indicatorThe Owl

Weekly wrap, August 11, 2023

Alberta exports, construction, and job seekers

By Mark Parsons, ATB Economics 11 August 2023 6 min read

ATB Economics Weekly Wrap

Friday, August 11, 2023

In this week’s ATB Economics Weekly Wrap…

  • Exporting more for less
  • Catch-up construction
  • Inflation preview
  • Chart of the week: Alberta’s labour force surge

We’re trying something new this week. We’re leading with the bottom line (in italics), with more detail below if you’re interested and have time.

Exports coming off last year’s record highs

Exports are down from last year’s lofty levels due to lower energy prices, but are still high by historical standards. Despite some temporary disruptions, the volume of what we sell abroad is expected to improve this year.

The price of Alberta’s major commodity exports spiked in early-to-mid 2022 following Russia’s invasion of Ukraine. Annual international exports hit $204 billion last year, by far the highest on record (previous record $138 billion in 2021).

Now that energy prices have come down to earth, so has the value of our exports—by 13.7% in the first half of 2023 over the same time last year. At the same time, non-energy exports are tracking higher than last year. Agriculture shipments, in particular, have soared as last year’s record crop is sold to global markets. 

Volumes have gyrated, with some recent disruptions weighing on activity. Maintenance and wildfires resulted in oil and gas production declines in May—though not nearly as much as the 2016 Wood Buffalo fires. Oil production was still up 1.5% over the first five months of the year compared to the same period in 2022, and energy export volumes were up in the first half nationally.* The West Coast port strikes, which impacted operations for more than 13 days, will weigh on exports in July.** Fortunately, these declines are temporary, with some of the losses made up in the following months. Overall, we expect export volumes to advance about 3% this year.

*Production data for June was released by the Alberta Energy Regulator, but was missing data from a major oil producer and therefore not comparable.

**Statistics Canada notes that 9.2% of Canada’s exports by value were shipped through BC via marine transportation last year—over half of which are resource-based. Using Statistics Canada trade data, the Government of Alberta estimates the value of Alberta exports leaving via BC ports at about $50 million per day.

The value of Alberta's international exports over the first half of 2023 is lower than the same period in 2022

The value of Alberta's international exports over the first half of 2023 is lower than the same period in 2022

Construction - playing catch-up

Residential permits, a leading indicator of construction activity, are finally moving in the right direction following some weakness early in the year. But many more homes will need to be built to keep pace with 42-year high population growth.

Housing demand is picking up in Alberta—resales have risen for four straight months through June, and prices are rising again. In the resale market, months supply of inventory in Alberta was at 2.7 as of June (well below the 10-year average of 5.4), with Calgary sitting at only 1.3 as of July.

The main driving force is Alberta’s population. It spiked by 4.5% in the latest one year period ending April 1, or over 200,000 people. We haven’t seen this growth in people terms ever, and in percentage terms since 1981. 

Can construction keep up? Residential permits rebounded in May and rose again in June. However, they are still down so far this year—mainly due to declines in single dwellings—and units created have lagged population gains (see the chart below). While rising interest rates, cost inflation and labour shortages have weighed on activity, we expect housing starts to pick up later this year and next in response to rising (demographic) demand.

Non-residential activity has been more stable. Permits in that sector have increased 6.2% so far this year driven by industrial activity, with some notable improvements in May and June.

The construction of new residential units in Alberta is not keeping pace with population growth

The construction of new residential units in Alberta is not keeping pace with population growth

Coming next week - Inflation! 

The much awaited inflation report comes out next week. We’ll be looking for signs of cooling in ‘core’ and food inflation readings.

With the July job numbers in, the next most anticipated report in Canada is the Consumer Price Index for July, released on August 15. The Bank of Canada will be watching for signs that ‘core’ inflation (i.e. inflation that strips out volatile components) readings are softening. Food prices have been stubbornly high as well—a slowdown in that department would be welcome.

Inflation in Canada hit a 2-year low of 2.8% in June, but further improvements will be more tricky. Energy prices have already done the heavy lifting, with base period effects now coming off (the energy CPI peaked in June 2022). Gasoline prices nationwide were down 12.5% y/y in July* compared to 22% in June.

As for Alberta, we expect movement closer to national inflation. Alberta’s inflation rate has been lower than Canada’s so far this year. This is due to larger declines in energy prices—particularly for gasoline, where the fuel tax pause played a role earlier in the year.

In the US, some fairly positive inflation data were released yesterday. Even though the annual inflation rate ticked higher to 3.2% in July, monthly core inflation posted its lowest back to back gains in two years. 

*Based on average gasoline retail price in Canada (MJ Ervin & Associates).

Interesting fact… According to a new report from Statistics Canada, the median after-tax family* income in Alberta was $67,820 in 2021, highest among provinces. In second spot was B.C. at $61,060 with Nova Scotia in tenth at $52,320. The national median after-tax family income was $59,300.  However, the gap between median incomes in Alberta versus the national average (in 2021 dollars) has narrowed from 21% in 2016 to 14% in 2021.

*Family refers to census families and persons not in a census family. A census family refers to a married or a common-law couple, with or without children at home, or a lone-parent family.

Chart of the Week:  Labour Force Surge

Record migration is leading to rapid growth in Alberta’s labour force.

Last week we reported on Alberta’s labour numbers, highlighting Alberta’s solid job growth amid a national cooldown. In the Chart of the Week, we take a closer look at growth in the labour force (i.e. those working or looking for work).

Leaving aside the COVID recovery, Alberta’s labour force is growing at rates not seen since 2007. The labour force grew 4.7% year-over-year last month aided by a 4.1% increase in the 15+ population.* Population gains have been driven by migration. In particular, the upswing in net interprovincial migration into Alberta has driven a wedge between its population growth rate and the rest of Canada’s (see the chart below).

Migrants tend to be younger, many in their prime working age. A steady stream of people entering the labour market helps fill job vacancies. As more people enter the workforce in search of work, the unemployment rate can at times increase even when employment goes up—as was the case last month (unemployment rose 0.4 points to 6.1% despite a 11,800 job gain). This isn’t always the case. For example, in 2006, when rapid job growth was not matched by similar population gains, Alberta experienced an exceptionally tight labour market—unemployment hit an all-time low of 3.2% in February and November of 2006.

*A rise in the participation rate (i.e. % of the population 15+ participating in the labour force) also contributed to higher labour force growth last month and over the last year. However, since January 2022, the participation rate is largely unchanged at about 70% despite month-to-month swings.

Alberta's population and labour force have both been growing faster than the national average

Alberta's population and labour force have both been growing faster than the national average

Daily trivia

Note: The answer to Wednesday’s question got clipped in Thursday’s Owl. Here is the full answer: According to Statistics Canada’s medium-growth (M2) population projection, net international migration will account for 58% of Alberta’s total population growth between 2023 and 2030.

Answer to Thursday’s trivia question: The deepest building in the world is the Jinping Underground Laboratory in China. Located under a mountain, it is 8,000 feet deep or about seven Empire State Buildings stacked on top of each other.

Today’s trivia question: How many times since January 1990 has the headline inflation rate in Alberta been below 0%?

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