The Twenty-Four
The Seven, May 8, 2026
Searching for the engine
By Mark Parsons 8 May 2026 5 min read
In this week’s The Seven…
- Take 2 - The U.S. economy keeps going
- Staying power - Can the Canadian consumer keep spending?
- Alberta affordability play - Not just housing
- Beyond energy - Defence opportunities in Edmonton
- Question to ponder - How much will AI boost economic productivity?
- Chart of the Week - Canada’s GDP turns defensive
"I didn't have time to write a short letter, so I wrote a long one instead."
—Mark Twain
We’ve already delivered our analysis of today's lukewarm Canadian jobs report, so I’m going to keep this Seven shorter than usual. Brevity was one of my New Year’s resolutions…not sure it’s been working.
Equity markets keep grinding higher. Investors are looking past inflation/interest rate fears and focusing on hopes of a U.S.-Iran deal. And then there’s the AI boom, which has been operating in the background during all this geopolitical turmoil. Q1 earnings of the Mag 7* came in higher than expected, and U.S. jobs surprised to the upside.
Even as the market hopes for an Iran deal, we still maintain our ‘higher for longer’ view on oil prices due to damaged infrastructure and a geopolitical risk premium. Either way, it doesn’t really change our growth forecast for Alberta—as we’ve noted before, oil prices have less torque on the real economy than in the past.
Canada’s economy is at a juncture. Population is no longer a driver, and the labour market has cooled. It needs to find its growth engine.
Take 2 - U.S. economy
Is it time to stop counting out the U.S. economy? Remember when aggressive Fed rate hikes— and then tariffs—were supposed to break it?
Here’s the latest data from this week:
Real GDP rose 2% annualized in Q1. Tax cuts from the One Big Beautiful Bill Act helped offset the drag from the oil price spike and the partial government shutdown, while the AI boom keeps adding to growth. This comes after a 2.1% gain last year, outpacing Canada’s 1.7% (despite much slower population growth).
Non-farm payroll employment was up 115K last month (versus 62K consensus). The one quibble is that the gains are healthcare-driven. Still, with unemployment sitting at 4.3%, the labour market remains tighter than north of the border.
The big, and underestimated, story is the AI boom, with the data centre built-out driving capital spending.
Canada’s growth - Can consumers keep propping things up?
Canada’s economic resiliency in the face of punishing tariffs is the talk of the town—at least in economic circles.
Moving past the headlines, I see it as more of a story of a steadfast consumer and a spending government—a trend that the Bank of Canada expects to continue this year (see chart). Exports fell last year, and business investment was flat.
Lower interest rates and equity market gains are helping lift retail spending, but the consumer faces a stiff test as employment has fallen, and now more income will be devoted to purchasing fuel and servicing debt (2-year and 5-year yields have risen).
As for the federal government, there’s been a shift from the operating side to the capital side of the ledger, but that will ultimately need to catalyze private capital (a big question mark).
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Alberta affordability play - Not just housing
We’ve long talked about the ‘chasing affordability’ theme impacting housing in Alberta. It plays a role in industrial real estate as well.
Here is a table from CBRE’s Canada Real Estate Market Outlook 2026. It’s a tad dated (published February 3, 2026), but the general rankings should still stand. Alberta has lower industrial rents, and also generally lower vacancy rates.
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In the retail segment, rental rates are also generally lower in Alberta. Retail spending is tracking higher so far this year (Jan-Feb), outpacing the rest of Canada on broad-based gains. Going forward, a more resilient labour market should help offset some of the energy price headwinds, as Albertans devote more of their income to filling up at the pumps.
As for space utilization, Calgary and Edmonton are sitting at sub-5% retail vacancy rates according to the latest Calgary and Edmonton market reports by Cushman and Wakefield. But it depends on the market. Higher vacancies exist in downtown Calgary and Edmonton. Return to physical workspace, particularly the return of Government of Alberta staff, should bring back demand. In the suburbs, grocery-anchored retail stores remain in higher demand while the exiting of the Hudson’s Bay Company has freed up mall space.
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Question to ponder: How much more productive will AI make us?
Last year, the Bank of Canada updated its estimate of how much it thinks the economy is capable of growing during normal times (not a boom, or bust…thinking of it as a comfortable cruising speed). That cruising speed, which economists call “potential GDP,” depends on how many people we have, how much they work, and how productive they are.
Productivity is the key variable because there’s only so many people, and those people can only work so much. The Bank plugged into its model how much they figure AI will make the Canadian economy more productive. Their conclusion: “We find that mass adoption of generative AI could contribute up to 0.5% to total factor productivity (TFP) by 2035.”
That may not sound like much, but in a world where growth is hard to find, it adds up (0.5% of Canada’s economy is about $12-13 billion, every year).
Other estimates are much higher—such as Moody’s estimate of 3% for the U.S. To be truthful, with such a wide range of estimates, it’s really an open question, but the general findings point to economy-wide productivity gains.
Not just oil and gas - Defence opportunities in the Edmonton region
“Are we an oil and gas town, or is it time to become Canada’s defence city?”
That’s the front cover headline of a recent edition of Edify, Edmonton’s lifestyle magazine.
It’s a clever headline, but in a city that will continue to serve the energy industry (petrochemicals, refining, pipelines and oil and gas related manufacturing) my hunch is that the authors are really talking ‘AND’, not ‘OR’.
The article grabbed my attention because we’ve seen the spike in federal defence spending, and more to come. The article makes a few compelling points about Edmonton’s ability to capitalize on the defence spending boom, including existing infrastructure (one-third of Canada’s fighting force are at CFB Edmonton), dual use technologies (like sonar and drones) and the University of Alberta as a NATO test centre.
Chart of the Week: Defensive GDP
The federal government says it has reached its goal of spending 2% of GDP on defence, and is committed to moving to 5%. Where does this show up in the data?
One place is in the monthly GDP data, where federal public administration is split between defence and other. The ‘other’ component has been falling, but the defence component has been spiking.
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*The "Magnificent Seven" (Mag 7) refers to a group of seven high-performing, influential U.S. technology and growth stocks: Apple, Microsoft, Alphabet, Meta Platforms, Amazon, Nvidia, and Tesla.
Answer to the previous trivia question: The Hallmark Channel was launched in 2001.
Today’s trivia question: When was the Canadian Department of National Defence created?