This time is different - Alberta’s current economic expansion

In our June outlook released last week, we forecast that Alberta’s economy will grow faster than the rest of Canada in 2026 and 2027. This is reinforced by the jobs data to date, and yesterday’s population estimates that show Alberta leads all provinces in population growth.

Alberta’s stronger growth performance is not something new. However, on the ground it looks and feels different from the past. 

In today’s Twenty-Four we show a few ways the province’s current expansion is breaking the old rules for growth in Alberta:

1. Oil and gas driving economic growth through exports, not investment
2. Employment gains broaden well beyond oil and gas
3. Canadians coming to Alberta for more than jobs

More with less - the energy sector

The oil and gas industry is producing more, but with less capital spending and employment than in the past. 

Large upfront investments in the oil sands in the 2000s and early 2010s paved the way for the production growth we’re seeing today. The industry is still investing, but primarily through sustaining production and optimizing existing projects as opposed to new greenfield projects. 

Looking at the components of GDP, or economic output, oil and gas is contributing to Alberta’s economic growth more through expanding its exports from existing facilities than through investments in new projects.

The adjustment to lower capital investment since 2014, following a steep drop in oil prices, has not been easy.  It led to a two year recession in 2015-16. Then market access issues slowed the economy in 2019, followed by the COVID shock of 2020. The economy recovered to 2014 levels of output in 2022 and has outpaced national growth since that time. But the impact is still apparent to this day, with Alberta’s income advantage over other provinces narrowing over the last decade.

Getting broader - beyond oil and gas  

Related to the previous point, Alberta’s employment growth is occurring despite fewer oil and gas jobs since 2014. So far this year, Alberta is leading the country with a 3.6% increase in overall employment despite a 0.7% year-to-date decline in oil and gas employment. As shown below, it is unusual to see such solid headline job growth with a pullback in oil and gas jobs. Instead, growth has come from a range of service sectors (led by healthcare) this year. Goods-producing employment is flat, with gains in manufacturing offsetting losses in construction and oil and gas.

A similar picture emerges with investment. In real (inflation-adjusted) terms, non-oil and gas business investment has exceeded oil and gas investment every year since 2018.  

More sophisticated measures, such as the HH index, show that employment is more diversified across industries than other provinces and investment has become more diversified. In other words, more eggs in more baskets.

What’s next? Now that rig activity has increased with the higher oil prices, we should expect to see an uptick in oil industry employment in the coming months. However, a more structural improvement will likely only come through new pipelines (notably West Coast pipeline) that would require billions of new investment to fill. At the same time, now that population growth has slowed, we expect to see a slower pace of growth in service sector employment.

Moving to Alberta for different reasons

Migration from other provinces has helped fuel stronger economic growth in Alberta. Simply put, more people means more housing to be built and more money spent. 

But interprovincial migration to Alberta is occurring for different reasons than in the past. 

Nothing makes a point better than a scatter plot. You may disagree, but I find this chart very revealing. It says that there have been only four years since 1976 when Alberta has had a higher unemployment rate than the Canadian average, and still added people from other provinces and territories. And those four years just happened to be the last four years! 

Put another way, the normal pattern - energy sector heats up, unemployment falls sharply, wages accelerate, and people come - has not been holding. In more recent years, Alberta has been creating jobs, and generally at a faster rate than the Canadian economy. But job growth has struggled to keep pace with the booming population and the number of people looking for work. 

In previous research, we have found that relative housing affordability is a key factor this time around. A few factors point us in this direction: 1) Cost of living is still the top economic issue in Canada 2) the Alberta housing price advantage (especially vs. Ontario and B.C.) was especially wide before the Bank of Canada hiked rates 3) remote work (flexibility to work in lower cost locations), and 4) there was a similar movement to lower cost markets in Atlantic Canada. 

The dynamic has shifted, and we may be headed back to more normal patterns. Alberta has moved in line with the national unemployment rate, with new jobs more than outpacing population inflows over the last year. We forecast that the province will, for the first time since 2014, have a slightly lower unemployment rate than the national average in 2026. Further, we boldly predict the dot to return to the Northeast quadrant of the scatter plot. 

More steady - not a classic energy boom

In periods of very strong growth, wage growth accelerates as labour shortages emerge and cost escalation becomes a challenge. Despite Alberta’s faster growth, the unemployment rate remains elevated at 6.6%, and wage growth remains within historic ranges of around 3-4% (using labour force survey data). Our forecast for 2.6% real GDP growth is impressive given the growth picture elsewhere in the country, but it’s not the 5+% gains of past energy booms (e.g. 2003-2006 or 2010-2014).

Bottom line: Alberta continues to move faster in the slow lane, with growth broadening beyond oil and gas and outpacing the rest of the country. But it’s not, at least for now, the return to past energy booms.

Answer to the previous trivia question: Up 1.5% from 2024, South Carolina posted the fastest population growth in the U.S. last year.

Today’s trivia question: True or False. Alberta employment in the oil and gas extraction sector is greater than employment in the Professional, Scientific and Technical Services sector.