March 8, 2013
Alberta has enough oil for now but too much without Keystone for the future
While a number of indicators suggest that Alberta’s economic pulse has slowed somewhat over the past 12 months, midway through the first quarter of 2013 it is definitely beating faster than the rest of the country.
This statement is best illustrated by the fact that after adding 79,600 jobs in the 12 months ending January 2012, employment in the Wild Rose Province increased by a more modest 41,100 in the 12 months ending January of 2013.
However, despite this slowdown in job growth, labour demand remains strong. Not only has the province’s unemployment rate dropped from an average of 5.4% in 2011 to 4.6% in 2012, well below the national average and the lowest in the country as a whole, but the growth rate of average weekly wages has accelerated from 3.5% y/y in January of 2012 to 7% y/y in January 2013.
Fuelled by the very strong pattern of job growth and solid gains in average weekly earnings, consumer spending, reflected by retail sales during the six months ending in November of 2012, is up by 7% compared to the same period in 2011. This increase is more than three times the 2% gain recorded by the country as a whole during the comparable period.
Alberta’s increased appetite for labour has also contributed to a significant strengthening in provincial in-migration. Indeed, over the past four quarters through Q3/2012, the combination of 39,307 net migrants from other provinces and 39,864 net international migrants has boosted the province’s population by almost 80,000. This is the largest net inflow of individuals to the province over four quarters on record.
Housing demand, like consumer spending, has also benefited from this sustained pattern of strong employment growth and a concomitant well-above-average increase in net migration. Indeed, despite the more restrictive mortgage lending regulations introduced by the federal government in mid-2012, sales of existing homes in Alberta during the six months through January 2013 are up by 7.5% versus the comparable period in 2012.
In response to this strengthening of housing demand, housing starts over the past six months are up almost 11% y/y due to strength in both single-family units (+10.7%) and multiples (+14.2%).
Over the near term, the outlook for the Alberta economy remains quite positive. This outlook is largely based on the sustained, robust pattern of full-time employment and earnings growth over the past several quarters plus the significant inflow of population.
Together these strong fundamentals should underpin domestic demand in general, and both residential and non-residential construction in particular, well into 2014.
In the near term, the outlook for construction is reinforced by the fact that over the past six months, the value of residential building permits is up by 13% y/y while non-residential building intentions are up by 11.5%.
Having said this, there is a large cloud on Alberta’s economic horizon which tempers the province’s longer-term prospects. Specifically, while Alberta is likely to benefit from a gradual increase in global energy demand, the persisting lack of pipeline capacity, in the event of the failure to approve the Keystone pipeline, will weigh not only on future investment in the province’s energy sector but also on the province’s longer-term potential economic growth.
Data Source: Statistics Canada; Forecasts and Chart: Reed Construction Data, CanaData.