In this week’s ATB Economics Weekly Wrap…

• Canadian jobs beat expectations
• Alberta employment dips in September
• Dining out again in July
• Higher energy prices lift exports
• Bank of Canada Deputy Governor talks of pricing ‘feedback loop’
• U.S. labour market still tight
• Chart of the week: Interprovincial migration and the labour market

Canada’s labour market posts stronger-than-expected job gain

Canada’s employment beat consensus last month, while wage growth remained firm. The current unemployment rate will be difficult to sustain amid a slowing economy and a fast-growing labour force.

Canadian employment rose 63.8K in September, well ahead of the consensus of +17K.  The gain wasn’t enough to reduce the jobless rate, which remained at 5.5% for the third straight month. The details show the gains were largely driven by the education sector (numbers are seasonally adjusted, so should not be a return to school effect) and were mostly in part-time jobs. Moreover, hours worked declined slightly.

Job gains are struggling to keep pace with rapid labour force entry, as the population continues to expand at a rapid clip. The labour force (those 15+ working or looking for work) grew by 71.8K last month. The average monthly increase this year has been 59K, more than double the pace set over the previous two years.

Wage growth remains elevated at 5.0% year-over-year, roughly in line with the previous two months. The Bank of Canada has warned that 4-5% wage growth is inconsistent with the 2% inflation target.

The stronger September report increases the odds of another interest rate increase this year. But the Bank of Canada will need to weigh this against the slowdown in the broader economy—last week’s GDP reading was soft and consumers are pulling back. It will receive its most important reading—September consumer price inflation—before making its next rate decision on October 25.

While employment was expected to level off for the rest of the year, the size of losses in construction and trade were surprising. Residential construction activity picked up over the summer, and the construction industry continues to report the highest job vacancy rate (as of Q2). Retail and wholesale trade job vacancies have come down, but remain well above pre-recession levels. We suspect that much of these losses are one-time and should reverse themselves in the coming months.

Employment in the goods-producing sector had been picking up steam after lagging services in the COVID recovery (see chart), but fell back on lower construction employment in September.

A 1.3 percentage point decline in the labour force participation rate prevented the unemployment rate from rising. It remained at 5.7%, and has averaged 5.8% this year.

Despite last month’s pullback, Alberta employment has expanded by 3.4% so far this year over the same time last year—a full point above the national average and second only to PEI.

Wage growth has firmed in recent months. September’s 5.7% year-over-year increase was the third straight month above 4.5% following more tepid gains earlier in the year and in 2022.

While this employment decline was larger than expected, a cooldown was baked into our forecast in late 2023 and 2024. According to our mid-September outlook, annual employment growth is expected to ease to 1.8% in 2024, with the unemployment rate averaging 5.9%.

Late summer rebound in Alberta exports

Higher oil prices lifted Alberta’s exports in August.  They should provide another jolt in September.

Alberta’s exports have been trending well below last year’s record highs, when commodity prices spiked post Russia’s invasion of Ukraine. That trend partially reversed itself in August, as energy exports (about three-quarters of Alberta’s total) hit an eight month high. The credit mainly goes to oil prices, which jumped during the month. But volumes have also recently chipped in following wildfire disruptions in the spring. Despite the latest uptick, export values are still not back to record levels from last summer (see chart).

Farm product exports have been a bright spot this year, as last year’s record crop gets shipped at above average prices. Year-to date farm exports are up 40%. But more recent months show a softening. Crop conditions are not as favourable this year, suggesting that the recent slowdown will persist into next year.

Benchmark oil prices rose briskly again in September, which should translate into another export gain in that month.

Dining out again

Spending at Alberta’s restaurants and bars is now well above pre-recession levels, but has shown signs of slowing.

Albertans spent more money dining out in July. Despite the uptick, real sales are still below their January peak when adjusted for restaurant prices—a sign of consumer caution in a higher interest rate environment.

Relative to pre-COVID levels, sales at restaurants and bars have posted a larger gain than sales at food and beverage retail outlets like grocery stores (see chart). Part of the explanation is that Albertans (and Canadians) simply can dine out again following a pandemic lull. It’s also interesting to note that ‘food at restaurant’ prices have been rising at a slower rate since mid-2022 than grocery store prices. Restaurant price inflation tends to be less volatile than grocery prices, and this period has been no exception.

Bank of Canada Deputy Governor warns of pricing ‘feedback loop’

One piece of the high inflation puzzle could be corporate pricing behaviour. In his first speech as Deputy Governor, Nicolas Vincent tackles this complex issue.

The post-pandemic recovery was conducive to firms passing on higher costs to consumers, according to Deputy Governor Nicolas Vincent. Moreover, firms have hiked prices more often than normal as costs have increased. Citing Bank of Canada research, Vincent argues price increases have largely mirrored cost increases with profit margins remaining stable across industries. According to Vincent, “Consumers have been left to bear the full brunt of higher prices… And it remains to be seen whether the recent declines in some input costs will be passed through to prices as quickly and fully as cost increases were over the past two years.”

The speech did contain a warning. While price pressures should subside as ‘excess demand’ eases, sticky pricing behaviour remains a risk. This would especially be the case if suppliers and competitors expect frequent price changes, creating a “feedback loop.”  As Vincent noted, “if recent pricing behaviour settles into a new normal, it could complicate our return to low, stable and predictable inflation.”

U.S. labour market beat expectations in September

A strong September jobs report in the U.S. increases the odds the Federal Reserve will raise rates before the end of the year.

According to the latest report from the U.S. Bureau of Labor Statistics, payroll employment jumped by 336,000 in September while the unemployment stayed the same at 3.8%. The increase in employment was double the median estimate in a Bloomberg survey. Average hourly earnings were up by 4.2% compared to 12 months earlier, down slightly from 4.3% in August.

Interesting fact… Landed Immigrants comprised a record 29.3% (or 776K) of Alberta’s  labour force in September 2023.* That’s more than double the ratio of 14.3% from March 2006, the first available observation in the time series. *Three-month moving average, not seasonally adjusted.

What’s driving record inflows of interprovincial migrants to Alberta?

Last week, we discussed the latest numbers on population, including the largest one-year gain in net interprovincial migration.

Our Chart of the Week shows the relationship between the labour market and interprovincial migration to Alberta.

Historically, when Alberta’s unemployment rate is lower than the national average, net interprovincial migration turns positive—that is, Alberta attracts more residents from the rest of Canada than it loses. This makes sense. When Alberta’s labour market is really tight compared to the rest of the country, job prospects lure people to wild rose country. The last two years have looked a bit different. In both 2022 and especially 2023, Alberta gained residents from other provinces despite having a slightly higher unemployment rate.

Does this mean the labour market doesn’t matter? No. In fact, based on job growth, Alberta has outperformed the rest of Canada so far this year. As the second graph in the chart below shows, migration is behaving more or less as one would expect, with faster job growth in Alberta coinciding with inflows.

But clearly other factors are at play. In our view, a much larger driving force this time around is relative affordability, especially the cost of housing. Since 2014, average housing prices in Canada have diverged from Alberta. And since early 2022, rising interest rates have added further stress to affordability ratios in high-priced markets. The higher-than-normal share of interprovincial migrants from Ontario and B.C.—the provinces with the two most expensive housing markets—lends further credence to the affordability story. Last year the share from Ontario and B.C. was nearly three-quarters.  During 2011-2024, it was just over half. And during the 2004-2008 wave, it was less than 50%.

Remote work may also be playing a role. We know that remote work has become much more common since the pandemic, but we don’t know how many new migrants are working remotely for an employer in another province. One survey from late 2021 suggests that Canadian employers expected more than 113,000 of their employees to work from another province or territory. That’s up from only 12,600 in 2016. Clearly, remote work across provinces is becoming more prevalent, though we can’t say how much it’s driving the net migration numbers.

Calgary Economic Development (CED) will host its 2024 Economic Outlook event on November 1.  I have the pleasure of speaking at the event. To set the stage and for a glimpse of what to expect, I sat down with CED. You can find out more here.

Daily trivia

Answer to the previous trivia question: According to Box Office Mojo, “Avatar: The Way of Water” had the highest worldwide box office gross in 2022 at over $2.3 billion (USD).

Today’s trivia question: How many whole turkeys were purchased by Canadians for last year’s Thanksgiving?