indicatorThe Twenty-Four

The Weekly Wrap, March 15, 2024

Up north and around the globe

By Mark Parsons, ATB Economics 15 March 2024 6 min read

In this week’s ATB Economics Weekly Wrap…

  • Oil prices up, OPEC+ market share down
  • Champagne on ice - U.S. Fed to remain on hold
  • Ending the negative - Bank of Japan looks to a positive pivot
  • Weak productivity complicates Canada’s return to 2% inflation
  • Northwest Alberta - opportunity knocks
  • Coming next week: ATB’s new outlook for the Alberta economy
  • Interesting Fact: Organic farming in northern Alberta
  • Chart of the Week: Travel is back, alright!

We move around the globe this week and travel to northwest Alberta.

On deck today, we have global oil prices, U.S. and Japanese monetary policy, and why productivity matters for inflation. Fresh from a conference in High Level Alberta, we talk about the economy in Northwest Alberta.

But most notably…drum roll…ATB’s quarterly Alberta Economic Outlook will be released next week!

Oil back above $80, OPEC+ market share sinks

With oil prices, you blink, and you’ll miss it. Suddenly, the price of West Texas Intermediate (WTI) is north of $80/bbl, closing at $81.26 on Thursday (though nudging a little lower this morning). That latest jump comes after the International Energy Agency (IEA) revised up its oil demand growth forecast, now predicting a small supply deficit for the year, and U.S. crude stockpiles surprisingly dropped.

WTI is still trading below levels prior to the Hamas attacks on October 7. The muted response reflects ongoing demand concerns (especially in China), supply growth outside OPEC, and the limited impact (to date) of the war on crude flows.

OPEC and its allies (i.e. OPEC+) are playing a role too. They have extended their voluntary production cuts (2.2 million b/d) until through the first half of 2024. This means a falling share of the global market. In fact, OPEC+ will have its lowest market share ever by June at about 34%, according to Rystad.

U.S. Federal Reserve - Threading the needle

Can the U.S. get inflation back to 2% with minimal damage to labour markets and the broader economy? The markets seem to think so. The S&P 500 continues its ascent (up 25% from its October low) with market odds of a first rate cut still in June.

U.S. inflation has come way down, but seems to be stuck at around the 3% mark. Keeping the champagne on ice would be wise. The Fed will not be in any rush with these unfriendly readings and will stay firmly on the sidelines when it meets next week.

Japan’s era of negative rates coming to an end

Japan is another country to watch in the world of monetary policy.

The Bank of Japan will make arrangements as soon as next week to end its long-standing negative interest rate policy, according to Reuters.

Japan has been mired in a prolonged period of stagnation and deflation. In an attempt to increase spending and revive price growth, the Bank of Japan has held interest rates on certain deposits of financial institutions at -0.1% since 2007. 


But things have changed as of late. Inflation has been running at 2% or more for 22 straight months. And big Japanese firms are now looking to hike wages, raising hopes that this will spur spending. This makes the Bank of Japan more confident that it can reduce the stimulative effect of negative rates and finally re-enter positive territory.

The Bank of Japan has held interest rates on certain deposits of financial institutions at -0.1% since 2007

The Bank of Japan has held interest rates on certain deposits of financial institutions at -0.1% since 2007

Why all this talk about productivity?

Much has been written about Canada’s productivity problem. We’ve been chiming in as well and on the related business investment challenge. In case you missed it, labour productivity has been trending lower since 2020 and, in the business sector, sits just slightly above 2014 levels. The most common concern is that this hurts living standards. And indeed, real GDP per capita has been falling.

There’s another reason to care about productivity—inflation.

When wage gains are not matched by improvements in productivity, it costs more (in labour compensation) to produce every unit of output. These higher costs may be absorbed by companies for a while, but tend to get passed onto consumers.

The Bank of Canada is more than aware of this problem. They devoted an entire feature on the subject in their last Monetary Policy Report, noting: “If wages continue to grow at this pace and productivity growth remains weak, inflationary pressures could increase.”

The Bank’s March interest rate statement sounded a little more hopeful, noting: “there are now some signs that wage pressures may be easing,” but we still see it as a risk.

Back to the United States. The U.S. economy is running much hotter than Canada’s, but its productivity growth is also much stronger. This is providing the Federal Reserve an assist, with some saying it paves the way towards the ‘golden path’ to a soft U.S. landing.

Unit labour costs have been rising faster in Canada than in the U.S.

Unit labour costs have been rising faster in Canada than in the U.S.

Heading north

I had the pleasure of attending and presenting at the REDI Business Showcase event in High Level, Alberta, this week on the heels of the Growing the North Conference in Grande Prairie in February.

The Regional Economic Development Initiative for Northwest Alberta (REDI) was formed in 2022 to promote the region as a whole (as opposed to just member communities). The far northwest part of Alberta, the region includes Mackenzie County and the Metis Settlement of Paddle Prairie.

The REDI region is resource rich. Its key sectors are agriculture, forestry, oil and gas, and transportation. Home to more than 24,000 people, the median family income is $104,772 (2020) and the region has 862 businesses (2022).

Opportunity knocks. REDI has developed 10 business cases for growth in the region, all of which build on existing resource strengths. They include microbrewing, honey production, vertical greenhouses, engineered wood, tree seedlings, and lithium from brine. Fun fact: the region has a lot of organic farming (see this week’s interesting fact below). Another Fun fact: it is very young. As of the 2021 Census, the share of the population 65+ was only 11% in Alberta Census Division 17 (far northwest region), compared to 15% provincially and 19% nationally.

Interesting Fact

Northwest Alberta is a hotbed for organic farming. More than half of the province’s organic farmers live in the Northwest REDI region and it’s one of the largest concentrated producers of organic oats in North America.

Chart of the Week: Travel’s back, alright

COVID, thankfully, is getting further in the rearview mirror. The economy overall has more than recovered and the vast majority of indicators have bounced back: employment, retail sales and exports, to name just a few.

But some things have taken longer. Take the hospitality industry. We noted this week that employment in the accommodation and food services sector, despite large gains in the past two years, is still below February 2020 levels and faces ongoing hiring challenges.

International travel also falls in the ‘longer’ category. It collapsed during COVID to virtually nothing, but has been climbing back. In fact, since mid-2023, international visits have been, for the most part, holding above pre-COVID levels as shown in the Chart of the Week.

Visits to Alberta by foreign residents have bounced back from the extreme lows seen during the pandemic

Visits to Alberta by foreign residents have bounced back from the extreme lows seen during the pandemic

Foreign traveler spending in Alberta has also recovered. In the third quarter of 2023 (the busiest season - summer), it totalled $1.4 billion, outmatching the $1.1 billion spent in the same quarter in 2019. The biggest post-COVID jump is among Americans, though overseas spending has also recovered.

More growth lies ahead for the tourism industry. A recent survey shows that, despite affordability pressures, Canadians are more inclined to scale back on other purchases than cancel travel plans.  The Bank of Canada’s Consumer Expectations Survey is a little more nuanced: while there is ‘pent up’ demand for services (including travel), budget constraints are leading to difficult choices. It’s also interesting to note that more young folks want to travel. A survey in the U.S. shows that Gen Z’s (1997 to 2012) are more likely to travel than past generations, and view travel as a less discretionary expense.

Spending by foreign travellers in Alberta was $1.4 billion in the third quarter of 2023

Spending by foreign travellers in Alberta was $1.4 billion in the third quarter of 2023

Answer to the previous trivia question: Simple interest is calculated on the principal amount of a loan or deposit. Compound interest is calculated on the principal amount plus the accumulated interest of previous periods.

Today’s trivia question: Which national park in Canada is the oldest?

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