Friday’s edition of the Owl has a new look!
Introducing the ATB Economics Weekly Wrap, our new (and somewhat experimental) Friday edition of the Owl
By Mark Parsons, ATB Economics 16 June 2023 7 min read
Why are we doing this? We have heard from many of our loyal subscribers that a weekly synopsis of “what's going on” would be valuable.
We get it. Economic trends and commentary often send mixed and confusing signals. At ATB Economics, it's our job to cut through the noise and provide clarity and insight. As usual, we will focus the Weekly Wrap on Alberta, but we'll also comment on relevant developments elsewhere in Canada and around the world.
Our ask of you? Feedback: is this information valuable? Ideas: what would you like us to take a closer look at? Let us know by emailing us at: firstname.lastname@example.org.
What happened this week? A lot!
Some cracks in Canada's labour market - Is Canada's resilient labour market finally succumbing to higher interest rates? Last month, the national unemployment rate nudged up to 5.2%—the first increase in nine months—and employment fell slightly. Underneath the headlines, a more nuanced picture emerges. Among the core age (25-54) workforce, employment rose at a brisk pace. The weakness was in youth employment, which Statistics Canada attributes to a slow start to summer hiring. And annual wage growth remained firm at 5.1%.
Bottom line: The May labour report on its own will not be enough to convince the Bank of Canada its tightening job is done on the heels of the somewhat surprising 0.25 percentage point interest rate increase it announced on June 7. The Bank will be be taking into account the soon-to-be-released June labour report and the May inflation data when it makes its next rate announcement on July 14.
Alberta jobs are holding the line - Alberta saw a minor tick-up in employment of 3,900 in May. But more importantly, the unemployment rate actually fell 0.2 notches to 5.7%. Alberta has been outperforming Canada on year-over-year job growth since mid-2022, and so far this year employment is up an impressive 3.7%. But job gains are slowing with employment essentially flat the last two months after an upbeat first quarter.
Bottom line: Our expectation is that employment in Alberta will level off in the second half of 2023, a marked slowdown from the torrid pace in late 2022/early 2023. But Alberta is poised to fare better than most other provinces on employment growth this year as soaring migration and momentum in the energy sector help the province draft through the headwinds of higher interest rates.
Federal Reserve sits this one out - Our largest trading partner is fighting its own inflation battle. A collective sigh of relief was heard across the border on Tuesday as May inflation in the U.S. came in at 4%—it's lowest rate since March 2021. On the heels of this reassuring report, the U.S. Federal Reserve held its policy rate at 5-5.25%—it's first pause in 15 months, but Reserve Chairman Jerome Powell signaled more hikes could be coming before the year is out.
Bottom line: As in Canada, the U.S. Federal Reserve is determined to get in front of inflation pressures and another rate hike in July is a distinct possibility.
Rents jump, but still lower in Alberta - Rentals.ca released its June report this week. It revealed two interesting findings for Alberta. 1) Rents were way up in Alberta in May, by 14.5% year-over-year for a two-bedroom apartment in Calgary and by 13.1% in Edmonton—both greater than the 10.7% national increase. 2) Despite the jump, rents are lower on average in Alberta compared to other provinces. Among the 35 cities in Canada tracked in the report, all 5 of the Alberta cities ranked in the bottom 10.
Bottom line: Rents are rising quickly, creating challenges for many Albertans. At the same time, Alberta's housing remains relatively affordable on prices and rents, which appears to be playing a major role in the upswing in Canadians moving to the province.
Housing starts more push than pull in April - We've characterized the residential market in Alberta as a tug of war between push and pull factors. The push is demographic—record migration means people need a place to live. The pull is high interest rates and high construction vacancies. It seems that, in the month of May at least, push forces won the day: housing starts jumped 9,570 to 37,104 annualized units. But that's just one month in a volatile series. Annualized starts have averaged 30,000 year-to-date, just below our most recent forecast for 2023 of 31,900. Given the rapid rate of household formation in Alberta, we expect starts to increase to 37,100 next year.
Bottom line: The weakness in Alberta housing starts in early 2023 is expected to be temporary, given soaring demand. It's too early to say that April marks a turnaround, but we do expect activity to pick up materially next year.
Production on track, but values are falling - Over the summer, we expect to see the value of Alberta’s exports and manufacturing shipments fall below last year's levels. This doesn't mean we're producing less. It simply reflects that prices, which were exceptionally high across the board for Alberta's energy and agriculture products last year, are coming back down to earth.
We're already seeing the impact. Exports were down 3.4% year-to-date (YTD) through April. As for manufacturing sales, they slipped below April 2022 levels, but are still up 3.6% YTD and high by historical standards.
On the volumes side, maintenance resulted in oil production disruptions in April with the wildfires also shaving off some of May’s output (we're assuming 100,000-150,000 barrels per day of oil equivalent were shut-in). But these impacts will be temporary and should reverse themselves later in the year (assuming future wildfires do not disrupt production).
Bottom line: Keeping in mind Alberta’s exports were at an extremely elevated level last year, we expect lower prices to weigh on the value of exports in 2023 with year-over-year drops becoming the norm as the year progresses.
Did you know that, at $205 billion, Alberta’s merchandise exports in 2022 shattered the previous record set in 2021 by nearly $67 billion? That's almost 50% higher. Alberta even surpassed Ontario’s domestic exports in the month of July for the first time on record (comparable data going back to 1997).
What to watch for next week
Job vacancies by sector - We have job vacancy data for the first quarter of 2023, but we are about to find out what industries had the most job openings. As of late last year, it was food and accommodation, retail, and healthcare. Overall vacancies in Alberta are elevated at 91,100 as of March, though this is down from over 100,000 in the previous spring.
April retail sales - Statistics Canada is releasing retail sales data for the month of April on Wednesday, June 21. Will higher rates and debt servicing costs start to bite? The retail numbers have come down since January, but are still strong year-to-date with some discretionary categories leading the charge. Our ATB consumer tracker suggests spending in April could come in higher, but we expect things to slow in the second half as higher rates cause consumers to tighten their belts.
Chart of the week
BC and Alberta population: Essentially the same until age 50
Last week we released a special report on demographic trends entitled "Foot traffic: Population growth and the Alberta economy" to accompany our latest quarterly economic forecast. Our motivation was that Alberta's population boom has been one of the main stories heading into 2023. Record migration to Alberta, including a sudden surge in net interprovincial migration, will support housing activity and consumer spending and help offset the drag from higher interest rates.
The report also highlights that Alberta is young relative to other provinces. A simple comparison of BC and Alberta's population illustrates this point. BC's population is larger than Alberta's (by 776,000 as of July 1, 2022). But the two provinces have remarkably similar numbers in the younger age groups. In fact, Alberta has slightly more children than BC—1.1 million under 19 compared to 1.0 million in BC. For folks under age 50, the provinces are almost the same in population—3.05 million in Alberta and 3.18 million in BC. The remaining difference (642,000), therefore, is the 50+ segment of the population.
Answer to the previous trivia question: Natural increase (births less deaths) added 1.3 million people to Alberta’s population between 1972 and 2022.
Today’s trivia question: Held on June 19, Juneteenth is an annual commemoration of the end of slavery in the United States after the Civil War. In what year did it become an official U.S. federal holiday?