In this week’s ATB Economics Weekly Wrap…

• Canadian labour market: More signs of softening
• Another Alberta job gain, but labour force grows even faster
• Oil prices on the rise
• Calgary housing market heats up
• Airport visits by non-residents flying higher
• Chart of the Week: Employment since COVID-19
• Happy Heritage Day everyone!

Cracks widen in Canada’s labour market - Before today’s jobs report, there were already signs that higher interest rates were taking the steam out of Canada’s tight labour market. We now have a clearer trend. After a decent 60K job gain in June, employment was essentially unchanged last month (-6.4K). The jobless rate nudged up for the third straight month to 5.5%, its highest reading since January 2022. This report comes after the payroll data last week showed that job vacancies hit a two-year low.

Looking under the hood, July job losses were concentrated in construction, public administration, and information, culture and recreation—partly offset by gains in health care and social assistance, and education. Part-time positions led the decline, with full-time jobs flat.

The report came in weaker than expected on jobs, but in line for unemployment. Based on a Bloomberg survey, market expectations were that 25K jobs would be added. Another closely watched measure—the average hourly wages of permanent employees—grew at 5.0% year-over-year, an acceleration from June’s pace. The Bank of Canada has warned that elevated wage growth (especially without a pick up in productivity) poses a risk to the inflation outlook.

Bottom line: This report lends further support to our view that the Bank of Canada will likely sit on the sidelines next month as it evaluates the now apparent impact of past rate increases on the Canadian economy. While the Bank of Canada may have some discomfort with the still elevated wage inflation, continued strong population growth is adding to the labour force and should ease wage pressures going forward. The Bank has other data points. Last week GDP numbers came in fairly soft for the second quarter (below the Bank of Canada’s forecast if the preliminary June reading holds), and the retail report the week prior showed clear signs of consumer restraint.

This is the last Labour Force Survey report before the September 6 decision, but the Bank has another major release to digest before making its decision: the Consumer Price Index comes out on August 15.

Jump in labour force lifts unemployment rate - Last month, employment did not keep pace with Alberta’s rapidly growing labour force (i.e. those working or searching for work). The unemployment rate rose 0.4 points to 6.1%, its highest since April 2022. The influx of migration has contributed to a 4.7% surge in Alberta’s labour force over the last 12 months.

Bottom line: Alberta employment has been resilient, with a second straight significant gain. Year-to-date employment growth is tracking well ahead of our 2.8% forecast for the year, which will likely lead to an upward revision in our forecast in September. For the rest of the year, employment growth is expected to slow amid the lagged impacts of higher interest rates and softer external conditions. Strong labour force growth should keep the unemployment rate near current levels as the year progresses. In June, we forecast the unemployment rate to average 6.1% this year, above the year-to-date average of 5.8%.

Oil prices approach April highs - The price of oil, Alberta’s largest export, has staged an impressive rally over the last month. At the end of June, the West Texas Intermediate price was sitting at just over US$70/bbl. This week WTI traded around $80/bbl—closing in on levels from mid-April.

What’s behind the latest increase? There has been a seesaw in the market between concerns over global growth (including a sputtering Chinese recovery) on the one hand and market tightness on the other amid falling inventory levels and OPEC cuts. The latter has won the day, at least for now. Sentiment has also improved that the Federal Reserve is near the end of its interest rate hiking cycle, and the possibility of a soft landing (Note: Fed Chairman Jerome Powell said last week that his staff are no longer forecasting a recession.)

In Alberta, most of our barrels are from the oil sands and more closely priced off the heavy benchmark (Western Canadian Select or WCS). That price has improved even more than WTI since the start of the year. A narrower differential between WTI and WCS reflects a range of factors, including OPEC cuts (as heavy barrels have been taken off the market), and improved refinery demand in the US for heavy oil. The prospect of improved market access with the completion of TMX will also support WCS pricing longer-term.

Bottom line: Higher prices support activity in Alberta’s oil patch. The durability of the recovery is an open question given heightened uncertainty over how the inflation battle will end, and how much damage higher interest rates will inflict. Many forecasters expect tightness in the market to keep prices in the mid $70s or higher for the rest of the year.

One thing is more certain: oil prices will remain volatile. A number of factors, from shifts in growth sentiment to potential refinery and transportation disruptions, will continue to produce swings in Alberta oil prices.

Calgary housing market revs up - New data from the Calgary Real Estate Board released this week shows continued strength in Calgary’s real estate market. There were 2,647 sales in July—a record for that month. The inventory of homes on the resale market stood at only 1.3 months of supply (close to a record low), while the benchmark home price also hit a new high, up 5.7% year-over-year.

As we’ve noted, Calgary is the only major city over a million where housing prices actually increased during the latest Bank of Canada tightening cycle.

We don’t yet have July data for the other regions in Alberta. In June, Alberta unit sales rose for the third straight month and the benchmark price hit a new high (just edging out the previous record in April 2022). Edmonton sales and prices rose in June, though both remained below year ago levels. 

Bottom line: The Calgary housing market continues to stay hot, even with the Bank of Canada’s two straight monthly policy interest rate increases. Migration is a big factor, with relatively affordable housing (benchmark prices are still below major centers like Toronto, Vancouver, Ottawa) and a healthy labour market luring people to the city and province.

Airport visits by foreign residents now above pre-COVID levels - At long last, airport visits by non-Canadian residents to Calgary and Edmonton International airports have returned to, and even exceeded, where they were prior to COVID. High-frequency data shows that visits to the airports by non-Canadian residents jumped well above 2022 levels in June, and surpassed 2019 levels the same month.  

Bottom line: This is an encouraging sign for Alberta’s tourism industry, which is still finding its footing since COVID essentially shut down international travel. Growth in tourism spending is one of the bright spots in Alberta’s economy this year.

Chart of the Week:  Employment Since COVID

It's no exaggeration to say that COVID brought massive disruptions to the labour market.  Some of the impacts are long lasting  (i.e. the shift to remote work) while others have been more transitory. 

With the July data in hand, it’s interesting to look at today’s level of employment compared to pre-COVID. Alberta employment is up 7.2% from pre-COVID peak in February 2020, or about 167K jobs (vs. 4.9% nationally). At the trough, employment dropped a stunning 15.5%—by far the largest decline in the history of the labour force data(comparable data back to 1977). Alberta lagged the national recovery until early 2021, but since early 2022, employment has been growing faster in Alberta.

Interesting fact…  Landed immigrant employment - Today’s labour force numbers contain more than just headline employment and unemployment rates. They also reveal much about the makeup of the workforce.

One of the breakdowns included is the share of employment by immigrant status. As of July, landed immigrants accounted for 28.4% of total employment in Alberta—the highest on record (comparable data back to 2006). The numbers have been trending upwards over time. In 2006, the share was 16%. In 2016, it was 23%. Overall, 707,400 landed immigrants were employed in Alberta in July compared to 1,720,100 Canadian born*

Immigration has been the main contributor to Alberta’s stunning population growth, and is clearly an important source of growth in Alberta’s labour market.

*3-month moving average, not seasonally adjusted. A landed immigrant is a person who has been granted the right to live in Canada permanently by immigration authorities. Canadian citizens by birth and non-permanent residents (persons from another country who live in Canada and have a work or study permit, or are claiming refugee status, as well as family members living here with them) are not landed immigrants.

Daily trivia

Answer to the previous trivia question: International Experience Canada (IEC) is a federal government program that enables Canadians aged 18 to 35 to apply to work and travel abroad in 34 countries.

Today’s trivia question: What was the minimum wage in Alberta 20 years ago?