In this week’s The Seven… 

• Eye of the trade storm - Our latest economic outlook
• On the rise - U.S. inflation in August
• It’s a start - Major projects list announced
• Mountain retreat - GoMedia Summit in Jasper
• A deep pool - Tech talent in Alberta
• Next week - Monetary policy frenzy - rates and inflation data!
• Interesting Fact: What is a recession?
• Chart of the Week: Say what? More jobs, more unemployment

“For too long, the construction of major infrastructure has been stalled by arduous, inefficient approval processes, leaving enormous investments on the table.”

In my presentation yesterday at the Alberta Industrial Heartland Conference, I asked the audience of 1,000+ where the above quote came from. The answer, to the surprise of many, is the Prime Minister’s Office in a press release late August.

Acknowledging the problem is the first step. We have repeatedly talked about low levels of private investment and productivity in Canada, and that turning this around is key to driving the next leg of growth in the nation.

Now for the execution. This week, the federal government announced its first tranche of projects - none in Alberta, though LNG Canada phase two will support the natural gas industry in the province, and the Alberta Pathways carbon capture initiative is on the list of potential projects. No pipeline made the list, though it has not been officially ruled out.

Fast-tracking major projects sounds nice, but when will shovels hit the ground? Until we have more certainty, we’re reluctant to even pencil it into our forecast. 

Speaking of which, the major projects announcement wasn’t the only big story this week. We also released our economic outlook!  I’ll admit, there was nothing earth-shatteringly new in our report. Careful readers of the Twenty-Four should already know where our heads were at, and that our outlook was tracking close to what we said June.

But it still feels different. That’s because we were forecasting some economic pain ahead in our last two outlooks. And now we’re feeling it - exports are down, employment has flattened and the unemployment rate is up.

Next week is all about monetary policy. A cut by the U.S. Federal Reserve is a virtual lock. The BofC is a closer call, but we’re leaning towards a cut in light of soft jobs and GDP reports (it’s baked into our September forecast). We get one more CPI print before they go live, which could be the deciding factor.

To discuss our latest outlook and what the latest round of federal project announcements means, I chatted with Jessica Ng on Edmonton CBC Radio Active yesterday. Check it out here.

Eye of the trade storm - Our latest economic outlook

Our latest outlook pegs growth at 1.9% this year, exactly the same as when we crunched the numbers three months ago. We’d like to chalk it up to the exceptional accuracy of our forecasting, but the truth is that the story behind the headline numbers has changed even if the resulting pace of growth has not.

Ironically, given the flurry of summer trade news, the tariff story is basically the same as it was. We assumed correctly in June that tariffs would remain a drag on the economy, but that Canada would continue to be shielded from a universal tariff by the exemption for CUSMA-compliant goods. We also assumed correctly that Alberta would face a lower effective tariff rate than other parts of Canada because it’s less exposed to the sector-specific tariffs. 

The risk, highlighted in the title of the outlook, is that the exemption hangs by a thread and uncertainty about what might be next remains elevated.

What did change was a number of factors that largely offset one another on headline GDP. 

On the downside, China added a 76% tariff on Canadian canola seed, our already conservative estimate of oil and gas capital expenditure needed to be adjusted lower in the face of softer oil prices and the unemployment rate has increased more than we thought it would as employers remain cautious in the face of tariff-related uncertainty. 

On the upside, consumer spending has been more resilient than expected and residential construction has yet to show any signs of fatigue. At the same time, population growth and improved market access for oil and gas are providing the boost we were anticipating.

You didn’t ask for this, but now you know the ‘inside baseball’ mechanics of our GDP forecast. Should make for good dinner conversation with the family this weekend. 

Bottom line: Alberta’s growth trajectory, while positive, is weaker than it would be without the dampening effects of trade uncertainty and tariffs. And, although Alberta’s growth will likely be at or near the top of the provincial growth leaderboard next year, it is not going to feel that way to the many Albertans struggling to find traction in a softer labour market.

As always, we will continue to monitor the situation with our next quarterly economic update coming out in December (just in time for Christmas and your holiday cocktail party discussions!).

On the chopping block - Fed will cut rates despite sticky inflation

Imagine running the U.S. Federal Reserve right now? There is pressure from President Trump to lower interest rates, with an attempted firing of governor Lisa Cook on alleged mortgage fraud charges to get majority votes on the board. Meanwhile, the employment picture has darkened and inflation is still running too hot for comfort.

Released this week, consumer prices in the U.S. grew by 2.9% on a year-over-year basis last month, up from 2.7% in July. The U.S. Federal Reserve’s target is 2%, so the sticky inflation readings will raise some eyebrows among its governors. But recall the dual jobs/inflation mandate, and right now that jobs situation likely warrants a cut.

In the end, Trump will get what he wants at next week’s policy announcement (a lower rate), but for the wrong reason (weak jobs). The bigger question for the Fed is what to do if U.S inflation climbs even higher in the months ahead when tariff-induced price growth will be more in play.

Interesting Fact: When are we in recession? It’s complicated

An old joke is that an economic downturn is when your neighbour loses their job, but a recession is when an economist loses their job. The point is that a recession is a subjective term, and there are economists out there trying to measure when we’re in one.

A crude measure is two consecutive quarters of real GDP contraction. This is often called a “technical” recession which makes it sound more sophisticated than it really is.

In the U.S., a more robust definition of a recession used by a committee of experts at the National Bureau of Economic Research (NBER) considers a range of factors such as employment, personal income, and industrial production. In Canada, the C.D. Howe Institute's Business Cycle Council uses the technical definition as a starting point, but also evaluates the depth, breadth, and duration of the decline in overall economic activity.

Why are we talking about this? You may hear the “R” word resurface more these days. Moody’s Chief Economist Mark Zandi raised the alarm recently, saying the U.S. could already be in a recession. To be clear, that’s not the consensus call. The GDPNow indicator is actually pointing to a +3% rebound in the third quarter, following a similar performance in the second quarter.

Next week, Federal Reserve officials will give their growth forecast for the next three years. We’re forecasting U.S. GDP to grow around 1.5% in 2025 and 2026 (down from 2.8% in 2024) with the unemployment rate edging up to an average of 4.5% (though that’s flattered by a cooldown in the population and labour force). So a marked slowdown, but not a recession.

Chart of the Week: More jobs, more unemployment?

As I give my presentations, one question keeps coming up. How is it that Alberta has added jobs over the last year, yet its unemployment rate has jumped?

The ATB Economics team went to work this week to explain this using an infographic (because the world could use more of those). It made the cut for our Chart of the Week.

The short answer is more jobs, but even more people. Put another way, the labour market has struggled to keep pace with rapid population growth and the number of people looking for work.

The end result is a higher unemployment rate. This is particularly the case for youth (15-24), where the unemployment rate has spiked.

More recently, however, the jobs machine has been sputtering amid trade headwinds. So, since the beginning of the year, it’s really a combination of less hiring and a rising labour force contributing to a higher unemployment rate.

What’s next? In our latest forecast, we see the unemployment rate coming down next year, but still averaging an elevated 7.4%. Most of the downward adjustment will come from fewer inflows of people entering the labour market looking for work, as opposed to an acceleration in hiring.

Answer to the previous trivia question: The Yellowhead Pass is named after Métis explorer Pierre Bostonais. Given to him because of his blond hair, his nickname was Tête Jaune, French for Yellow Head.

Today’s trivia question: Who is Jasper National Park named after?