Weekly Wrap November 3, 2023
Alberta jobs roller coaster - swinging back, all the way back
By Mark Parsons, ATB Economics 3 November 2023 9 min read
In this week’s ATB Economics Weekly Wrap…
- Canada labour market - more signs of softening
- Alberta employment roars back
- Job vacancy rate now higher in Alberta
- U.S. Fed stands pat
- The Calgary Economic Development 2024 Outlook Event
- Chart of the week: Rising oil sands production
In last week’s Wrap, we talked about the Bank of Canada’s ‘wait and see’, data dependent approach to rate setting. The Bank is looking for inflation to come down, and in particular evidence that rate hikes are dampening the economy and the related price pressures. More evidence of economic cooling arrived this week. August data on GDP point to weakness in Q3 and the labour data point to a softening labour market. In Alberta, jobs came roaring back after September’s shocker, and the longer-term trend has been positive.
Modest Canadian job gains and higher unemployment
Canada’s labour market is softening under the weight of higher interest rates. The unemployment rate climbed to its highest since January 2022 and job growth was modest. This strengthens the case for the Bank to keep its finger on the pause button (our current call is for rate cuts to start mid next year).
In another sign of strengthening economic headwinds, Canada churned out a relatively small employment gain of 17,500. Heading into the report, the Bloomberg consensus was 22,500.
Moreover, the unemployment rate rose 0.2 points to 5.7%—above consensus of 5.6%. It now stands 0.7 points higher than it did in April. As we’ve noted, job growth has to be stronger than normal to prevent the unemployment rate from rising amid strong labour force and population trends. Last month, the labour force grew by a solid 57,800.
One nagging concern for the Bank has been stubborn wage growth. The Bank has said 4-5% wage growth is not consistent with the 2% inflation target. Last month showed another solid increase of 4.8% year-over-year (y/y) in average hourly earnings—though down slightly from 5% in September. The other closely watched measure (permanent employees only) was up 5% y/y. That said, wage pressures should continue to ease with more slack in the labour market, and we don’t feel this wage stubbornness will be enough to pull the Bank off the sidelines.
Alberta jobs swing back, all the way back
We thought the shocking September job losses were a blip, but didn’t necessarily expect all the jobs to return in one report. In October, the pendulum swung completely the other way with a 38,000 job gain. Stripping away the unusual volatility, Alberta is leading all provinces except PEI in year-over-year job growth.
Feeling a bit nauseous after that employment roller coaster ride? We are. After surprising to the downside in September with a loss of 38,000 jobs, Alberta’s economy completely reversed those declines with an equal 38,000 jobs increase in October.
The job gain last month was the largest one-month increase since the COVID rebound in the summer 2020. Likewise, the one-month decline in September was the largest since the COVID drop in March 2020.
What happened? September job losses were concentrated in retail/wholesale trade and construction. Those industries bounced back by a collective 18,000 in October. The rest of the rebound was broad-based with growth in 14 of the 16 subsectors (only health care/social assistance and professional/scientific services were down slightly).
To sum up, a very strange two months indeed, but a positive sign that September's blip did not signify the start of a new trend.
We’re reminded, because of the volatility and the large standard errors in the survey, to not pay too much attention to month-to-month swings. One must keep an eye on the trend. And given the circumstances (a weakening economic backdrop) the trend is positive.
Year-over-year growth is 3.8% in Alberta—leading all provinces save for PEI and above the 2.5% national pace. And so far this year, Alberta is sitting at 3.5% job growth—pretty close to our forecast for 3.6% for the year. The year-to-date composition of job growth has also been favourable—all full-time job gains and almost entirely private sector.
Even more people returned to the labour force last month, and so the provincial unemployment rate ticked up slightly from 5.7% to 5.8%. A large dip in the participation rate prevented the jobless rate from spiking in September, and the participation rate is now back above 69%.
Alberta job vacancy rate now above national rate
After an extended stretch of relative weakness going back to 2015, measures of labour market tightness in Alberta have been converging closer to the national average.
Alberta has, for some time now, been outpacing other provinces in job growth. But measures of labour market tightness have taken longer to catch up. This is changing. The unemployment rate is now roughly in line with the national average (5.8% vs. 5.7% nationally). Now the job vacancy rate—job openings as a share of jobs needed—has moved above the national rate for the first time since early 2016. In August, Alberta’s vacancy rate rose to 4.1%—exceeding the national rate of 3.8%.
Half dove, half hawk: The Fed decides to wait and see
The central bank of the U.S. announced on Wednesday that tighter monetary policy may or may not be doing enough to cool down the economy and inflation with it.
Monetary policy takes time to work so it is not a big surprise that, in the same vein as the Bank of Canada, the U.S. Federal Reserve has adopted a wait-and-see approach. Caught between not wanting to raise rates higher than necessary because it will unduly damage the economy and not wanting to keep rates lower than needed to ensure inflation returns to the 2% target, the Fed came out of its regularly scheduled meeting and said it was keeping the target range for the federal funds rate at 5.25 to 5% until it has more data.
In a nutshell, the Fed feels current interest rates will weigh on the economy and bring down inflation (a dovish perspective), but is also worried that the labour market and overall economy are still too strong and could “impede” the march back to 2% inflation (a hawkish perspective). Which symbolic bird will prevail? Like the Federal Reserve, we will have to wait and see, but for those doves out there, today’s labour report in the U.S. points to some early signs that the tight labour market may be loosening somewhat. The unemployment rose 0.1 points to 3.9% last month and the pace of non-farm payroll job growth cooled to 150,000.
Stephen Poloz on what’s ahead
Former Bank of Canada Governor Stephen Poloz identified a set of “tectonic” tensions that will “cascade through every dimension of our lives” at this year’s Calgary Economic Development Economic Outlook event.
Earlier this week, I had the pleasure of providing one of two keynote addresses at Calgary Economic Development’s 2024 Economic Outlook. The other keynote was delivered by Stephen Poloz. The former Bank of Canada Governor stressed the rough economic ride that the global and Canadian economy can expect next year. “Even if we avoid a major recession at the global level, we can all expect economic weakness while inflation works its way down.” He did add in an interview before the event, however, that "with a robust resource sector, diverse industries and a talented workforce, [Alberta] is in an enviable position.”
Drawing from the themes of his recent book “The Next Age of Uncertainty: How the World Can Adapt to a Riskier Future,” Poloz argued that the world is becoming more volatile and less forecastable. He identified five “tectonic forces” that generated economic crises in the past and will do so again in the future: technological progress, rising income inequality, population aging, mounting debt, and climate change. According to Poloz, these forces are making it harder to forecast what’s ahead and will create both challenges and opportunities. The trick is to embrace uncertainty and actively manage risk.
In this regard, Poloz pointed out that “Calgary and Alberta have proven their mettle time and again” when it comes to the”hard work and ingenuity” needed to tackle these tectonic forces.
Key themes in my presentation:
Drafting through headwinds - Alberta's economy is expected to slow next year, but weather inflation and interest rate headwinds better than most (like a road cyclist in a peloton). The main reasons—a revitalized energy sector and faster population growth brought by record interprovincial migration.
Fitting more through the diversification door - Emerging growth areas including aerospace, food manufacturing, hydrogen, biofuels, carbon capture, critical minerals and tourism. In particular, I discussed the rapid growth in Calgary’s technology sector.
Build on strengths and adapt - An elite athlete uses the latest technology to gain a competitive edge. I drew on fascinating work by sports engineer Steve Haake on the role of technology in enhancing athletic performance. While Alberta’s economy is strong, it must continue to adapt to the shifting global landscape.
Plan for alternative outcomes - The ice conditions are questionable and uncertainty is elevated. Scenario planning is key, a view echoed in Stephen Poloz’s talk.
I also participated in a panel discussion with Stephen Poloz, moderated by Brad Parry, CEO of Calgary Economic Development.
Interested in more? Check out the full synopsis of this successful event.
Interesting fact…According to the latest edition of its Monetary Policy Report, the Bank of Canada’s approach to inflation targeting is both symmetric and flexible. The symmetric element “means the Bank is equally concerned about inflation rising above or falling below the 2% target.” The current problem is elevated inflation, but it is also a problem when inflation drops below the target. The flexible aspect means “the Bank seeks to return inflation to target over a horizon of six to eight quarters. However, the most appropriate horizon for returning inflation to target will vary depending on the nature and persistence of the shocks buffeting the economy.”
Chart of the Week: Oil sands bitumen production in Alberta is forecast to grow in the years ahead, driven by optimization of existing assets and efficiency gains. The latest forecast from the Alberta Energy Regulator has production growing by 21% between 2022 and 2032 with average daily output reaching four million barrels or about twice as much as in 2012. At +10%, production from surface mining is forecast to increase less than in situ production at +33%. The arrival of TransMountain Expansion next year will provide much needed egress to Alberta’s rising production.
It’s normal for forecasts to vary, and S&P Global has a slightly different outlook in a forecast released around the same time. Directionally, the oil sands production forecasts are the same—higher—but S&P sees a larger gain in the next couple years driven by new era optimizations, followed by a flattening trend post 2025.
Both forecasts point to rising oil sands production pushing up Alberta’s exports over the next couple years.
Answer to the previous trivia question: U.S. President Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913.
Today’s trivia question: What is the minimum number of consecutive days without work and without pay needed to qualify for regular Employment Insurance benefits?