In this week’s ATB Economics Weekly Wrap…

• More jobs get filled
• Autos shift spending into a higher gear
• Wage growth firms 
• Global outlook gets an upgrade
• Fed raises its policy rate
• Chart of the Week: Wildfires dent oil and gas output in May

A slower week for data, but we still have much to report!

Fewer jobs vacant - Job vacancies in Canada fell to their lowest level in two years according to data released yesterday, providing another sign that Canada’s tight labour market is loosening. At 4.3% in May, the job vacancy rate (i.e. unfilled jobs as a share of jobs required) is down from its peak level of 5.7% (though still well above pre-COVID levels). The report comes on the heels of two straight increases in the unemployment rate—from 5.0% in April to 5.4% in June. A tight labour market has been cited by the Bank of Canada as a key reason for “excess demand” and inflation in Canada.

In Alberta, vacancies also dipped in May, though they haven’t fallen as quickly from peak levels as the rest of the country. Alberta now matches the national job vacancy rate after spending several years below it (see chart). 91,400 jobs were reported vacant in Alberta, down from the peak of 107,895 in April 2022 (numbers seasonally adjusted).

Bottom Line: More jobs are getting filled, with record migration playing a role. That doesn’t mean many employers are not struggling to find talent. Indeed, Alberta businesses reported in June they are almost as concerned about labour shortages as they were in February. But it does suggest hiring challenges are easing somewhat. Next week’s labour force report will be watched closely ahead of the Bank of Canada’s Sept 6 rate decision.

Autos fuel retail sales - The retail sales report from last Friday showed a spike in spending in Alberta of 2% month over month compared to only 0.2% nationally. A closer look reveals that it was mostly driven by spending at auto dealers as unit sales hit their highest level in four years—a sign of pent-up demand and some relief in supply chains.

What happens next? In addition to autos, much of the year-to-date growth has been on more discretionary items—clothing, shoe and sport/hobby retailers have recorded double-digit gains. This will be more difficult to sustain as debt-servicing costs climb. Our ATB Consumer Index, a timely measure of ATB consumer credit card transitions, points to a pullback in June.

Bottom Line: Alberta has led all provinces in retail sales growth this year, and autos have been a driving force. A slowdown in discretionary purchases is expected to weigh on sales for the rest of the year, with fast population growth providing some offset.

IMF upgrades its global outlook - The International Monetary Fund (IMF) joined the ranks of forecasters upgrading their 2023 outlooks. A couple weeks ago, it was the Bank of Canada, with a hefty upgrade to its Canadian GDP forecast (+0.4 points) and a lesser improvement in global growth (+0.2 points). This week, the IMF said its growth projection for the global economy is 3.0% (from 2.8% in April) this year. The IMF noted that “in the near term, the signs of progress are undeniable.” However, they also warned that there are signs the global economy is losing momentum and that growth will be low by historical standards. The IMF’s forecast has two lanes: in the slow lane, advanced economies will decelerate sharply in response to higher interest rates this year; in the faster (but not too fast) lane, emerging markets will maintain current growth rates.  

Bottom line: The upgrade is not a huge surprise given the unexpectedly strong start to the year in the US and other advanced economies, particularly from consumers. But the IMF stressed that risks are elevated and that core inflation readings remain stubbornly high. In other words, we’re not out of the woods. While China’s recovery has sputtered, stable emerging market growth bodes well for commodities.

Federal Reserve raises interest rates - As widely expected, the US Federal Reserve raised its fed funds target range to a 22-year high of 5.25-5.5%, and Chairman Jerome Powell warned more hikes could be on the table if inflation doesn’t cooperate. This “data dependent” view and resolve to get to the 2% inflation target mirrors the Bank of Canada’s stance from earlier this month.

Bottom line: Much like Canada, US growth is expected to slow over the next 12 months as higher interest rates bite. As our largest trading partner, this will be a headwind for many exporters. However, our energy sector will benefit from expanding production and still-healthy prices.

Chart of the week - Oil and gas output during the May wildfires - The wildfires last May led to temporary production disruptions in Alberta’s oil and gas sector. Unlike the 2016 wildfires in Wood Buffalo, oil sands production was largely unaffected, with the fires impacting conventional oil, natural gas, and natural gas liquids.

With new data released today, we can now compare the hit to GDP in Canadian oil and gas extraction last May to the wildfires in May 2016. 

Real GDP in Canada’s oil and gas extraction industry fell 3.6% in May from April, in the range of the 2-5% decline we estimated in mid May. This compares to a 14.9% decline in May 2016 during the Wood Buffalo wildfires. As expected, losses were concentrated in the conventional oil and gas extraction sector (-6.6%). Oil sands fell 1.6% over the same period, with maintenance at facilities contributing to the decline.

Statistics Canada also reported declines in pipeline transportation (-2.1%) mainly reflecting lower shipments of natural gas, natural gas distribution (-3.9%), and support activities for mining and oil and gas extraction (-4.0%).

Interesting fact… In response to rapid food price inflation, a recent Statistics Canada study shows that Canadian households have scaled back the volume of spending at food and beverage stores. As the authors note, “shoppers are spending more but buying less.” They also found that Canadian shoppers have shifted more of their spending on food to general merchandise stores (e.g. supercenters and warehouse clubs).

Daily trivia

Answer to the previous trivia question: Monk's Cafe is a fictional coffee shop from the NBC sitcom “Seinfeld.” An actual diner in Manhattan called Tom's Restaurant was the stand-in for the exterior of Monk’s Cafe with the interior scenes shot on a soundstage.

Today’s trivia question: What is the minimum salary of Canadian Football League players as of 2023? 

Appendix: Measuring average wages

Measuring wage growth is not a straightforward exercise and there can be conflicting signals depending on the indicators used. For this reason, a range of wage measures are often used by economists. The Bank of Canada has even created its own index (the wage common), in addition to reporting on various measures to capture wage trends. Below is a brief summary of what drives differences between measures.

Different surveys - There are two main surveys for monthly data (the Labour Force Survey or LFS, and the Survey of Employment, Payrolls and Hours, or SEPH) and one for quarterly data (National Accounts). The SEPH is an employer-based survey and excludes self-employed workers. The LFS is a household survey and includes all employee types.

The LFS is the most timely source, but is based on fewer observations. It comes with a one month lag. The SEPH uses a larger sample, but it excludes the self-employed and it’s lagged two months. 

Different measures - Include overtime? Weekly or hourly wages?  Average or median?   Each measure comes with its advantages and disadvantages. In the chart on wages above, we report average hourly wages excluding overtime from the SEPH. 

Fixed vs. variable weighted - The fixed-weighted hourly earnings index removes the effects of “compositional shifts” by holding hours paid and employment shares constant. COVID provides a good illustration of why this can be important. Average hourly earnings jumped during the pandemic, but this was in large part driven by disproportionate job losses in lower-paying service industries. That trend reversed in 2021 as many of those jobs came back. The fixed index was much more stable during COVID and the recovery. In the chart on wages above, we report both fixed and variable measures.