In this week’s The Seven…

• November gain - Alberta adds more jobs, but jobless rate ticks higher
• Not quitting - U.S. labour market keeps churning out jobs 
• Yet again - Canadian labour productivity continues to fall
• From the oilfield - Alberta’s lithium potential
• Take me higher - Oil production and tourism
• Next week: BoC announcement - The case for 50
• Interesting Fact: What is a Vibecession? 
• Charts of the Week: The curious case of Calgary’s labour market

More jobs, even more people

The main takeaway from today’s jobs report is that there is plenty of slack in the Canadian economy—the jobless rate is at a more than 7-year high (outside the pandemic). This strengthens the case for the Bank of Canada to move faster to its neutral rate, and we are now leaning towards another jumbo (50-basis point) cut next week.

As for Alberta, the province is finishing the year strong on job growth, leading all provinces in absolute job growth in each of the last two months. But the unemployment rate remained stubbornly high (7.5%) amid rapid labour force entry as people continued to move to the province, many in search of work. We look for the unemployment rate to ease next year as population growth slows.

To help explain this combo of solid job growth and higher unemployment rates, see the following charts. The first shows that Alberta’s job growth has outpaced the rest of Canada since the pandemic, up 11.5% from February 2020 levels compared to 6.9% outside Alberta. But the 15+ population has also grown at a much faster rate (see the second chart). More people means faster labour force growth and upward pressure on unemployment.

That’s the quick hit. For more, check out our more complete analysis of today’s labour force numbers.

U.S. resiliency - Job growth bounced back

Can the U.S. have it both ways—a strong economy and easing inflation pressures that pave the way for more interest rate cuts? It seems to be heading in the direction, though uncertainty over tariffs remains the wildcard.

Employment bounced back in a meaningful way last month coming off hurricane and Boeing strike disruptions. The economy added 227K jobs. The unemployment rate stayed low, but ticked up a tenth of a point to 4.2%. The case can be made for a gradual pace of rate cuts slower than in Canada (given stickier inflation and a hotter economy stateside). We look for another 25-basis point cut by the Federal Reserve later this month.

Yet again - Labour productivity continues its descent

Last March, the Bank of Canada’s Senior Deputy Governor Carolyn Rogers warned that Canada was facing a productivity emergency and it was time to break the glass.

Since that speech, Canada’s performance has continued to deteriorate. Labour productivity in the business sector—or output per hour worked—fell for the third consecutive quarter, by 0.4%. It is now at its lowest level since Q4 2019 and has grown by only 2.2% over the last decade (Q3 2014 to Q3 2024).

Why is this happening? I have written at length about this, with a special focus on Alberta. Canada’s productivity struggles can’t be pinned on one thing, but careful readers might have drawn a parallel to last week’s Seven when we talked about falling business investment. The two are linked, and a slowdown in ‘capital deepening’ explains much of the weakness since 2015. Other (and related) culprits often mentioned include low R&D intensity, regulatory uncertainty and lengthy project approvals, skills mismatches, lack of scaling of companies, weak competition, insufficient trade infrastructure, and taxes. For a good overview see this piece from Robert Asselin, who I participated in a panel with during Canada’s Productivity Summit in Calgary in October.

Reaching new heights - Oil production and visitor spending

Can you take me higher?

To a place with golden streets
—Creed, “Higher”

What do oil and tourism have in common? Oil fuels mobility, enabling air and road travel to your favourite tourist destinations.

But in Alberta, there’s something else. Both are moving higher.

This week we reported that oil production reached a new record high for the month of October, and year-to-date production is up 5%, enabled by the Trans Mountain Expansion (TMX) project. For more, see my interview on BNN Bloomberg yesterday.

Much has been made of Alberta’s reliance on the U.S. market for energy. That is true, though we’ve also noted two emerging patterns (see the charts below):

1. Record oil shipments to Asia with TMX coming online; and

1. Rising shipments of propane to South Korea and Japan.

These exports are a welcome source of market diversification, though they still represent a small fraction of Alberta’s energy exports to the U.S. 

Also this week, using fresh data, we reported that international visitor spending in Alberta had reached new heights. Tourism is a growth sector and a diversification opportunity for the province.

At the moment, these two sectors are moving stronger together, and both are adding to Alberta’s economic growth.

Is Alberta poised to become a Lithium powerhouse?

There is a case to be made. Lithium is a critical mineral used in batteries. As adoption of electric vehicles and battery usage increases, demand for the commodity will continue to rise. Alberta could be a major player, but not in the way you may imagine. Most of the world’s lithium is mined with nearly half of production coming from Australia and then processed in China.

In Alberta, an unconventional source of lithium is oil and gas wells. Specifically work is underway to extract lithium from briny water pumped out of the wells.

For example, Calgary-based E3 Lithium, has developed a proprietary direct lithium extraction (DLE) process that has already demonstrated technical feasibility at its pilot plant. The company is now doing a prefeasibility study for commercial operations in its Clearwater Lithium Project near Olds, Alberta.

According to E3 CEO Chris Doornbus in a recent Business of Energy Article, “Alberta is, in my opinion, the largest untapped source of lithium on the planet. It can support a lithium industry that will compete globally in terms of total production capabilities.”

Enough progress has been made that it’s now being factored into Alberta Energy Regulator (AER) forecasts. Using a risk-based approach, the AER forecasts that commercial lithium production could rise to 13,400 tonnes by 2033, up from nothing today.  

Interesting Fact…Bad vibes

Coined by American author Kyla Scanlon in 2022 to describe how Americans were viewing their economy, vibecession combines the words vibe and recession. A vibecession occurs when people feel the economy is not doing very well even though the statistics say it is. This was arguably the case going into the recent U.S. election—U.S. consumer sentiment was weak despite a strong economy. In our view the term doesn’t make as much sense in a Canadian context because, unlike the U.S. economy which has indeed been doing well, Canada’s economy is in a bit of a statistical trough with GDP per capita falling, individuals spending less, and the unemployment rate rising more. That is, low consumer confidence is matched by weakness in the economy.

Charts of the Week: The curious case of Calgary’s labour market

How do you explain this? Calgary’s job growth has been red hot since 2022, yet the unemployment rate has been on the rise.

Observation 1: Employment is up 3.7% over the last 12 months in the Calgary CMA, far outpacing the national (1.6%) and provincial (2.7%) increase.*

Observation 2: Over the same period, the unemployment rate in Calgary has risen 2.1 points to 7.9% in November (three-month moving average). This puts the Calgary CMA fourth highest on the list of CMA unemployment rates in November.

The answer to this puzzle is rapid population growth, and more specifically rapid labour force entry.

Employment is rising, but not at the pace people are coming to the city in search of work.  In today’s data, the labour force (those working or looking) in Calgary has jumped 6% over the last 12 months.

What’s next? Our view is that some of the heat is going to come off population growth amid new federal targets for immigration and temporary residents. People will still come from other countries, and interprovincial migration to the city will continue. But not at the same rapid pace. This slowdown in labour force growth will put downward pressure on the city’s unemployment rate and we see it falling to below the 7% mark later next year.

*Represents changes in the 3-month moving average level of employment, as reported by Statistics Canada for the CMAs. We compare this to the 3-month moving average for the province and nationally to allow for an ‘apples to apples’ comparison.

As 2024 slides into our collective rearview mirror, our trivia questions for the rest of December are looking back at the most important economic trends of the year. Enjoy our 12 Days of Economic Trivia for 2024.

Answer to the previous trivia question: According to the MLS® Home Price Index,  the price of a benchmark home in Calgary was $181,000 higher than in Edmonton (as of October 2024).

Today’s trivia question: The Bank of Canada’s policy interest rate started coming down in June and currently sits at 3.75%. How high did the policy rate get before the recent cuts began A) 6% B) 5% C) 10% D) 12%?