In this week’s The Seven…

• Keep trimming - Canadian jobs report won’t change BoC rate cut path
• October bounce - Alberta adds jobs 
• Trump 2.0 - Our economic watch list
• Wait and see - OPEC
• What did he say? Powell at Fed rate cut meeting
• GDP in 2023 - New (old) data excites economists, but few others
• Interesting Fact: NAIT
• Charts of the Week: The Big 4 - The evolution of Canada’s largest economies

Oh, baby, baby, it's a wild world/And it's hard to get by just upon a smile

–Yusuf/Cat Stevens, “Wild World”

What a week. Trump wins, OPEC delays, Fed cuts, and a jobs report. A wild world indeed. We dig into it all, starting with this morning’s Labour Force Survey results. We are also monitoring the port strike in B.C. and will have more to say about that next week.

Keep trimming - Slower job growth will keep BofC on its rate cutting path

We go into more detail in the Twenty-Four we sent out earlier today, but the gist is that Canadian employment growth was tepid last month and the employment rate continues to fall. With inflation below 2%, today’s jobs report does not change our view that the Bank of Canada will keep cutting its policy interest rate to 2.5-2.75% by mid next year.

Keeping up - More jobs in Alberta for a booming population

In Alberta, the labour market challenge is creating enough jobs to keep pace with the soaring population. That happened last month, as Alberta drove national job gains with a private-sector led 13.2K increase. The unemployment rate fell to a still-elevated 7.3%.

We finally got the increase in construction jobs we’ve been waiting for and the manufacturing sector chipped in as well. We look for the unemployment rate to fall further next year as population growth slows.

From inflation to geopolitics - Trump takes centre stage

This time last year, inflation was on everyone's mind. Now the Bank of Canada says they’re winning the battle and that this is “good news for Canadians.”

So how about a new challenge—a geopolitical one. Donald Trump’s victory was much more decisive than the polls indicated.

The question is now whether the rhetoric will be matched by actual policies. We put our initial thoughts out Wednesday. Here’s what we’re watching on the economic front to end the week:

Tariff watch - Trump has vowed blanket tariffs of at least 10% on all U.S. imports, and much higher for Chinese imports. If implemented, this will hit Canadian exporters of all types, especially if counter tariffs are put in place.

The energy file - Will tariffs be imposed on Canadian oil and gas (over 80% of Alberta’s exports to the U.S.)? This would raise U.S. energy costs, something Trump has vowed to lower. In case you think this is a case of polite Canadian wishful thinking, former U.S. Treasury Secretary during Trump’s first presidency Steven Mnuchin said something similar this week on CNN: “I think President Trump clearly understands the impact of inflation, and I think he’s going to be very careful.” He also noted that previously Trump granted tariff exemptions “on things that were going to have an impact on U.S. companies.” I would put Canadian energy firmly in that category.

Outside of tariffs, deregulation (“drill, baby, drill”) and tax cuts may increase the relative appeal of drilling in the U.S. At the same time, compared to other nations, Canada is seen as a preferred economic supplier. Could pipeline expansions be back in play?

For clean energy, will Trump repeal the Inflation Reduction Act or keep subsidies that are fossil fuel adjacent (like for hydrogen and carbon capture and storage)?

Tax cuts and deficits -Trump has promised to extend his own tax cuts and further reduce corporate taxes, increasing the federal deficit. Corporate America appears to be celebrating and the S&P 500 index has shot up this week to a record high.

Weaker Canadian dollar - Trump’s policies are widely considered inflationary which could slow the pace of Fed easing. This could keep the U.S. dollar stronger against other currencies like the loonie.

Canadian population - Canada’s federal government has clamped down on its immigration targets and is attempting to reduce the number of temporary residents. Trump, meanwhile, has threatened mass deportations of undocumented migrants. This provides a potential headwind to Canada’s non-permanent resident targets.

What’s next? Canada will need to move quickly to preserve its most important trading relationship and reinforce its role in providing a secure supply of affordable energy, food and many other exports.

We see downside risk if broad-based tariffs are indeed imposed and a trade war escalates. For now we’re leaning slightly lower on GDP growth for Canada and Alberta than our October forecast based on tariff threats and lower population growth from new federal immigration targets.

Not yet - OPEC in wait-and-see mode

Our energy team at ATB Capital Markets is on the OPEC case following Monday’s meeting:  

“OPEC said they would delay their planned 180 kb/d output hike scheduled for December by at least one month. That is the second time the planned hike has been delayed after postponing it for 2 months at the start of September. Although the move suggests the group is growing increasingly worried about a supply & demand imbalance next year, it also shows the group is unwilling to engage in a battle over market share in the face of record US production.”

Adding to the decision mix are a couple Trump-related variables. Iran sanctions from a Trump Administration could leave room for other OPEC members to increase production. But higher U.S. production may leave them on the sidelines. The question is whether they would tolerate lower market share. In 2014, they didn’t, causing prices to crash. Our view is that they’ll continue to manage prices in the low to mid US$70s, with our latest forecast at US$74/bbl next year.

WTI closed Thursday at US$72.4/bbl, up slightly from 71.5 on close Monday. The next OPEC meeting is December 1.

Not your typical meeting - U.S. Fed

In the lead up to yesterday’s Federal Reserve (the ‘Fed’) decision, it was not about rate cuts. The 25-basis point move to a target range of 4.5% to 4.75% was baked into expectations, so no one was surprised that the Fed followed through.

Instead, all eyes were on what Fed Chair Jerome Powell and what he would say about Trump’s earlier comments around having a greater say about Fed policy.

Recall the Fed is designed to be independent, free of political interference. Trump would welcome a lower U.S. dollar. But tariffs are inflationary and higher interest rates serve to keep the dollar high. Would Trump want to ‘intervene’ to keep rates lower than warranted by the inflation data?

Powell seemed prepared to address the issue. In response to questions about leaving if Trump asked, he said “no,”  and noted the President's ability to fire him “is not permitted under the law.”

Beyond that, Powell seemed confident that inflation is moving lower and said he was “feeling good” about the economy, though he noted that U.S. fiscal policy was “unsustainable.”

Bottom line: The Fed is on a rate-cutting path, just like the Bank of Canada. But with a much weaker economy and softer inflation readings in Canada, expect our central bank to continue to move faster.

Interesting Fact…NAIT

At the Edmonton Metropolitan Region Board’s recent “State of Region” event, I moderated a panel discussion with leaders in the Edmonton area. Last week I profiled the Industrial Heartland, the week prior it was Nanostics.

This week our interesting fact is compliments of the Northern Alberta Institute of Technology (NAIT) based on my discussion with President Laura Jo Gunter.

With over 17,000 students in credit programs and 7,400 apprentices, NAIT provides hands-on, technology-based learning. The school boosts a 93% employment rate within 9 months of graduating from full-time programs. With the labour market in a ‘skills mismatch’ state—lots of people, but not always those with the right skills for jobs available—institutions like NAIT provide hands-on training for students to be job market ready.

What’s old is new again: last year’s GDP

I feel a bit guilty wasting your time talking about 2023. Who cares about 2023?

Fair point, but we just got 2023 GDP data yesterday. Yep, that’s the data lag we’re dealing with (we’re working on a potential solution to this for Alberta—stay tuned).

The bottom line is that Alberta’s economy was stronger than we anticipated coming out of COVID. It grew 2.3% last year compared to an initial estimate of 1.5%. Consumption and growth in service industries were stronger than initially thought by Statistics Canada.

Divided by the population, the economy still shrank (population growth was 3.9%), but in level terms it was (by far) the strongest of all the provinces. More on this below.

Charts of the Week: The Big 4 - Evolution of Canada’s four largest economies

Alberta has the third largest economy in Canada despite ranking fourth in population (see the answer to yesterday’s trivia question below).

There was one year in 2014 when Alberta came incredibly close to reaching 2nd place—the effects of exceptionally high energy prices and a booming economy. In that year, Alberta’s nominal GDP was $376.8 billion—just shy of Quebec’s 376.9 billion. Alberta temporarily slipped to fourth in 2020 when energy prices tanked during COVID.

To account for population differences, it’s typical to divide GDP by the number of people. This provides a rough proxy of living standards. Some people say there’s more to life than GDP per capita, and we agree! It’s best to look at a range of indicators to make that call—like employment rates, income distributions, and life expectancy. The CSLS used to publish data on quality of life (Alberta has traditionally fared well), and Statistics Canada has developed a national framework.

Still, GDP per capita has its place. It shows how much income is available in the economy. It’s also an important measure of the government’s tax base.  And on this score, Alberta remains the highest among the provinces, though the gap has narrowed over the last decade.

There are two ways to show this: holding prices constant (real GDP) and in current dollars (nominal GDP). Alberta is highest on both accounts.

Answer to the previous trivia question: Despite having a smaller population, Alberta’s real GDP was higher than British Columbia’s last year. This has been the case since at least 1981 when the data series begins.

Today’s trivia question: Alberta has never surpassed the most populated province (Ontario) in GDP, but there was one month when it exported more goods. In which year did this happen?