February 13, 2014
Rising demand for oil and gas brighten Alberta prospects in 2014 and 2015
A year ago, in the Economic Snapshot titled “Alberta has enough oil for now but too much without Keystone”, we expressed concern that failure to approve the pipeline would exert a drag on the province’s economy in 2013 and possibly in 2014.
However, a number of indicators suggest that this concern does not appear to have been well founded. First, despite the absence of the Obama-stalled Keystone Pipeline, Alberta’s total exports were up by 6.4% in 2013 compared to a 4.4% rise in 2012.
By far the major contributor to this strength was an 8.1% year-over-year increase in exports of crude petroleum. In addition, sales of natural gas — driven to a significant extent by the much colder than normal weather that has held much of the continent in its grip since mid-November — were up by 20%.
Turning to the domestic side of the economy, fuelled by strong growth of employment, low interest rates and rising consumer confidence, retail sales in the first eleven months of 2013 were up 6.6%, three times faster than the increase recorded by the rest of the country.
Driven by the same strong fundamentals as consumer spending, together with a record inflow of migrants from outside the province, sales of existing homes increased by 10% in 2013 following a gain of 12.3% in 2012.
The facts that the months-of-supply of homes for sale in the province averaged 3.9 in 2013, the lowest annual average since 2007, and average house prices in the province increased by 7.5% year-over-year in December, point to a shortage of existing homes for sale and suggest that the pace of new construction will gain momentum over the course of 2014 and into 2015. The outlook for the other key element of domestic demand, business investment, is also looking brighter than it did just a year ago.
This prospect is reinforced by the recent release by the U.S. State Department of a report which raised no major objections to the proposed Keystone Pipeline.
In addition, the most recent Inventory of Major Alberta Projects reported that despite the persisting uncertainty regarding approval for several pipelines including Keystone, the value of proposed oil and gas projects in the province has increased by 52% over the past six months.
Driven by the recent strength of both external and domestic demand, it is not surprising that hiring in the province has expanded at a healthy pace over the past year.
Indeed over the past twelve months the province has added more than twice as many (48,000) full-time jobs as the country as a whole (19,200) and has an unemployment rate of 4.8%, well below the national average of 7.2%.
Although the most recent CFIB Business Barometer reported a decline in intentions to add staff over the next three months, it noted that “short term hiring plans remain quite strong”.
Looking ahead, given the steady, gradual improvement in the health of the global economy in general and the U.S. economy in particular we expect that the Alberta economy will expand in the range of 3.5% to 4.5% into 2015 following an estimated increase of 3.4% in 2013.
Data Sources: Actuals – Statistics Canada; Forecast – CanaData/Chart: Reed Construction Data, CanaData.