Weekly wrap September 1, 2023
Soft GDP report ahead of next week’s rate decision
By Mark Parsons, ATB Economics 18 August 2023 4 min read
In this week’s ATB Economics Weekly Wrap…
- Canadian GDP stalls in Q2
- Oil and gas capital spending - on the upswing
- Dry conditions to subtract from crop yields
- Job vacancies trending lower
- Next Week: The Bank of Canada makes its rate decision
- Interesting Fact: Back-to-school (shoe) shopping
- Chart of the week: July recreation and entertainment spending
Canadian GDP stalls
Second quarter falls well short of Bank of Canada’s July forecast.
In its fight against inflation, the Bank of Canada has been looking for signs that the economy is slowing. This came this morning with the GDP data. The Canadian economy stalled in the second quarter, with real GDP edging down slightly by 0.2% (annualized) due to lower residential investment, and a slowdown in consumer spending and exports. This is well below the Bank of Canada’s July forecast of a 1.5% increase, and down from the first quarter pace of 2.6%.
The June data showed that Canadian oil and gas extraction GDP partially rebounded by 1.1% following the May wildfires and maintenance disruptions, but still remained below April levels.
Energy capital spending rises again
Higher oil and gas spending is one reason Alberta’s economic growth is expected to outperform this year.
Capital spending in Canada’s oil and gas extraction industry rose 3.4% in the second quarter, and was up 17.1% from the same quarter last year. While we expect gains to moderate, the brisk first half pace (+24% year-over-year) is consistent with our expectation for a sizable improvement in 2023.
Drier conditions expected to weigh on crop production
Some crop farmers face a more challenging harvest this year.
Two recent reports suggest yields for most of Alberta’s major crops will be lower due to dry conditions in many areas of the provinces, though still above 2021’s depressed levels. Last year, overall crop production spiked to a record, pushing up this year’s agriculture exports.
Job vacancies falling in Canada
Fewer vacant jobs - another sign of a loosening labour market.
Employers in Canada are filling more of their vacant positions. Job vacancies in June were at their lowest level since May 2021. The vacancy report comes on the heels of three straight increases in the unemployment rate (now 5.5%) and a pullback in employment in July. The Bank of Canada has cited a tight labour market as a key reason for “excess demand” and inflation in Canada.
Vacancies are also easing in Alberta. At the same time, the vacancy rate (unfilled positions as share of jobs required) has converged closer to the national average after spending many years well below it (see chart). About 87,000 jobs were reported vacant in Alberta in June, down from the peak of 108,000 in April 2022.*
Wage growth has improved this year after two years of tepid gains
In Alberta, growth in hourly wages has bounced around this year, slowing in June and accelerating in July. Year-to-date, hourly wages are up around 3-4.5% depending on the measure used (see chart), up from 1-3% in the previous year.
Why so many measures? Each comes with its advantages and disadvantages. Some indicators are fixed-weighted (i.e. hold employment and hours shares fixed), others include or exclude over-time, and there are different surveys (the payroll and labour force survey). A broader basket helps assess trends.
Interest rate decision next week
The Bank of Canada returns from an August break on September 6. We expect a pause following two straight hikes.
The Bank has made clear its resolve to bring inflation back to target—hence the surprise interest rate increase in June. The hotter-than-expected July inflation report and persistent wage pressures may raise eyebrows. However, the economic data since its last decision points to a clear cooling trend: unemployment has been rising, consumer spending (the main source of the Bank’s July forecast upgrade) is slowing, and second quarter GDP was well below the Bank’s own forecast.
On balance, we expect a September pause as the ‘data dependent’ Bank continues to digest the impact of past rate hikes. But it will keep monetary policy restrictive as long as it takes to get inflation to its target.
Interesting Fact: Back to School - August is the busiest month for shoe retailers.
Back-to-school shopping was in full swing in August, and many parents likely found themselves looking for shoes for their children (or themselves?). We speculated that December may be the high month for shoe sales. But it turns out that August beats December, and by a fairly long shot.
Shoe retailer sales in Alberta are on average 36% higher in August than the typical month. December ranks second at 26%. The lowest? January and February (about 65% of the annual average). For the record, my family purchased back-to-school shoes in July.
Chart of the Week: Recreation and entertainment spending in July
In the Chart of the Week, Alberta spending on recreation, entertainment and lodging rose above last year’s level across the entire month of July, according to the ATB Consumer Index. There was an uptick during Stampede, but spending stayed more persistent after the event than the previous two years. The even greater increase between July 2021 and July 2022 reflects the brisk rebound from the pandemic.
The ATB Consumer Index represents the value of transactions from ATB consumer mastercards. The index has two advantages: It’s more timely than the monthly retail sales report (we received June last week), and it allows us to examine daily spending patterns.
Answer to the previous trivia question: North Dakota imported a total of C$140 million worth of crop production from Alberta in 2022, highest out of all 50 US states.
Today’s trivia question: Which is the oldest coffee shop in Alberta?