In this week’s The Seven…

• Nerves of steel - More tariffs coming
• On the road again - Tourism shines
• Testing the limits…of monetary policy
• Next week: Pre-tariff inflation print
• Interesting Fact: About Vegreville, Alberta
• Chart of the Week: Dining out on Valentine’s Day

All you need is love (all together now!)

All you need is love (everybody!)

All you need is love, love

Love is all you need

“All You Need is Love,” —The Beatles

If only it were that simple on this Valentines Day.

The 30-day tariff reprieve announced last week was fleeting, as Trump announced steel and aluminum tariffs on all countries on Monday to begin March 12. According to the White House, this will be stacked on already announced tariffs (yes, that’s 50%).

Also this week, Trump announced plans for reciprocal tariff (over and above other tariffs) after further study of the issue is completed April 1. What will be included? Details are forthcoming, but some say it could include U.S. tariffs in response to the federal digital sales tax and possibly even Canada’s GST (a value-added tax applied on both imported and domestically produced goods - that is, it is not discriminatory).

Tariffs, and the subsequent trade war that would surely ensue, is a lose-lose situation: harmful to business and consumers on both sides of the border.

Let’s hope that the mutually beneficial relationship can be preserved. But, as my father wisely said to me: “hope is not a plan.”  We’ll keep running economic scenarios and providing updates that will help guide your path as the situation unfolds.

What can be done at home? As we discussed last week, we could expedite major projects, improve access to international markets, and knock down internal trade barriers. There seems to be an appetite—if not now, then when?

On a lighter note (and who couldn’t use that right now?), we have some fun with ATB Mastercard spending data to show how much Albertans spend on dining out on Valentine’s Day. It’s not the biggest day of the year for dining out, but spending does jump. Find out more in our Chart of the Week!

Nerves of steel - Canadians brace for 2018 rerun (but worse)

Donald Trump has returned to his playbook from term 1: steel and aluminum tariffs as we discussed Tuesday. But this time, it’s 25% for both (aluminum had a lighter touch of 10% in 2018).

It didn’t go well last time. Canadian exports of the products fell, U.S. prices rose, and academic studies show that manufacturing employment in the U.S. took a hit.

About a quarter of the steel and half of the aluminum used in the U.S. is imported, and Canada is the largest foreign supplier for both products. The U.S. cannot fill that gap with its own supplies, resulting in higher costs.

Alberta is a relatively small producer of raw steel and aluminum (included in the primary metal sector in chart below). Quebec (by far the largest aluminum producer) and Ontario (steel central) will be hardest hit.

But Alberta is a major user, and there will be ripple effects from a ‘tit for tat’ trade war that could include counter-tariffs. It would raise construction costs for all businesses and directly increase costs for related industries (Alberta has significant fabricated metal and machinery sectors). As for the consumer, those looking to buy a vehicle and other products made with steel and/or aluminum will also feel the pinch.

For more on what this latest tariff threat means, check out my Wednesday in-studio interview on CBC.

On the road again - Tourism’s future looks bright

Tourism sometimes flies under the radar. Not sure why. It’s a big economic player, with visitor spending in Alberta totalling $12.7 billion in 2023. The more incremental piece from out of province and international tourists was $5.9 billion.

Amid current trade turmoil, the outlook for tourism looks good. The industry has taken off following COVID disruptions, with Alberta far outpacing the other provinces in the post-COVID rebound in foreign visitor spending. This sector has more room to run, given that the number of overseas visitors is still below pre-COVID levels.

The low Canadian dollar will attract U.S. visitors and encourage more Canadians to travel within the country. Amid tariff threats, there are reports of Canadians postponing U.S. vacations, which could lead to more travel within Canada.

To be sure, there are still challenges. Jasper is recovering following the wildfires, and it will take time to get back to normal (see the chart below on park visits). The community is rallying with plans for a ‘business village’ this summer for damaged businesses. Another challenge is labour shortages—the food and accommodation sector in Alberta has the highest job vacancy rate. The industry has also faced higher costs for everything from food to energy, squeezing margins. Finally, there are capacity constraints: for example, the Rockies are a popular place but they operate at capacity during the busy summer months.

Speaking of capacity constraints, do you travel to B.C. for vacation? If so, you’re not alone. In 2019 (latest available), Alberta residents spent $2 billion while visiting B.C. Meanwhile, British Columbians spent $0.8 billion in Alberta. That equates to a ‘travel deficit’ of $1.2 billion.

Testing the limits - Monetary policy can only do so much

With tariffs looming, the Bank of Canada is very candid that it can only do so much to counter their effects. The Bank had already slashed its policy rate by 2 percentage points, and we see more cuts to come.

In a speech delivered last week, Tiff Macklem had this to say:

“If significant broad-based tariffs are indeed imposed, they will test the resilience of our economies in the short run and reduce long-run prosperity. Tariffs mean economies work less efficiently. There will be less investment and lower productivity. That means our countries will produce less and earn less. Monetary policy can’t change that [emphasis ours].”

He goes on to say: “we need to avoid the temptation to overload monetary policy by expecting more of it than it can deliver.”

Macklem, in our view, is right on point. Lower interest rates will help, but they can only do so much to stem the tide of trade uncertainty, which is creating stasis.

Going into this pending trade war, business investment was already weak—below its level from 10 years prior in real (inflation-adjusted) terms. It can’t be just rate-sensitive households and housing driving growth. A rotation towards exports and investment is needed. Attention has (rightly in our view) turned to more structural factors - internal trade, getting major projects built, and expanding transportation infrastructure to new markets.

Next week: Pre-tariff inflation print

The GST holiday is causing some temporary gyrations in the consumer price index (CPI). So don’t be surprised to see another lower reading in January below 2%, before it moves higher with the tax back on. But with inflation near target, we see the Bank of Canada more focused on downside growth risks amid trade turmoil. Our call is for the Bank to take its policy rate to 2.5% by June as long as inflation cooperates. If tariffs come into force soon and Canada retaliates, we see the policy rate falling to 2.0% by mid year. As for Alberta, we see CPI inflation moving more in line with national trends with temporary fuel tax effects coming off and rental pressure easing in Calgary.

Interesting Fact: Vegreville, Alberta - An emerging center for industrial hemp manufacturing

As someone with Ukrainian roots, I have fond memories of attending the Vegreville Pysanka festival with my Baba.

I was fortunate to return to the town this week, this time as a speaker at ATB’s Agri-Culture Talks event, attended by 200 agriculture producers in the region.

The Town of Vegreville has a population of about 6,000, but serves a trade area of about 30,000.

Known to visitors for its Pysanka festival in July and the largest Easter egg on the planet, the town serves a thriving agri-food sector, while also supporting the energy industry.

One emerging area in the region is hemp processing, supported by research at the InnoTech Alberta facility. INCA Renewtech is proposing a $175 million hemp processing facility in Vegreville, transforming natural fiber into composites for manufacturing. If it proceeds, it will add over 70 manufacturing jobs and boost farm income for hemp producers in the region.

Chart of the week: Dining out on Valentine’s Day

Valentine’s Day can provide a nice boost for restaurants and other businesses during what can be a slow month. But does spending on going out actually increase on February 14th? It does! 

Using our ATB Consumer Spending Tracker, we can see a jump in spending on “dining and entertainment” in Alberta on Valentine’s Day.*

Since 2019, dining and entertainment spending on Valentine’s Day has been between 8% and 64% higher than the daily average for the month as shown in our Chart of the Week (we exclude 2021 and 2022 due to pandemic effects).

The day of the week has a large impact on dining and entertainment spending. We take this into account in the chart below.

In 2019, Valentine’s Day fell on a Thursday, on a Friday in 2020, a Tuesday in 2023, and a Wednesday in 2024. Relative to those same days of the week in February, spending experienced a notable jump on Valentine’s Day of between 14% and 24%.

So if you’re headed out for dinner or a movie tonight, you’re in good company!

Is Valentine’s Day the busiest day of the year for dining out? Not according to our ATB mastercard spending data. That day belongs to…drum roll…Mother’s Day!

*Represents the value of ATB consumer Mastercard transactions on “dining and entertainment.”

Answer to the previous trivia question: In the Victorian era, mean-spirited Valentine's Day cards were called “Vinegar Valentines.”

Today’s trivia question: What are the four countries participating in the NHL’s 4 Nations Face-Off Tournament taking place right now?