In this week’s The Seven…

• Ice Ice Baby - U.S. inflation cools down
• Que Sera, Sera - Next week’s Canadian inflation report
• We are family - Construction activity boosted by multi-family dwellings 
• Interesting Fact: Price changes at the grocery store
• Chart of the Week: Dude, where are the self-employed workers?

The big economic news this week came from south of the border with the U.S. inflation rate slowing by more than expected in June and increasing the odds the Fed will start reducing borrowing costs as early as September. We get the June inflation data for Canada on Tuesday. In the meantime, the push to build more homes in Alberta is being led by the multi-family category.  

Food for the Fed: U.S. inflation rate cooler in June

The headline inflation rate in the United States (see the chart below) ticked down for the third month in a row to 3.0% in June from 3.3% in May. This is good news considering year-over-year price growth had creeped back up to 3.5% in March. Measures of core inflation also showed signs of cooling in June, suggesting the downward trend might continue.

This matters to us up here in Canada because 1) we buy a lot of American goods and services; and 2) it influences what the U.S. Federal Reserve does with interest rates which, in turn, has implications for everything from the loonie and financial markets to oil demand and Canadian inflation rates.

Even though it is not running at the 2% target, the fact that the U.S. inflation rate eased in June helps make the case (as did last week’s slightly softer U.S. job numbers) for the Fed to start cutting interest rates, perhaps as early as September. The Fed’s next meeting is at the end of July, but a cut that soon seems out of sync with the messaging from Fed members that they want to see a sustained drop in inflation before cutting.

*The U.S. Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Multi-family residential projects driving activity in the construction sector

After a 9% increase in April, seasonally-adjusted construction intentions (residential and non-residential) in Alberta pulled back by 7% in May to $1.5 billion.*

Month-over-month permit value can be quite volatile even after being adjusted for regular seasonal variation, so the decline in May is not necessarily a sign of things to come. The direction of the trend is clearer when we look at the year-to-date (YTD) numbers which indicate strong growth with the value of building permits issued over the first five months of 2024 26% higher than over the same period in 2023.

Residential construction has been the growth engine in the sector with its YTD permit value up 41% compared to just 1% in the non-residential category. The YTD permit value for both single-detached and multi-family projects increased, but the multi category was the stronger of the two, up by 52% versus 30%. The strong residential numbers are reflective of the robust population growth Alberta has been experiencing and tight supply levels in the resale market.

In the non-residential category, the YTD permit value for industrial building construction was a solid 35% higher over the same period in 2023, but an 8% decline in the larger commercial category tempered overall growth to just 1%.

Nationally, YTD permit value was 7% higher through May with residential permits up by 9% and non-residential by 5%. The value of permits for single-detached homes actually decreased by 1% while multi-dwelling permits rose by 14%.

*Statistics Canada’s Building Permits Survey covers all Canadian municipalities that issue permits.

Interesting Fact…Price change at the grocery store

As we reported in an earlier edition of The Seven, the cost of the fixed basket of goods and services that is the basis for the Consumer Price Index (CPI) was 14% higher in Alberta in May 2024 than in May 2021. Within the basket, the clothing and footwear category was less than 1% higher while food prices were about 19% higher and shelter costs were up by over 22%. These cumulative price increases are what households, non-profit organizations, public institutions and businesses are dealing with three years after the inflation rate started to run hot.

The inflation rate is useful, but it doesn’t tell us how much the items in the CPI basket actually cost or how much they have gone up (or down) in absolute terms. For this, we can turn to another Statistics Canada data series called “monthly average retail prices for selected products.”

The price estimates in the series are derived using transaction data from Canadian grocery retailers so most of the 110 items on the list are food products. For example, the average price of one kg of a cut of top sirloin beef in Alberta in May 2021 was $15.56. By May 2024, it had risen to $25.77 for an increase of over $10/kg (+66%). Ground beef went from $9.46/kg to $13.97 for an increase of $4.51/kg (+48%) whereas a whole chicken was up by a more modest 41 cents/kg (6%) to $7.79/kg.

Most of the items on the list have increased in price over the last three years, but if you are a fan of pork loin, it was actually down 37 cents/kg (-4%) to $9.12/kg. Or if you like to get protein from almonds, they were down from $5.47/kg to $4.67 for a savings of 80 cents/kg (-15%). Keeping in mind these are averages across different brands and stores and parts of the province, they nonetheless highlight the variation in price change lurking beneath the headline inflation rate.

Chart of the Week: Whither self-employment in Alberta?

Self-employment is a tricky part of the labour market to get a handle on because the same conditions might be correlated with the number of self-employed workers* going up and down. For example, self-employment might rise during an economic boom because it’s a good time to be working for yourself or it might fall because the boom is creating lots of good jobs for employees. The same thing goes during a downturn: self-employment might go up because employers are laying off workers or it might go down because it’s a bad time to be drumming up business on your own. Making this even more fuzzy is the fact that the number of self-employed workers tends to jump around from month to month regardless of broader trends in the economy.

With the above caveats in mind, there is a downward trend evident in the level of self-employment in Alberta. Smoothing out some of the inherent noise in the data by looking at the five-year average prior to the pandemic disruption (i.e. 2015-2019), the proportion of workers in Alberta who were self-employed went from 16.1% to 13.5% over the first half of 2024. In absolute terms, self-employment averaged 364,000 workers over the 2015-2019 period versus 339,000 over the first six months of 2024. That works out to a 7% drop. The number of employees, meanwhile, went up by 15%.

We don’t know why self-employment is less popular at the moment than before the pandemic (the Labour Force Survey does not delve into why someone is or isn’t self-employed), but we can see which parts of the economy have lost or gained self-employed workers.

Looking again at the five-year average before the pandemic versus the first half of 2024, self-employment in the goods-producing sector was down by 34%. Self-employment was lower across the board in the sector, but the largest absolute declines were in primary agriculture and construction, both down by 16,000.

It was a different story for employees in the goods-producing sector with their number growing by 12% between the two periods (despite a 15% drop in primary agriculture employees).

Turning to the services-producing sector, the number of self-employed workers went up by 7% versus a 16% increase in employees.

As our Chart of the Week shows, for whatever reason (generational shifts, better pay as an employee, shifting industry needs, change in the number of temporary foreign workers,** personal preference?) self-employment in Alberta has been on the wane in the goods-producing sector along with some pullback in the wholesale and retail, accommodation and food services, and information, culture and recreation sectors.

*The Labour Force Survey only counts workers as self-employed if it is their main form of employment.

**There are no questions in the LFS that ask respondents whether they are temporary foreign workers. Therefore it is not possible to produce counts of, or employment numbers for, temporary foreign workers from the LFS. If contacted for the LFS, temporary foreign workers will be included only if they identify the selected dwelling as their usual place of residence.

Answer to the previous trivia question: The dish dates back to the Middle Ages, but the recipe for beef bourguignon was apparently not published until 1903 when “the king of chefs and the chef of kings” Auguste Escoffier shared his version.

Today’s trivia question: Which band that “gathers no moss” had its first public performance on this day in 1962?