector (primarily retail/wholesale trade) losses were largely offset by widespread gains in the goods producing industry (construction, manufacturing, oil and gas, etc.).

Even with the March pause, employment is up a sturdy 24,300 in the first three months (relative to December). Looking at the last 12 months, Alberta employment rose 3.4% (third strongest after P.E.I. and Nova Scotia), more than doubling the 1.6% national increase.

With more people entering the Alberta labour force, the unemployment rate nudged higher from 6.2% to 6.3%.

Cautious improvements in optimism…from businesses

In a sea of backward looking data, it's nice to find an occasional forward-looking indicator. Confidence surveys help serve this function. Why not ask business leaders?  Afterall, they make decisions about investment and hiring.

Three recent reports show a general improvement in business confidence to start the year in Alberta.

According to the February edition of the Business Council of Alberta’s Business Expectations Survey, 49% of respondents plan to increase their staffing over the next year, up from 44% in November.

The latest Canadian Chamber of Commerce’s Business Expectations Index showed a marked increase in confidence in Calgary and Edmonton in the first quarter of 2024 with both cities now above the national average.

The CFIB’s Business Barometer® for March showed that small business confidence over the coming year was down somewhat from February, but higher than the recent low seen in November 2023. Overall, small businesses seem to be feeling more cautious and facing greater financing pressure—a point echoed in the Chamber survey.

At the national level, the Bank of Canada’s Business Outlook Survey showed a modest improvement in sentiment in the first quarter, but it's still not great.

What accounts for these tentative improvements?  A few factors come to mind:

The expected pivot to lower interest rates - While trouble obtaining financing is still a key concern, some relief is within sight with the Bank expected to lower rates this summer (our forecast).

Inflation expectations are slowly grinding in the right direction  - Looking out one year, businesses surveyed by the BofC forecast inflation at 3%; two years out it is 2.5%.  Still above the 2% target, but improving.

Less fear of a recession - As of the first quarter of 2024, 27% of respondents to the Bank of Canada survey were preparing for a recession in the coming year compared to 45% at the start of 2023.

Labour shortages are easing -  It’s getting easier to find workers overall, but there are still some challenges. In the Canadian Chamber of Commerce survey, labour shortages in Alberta were (by far) reported highest in accommodation and food services and construction.  We see the same thing in the job vacancy numbers.

What happens next? If all goes as planned—the Bank of Canada starts cutting rates and inflation trends lower—expect confidence to rise further. If the journey takes longer, expect sentiment to sour. Suffice it to say, business optimism is highly guarded and will take some time to get back to where it was.

Nervousness…from consumers

Consumers seem even more cautious than business. The Bank of Canada’s Survey of Consumer Expectations released this week shows that nearly 62% of consumers felt worse off due to inflation and 36% due to higher interest rates in the first quarter.

Over 60% are reducing spending as a result of interest rate and inflation expectations. Interestingly, people say they will postpone major purchases, but are more keen to spend on services such as events and vacations. After the pandemic, who can blame them?

There is some silver lining. Consumer sentiment is stabilizing and even shows signs of improvement. Indicators of financial stress, while still elevated, have eased. Consumers are still pretty gloomy about their financial situation and the economy, but it’s less gloomy than before with fewer expecting an outright economic contraction.

Certain groups more impacted by inflation and interest rates than others

Consumers are feeling the full force of previous interest rate hikes and inflation this year. But who is most impacted? Consumer surveys and credit data provide some clues.

Digging into the data, a recent study by the Bank of Canada finds that financial stress and vulnerability has been concentrated in certain groups, namely those living paycheque to paycheque, renters, younger households, newcomers to Canada, and mortgage holders with high payments. People in these situations are the most likely to cut back on spending.

Tackling Canada’s productivity problem

Canada’s languishing productivity has been in the public discourse for some time.

The Bank of Canada has recently weighed in. Carolyn Rogers, Deputy Governor of the Bank of Canada, gave a frank speech about the challenges. She didn’t mince words,  noting that fixing the problem is an ”emergency” and now is the time to “break the glass.”

Identifying the problem is the easy part, coming up with solutions is harder. Roger’s speech put a spotlight on investment, notably in machinery and equipment and intellectual property. As we’ve noted, business investment is still well below 2014 levels. Investment per worker is even worse, especially compared to the U.S. On the investment front, she pointed to a lack of competition and policy certainty, including a lengthy regulatory process, as key barriers. Also highlighted was the need to match the skills of newcomers to new jobs, and improving small business growth.

Trans Mountain Expansion at the finish line

After much anticipation, we now have confirmation that the long-awaited TMX project will begin commercial operations on May 1, 2024.

This marks a fundamental shift. A lack of pipeline capacity has long plagued the energy industry resulting, at times, in steep discounts on Canadian crude, price volatility, and curtailed production growth.

TMX will add 590,000 barrels per day of new oil pipeline capacity, improving the price received by Canadian producers and federal and provincial revenue. In the lead up to TMX, oil production has surged, hitting monthly records in December, January and February. Higher oil exports is one of the key factors driving Alberta’s real GDP growth ahead of other provinces in 2024.

Construction workers wanted

I can swing a hammer, but you don't want me on a construction site. The construction sector is looking for the right type of workers—tradespeople, that is (not economists).

The job vacancy rate in the construction industry stands well above the provincial average, and is one of the only industries where vacancies have actually increased in the last two years.

More homes are being built in the province, and we see this continuing amid feverish demographic demand. While the pace of business investment is slowing, it has bounced back in the last three years. The largest project in the province, Dow’s Path2Zero plant, is underway and will require up 6,000 to 7,000 workers on site during the peak of construction.

Taking the long view, a new report by BuildForce Canada estimates that the province may be left with a recruiting gap of approximately 22,000 additional [construction] workers to be filled by 2033. The report discusses the opportunities to increase employment among under-represented groups, namely Indigenous peoples, women, and newcomers to Canada.

Next Week - Bank of Canada rate announcement

Parents with young kids are used to the question: are we there yet? If it’s about the time to the destination, I always say “about an hour.” If they’re asking about the first Bank of Canada rate cut, I’d say “not yet.”

We expect the Bank of Canada to hold the line next week. The last two months of inflation data have been better (i.e. lower) than expected and cracks in Canada’s labour market widened in March. But it probably won’t be enough. GDP growth has surprised to the upside and oil prices have taken off again. Our baseline is the first cut in June, with a chance that the Bank waits until July to move alongside a fresh set of projections. We will be looking for a change in tone that could signal that the long-awaited pivot is near.

Interesting Fact: One million people in just 12 years

At a recent event, I reflected: “it seems like yesterday that Alberta’s population was 4 million.” Turns out yesterday was 2013.

Fast forward to January 1, 2024, and Alberta is sitting at 4.8 million. And according to our latest forecast, Alberta will hit 5 million in late 2025. How did this happen?

David Chilton’s classic book The Wealthy Barber talks about the “magic” of compound interest. The reference is to boosting retirement by saving early, but the concept applies to population growth as well.

Consider Alberta’s journey from 3 to 5 million people:

• The road from 3 to 4 million was fast—occurring between 2000 and 2013. The population grew at an annual rate of 2.2% over this period with two energy booms drawing workers from elsewhere. It was also before aging effects fully set in—natural increase added 0.6-0.8 percentage points to annual population growth compared to about 0.3 points in 2023.  
• 4 to 5 million will be an even shorter trip (2013 to 2025) despite the annualized growth rate moderating to 1.9% (there it is, Chilton’s compounding). This growth is back loaded—335,000 added in the last two years alone. In the earlier parts of this period, population gains were held back by interprovincial outflows (2016-2021) and the pandemic-induced drop in international migration.   

When will Alberta hit 6 million? We’ll have to wait for a refresh of Alberta Treasury Board and Finance’s Long-Term Projections (released prior to some hot growth numbers), but the latest projections put the date at 2039.

Chart of the Week: Last year’s record interprovincial migration to Alberta

Last week we reported yet another record increase in the Alberta population—more than 200,000 people in one year. This warrants more attention given the sheer size of the numbers.

The focus nationally has been on international migration, and for good reason. International migration (mainly non-permanent residents) was responsible for almost 98% of the 3.2% growth in the nation’s population between January 1, 2023 and January 1, 2024. That equates to 1.24 million people added through international migration, and another (0.03 million, or 31,000 people)  through natural increase (births less deaths).

At the provincial level, interprovincial migration—that is, movements between provinces and territories—primarily drive differences in growth rates, though natural increase (relatively high in Alberta, negative in the Atlantic provinces and just barely positive in Quebec), and international migration varies as well.

As for Alberta, massive inflows of interprovincial migrants drove a wedge between population growth in Alberta (4.4%) and the country (3.2%) in calendar year 2023.

A record 55,107 Alberta residents were added from the rest of Canada last year. This is a big number. To put it in perspective, no other province has ever registered net interprovincial inflows of this magnitude in a single calendar year, going back to 1971 (when comparable data started).

Where did they come from? Everywhere, but primarily Ontario and B.C. In fact, Alberta gained more people than it lost from every single province and territory. 

Why are people coming?

Alberta’s job market has performed well, consistently outpacing the national average in employment growth over the last two years.

Another big factor this time around is affordability, and particularly housing affordability during a period of higher interest rates and persistent inflation. While Alberta’s housing market has heated up, benchmark prices still remain more than $200K below the national average. Rents have also increased, but they too are lower than in other key markets (primarily Ontario and B.C.). There are also a growing number of remote workers across Canada reporting to employers in other provinces.

Our Chart of the Week shows interprovincial movement of people in Canada. Three things jump out:

1) Alberta added people on a net basis from every province and territory (the territories and Atlantic provinces are combined for ease of presentation, but each of them saw net outflows to Alberta).

2) Alberta and the three Maritime provinces were the only regions to experience net inflows. 

3) The majority (70%) of net migrants to Alberta were from Ontario and B.C. 

In the next two weeks we’ll unpack point number 3, starting with B.C, showing trends in Alberta-BC and Alberta-Ontario population movements over time.

Answer to the previous trivia question: According to the World Bank, There were approximately 780 million people in the Chinese labour force in 2023.

Today’s trivia question: Solar eclipses occur when ________ passes between the Earth and the Sun.