In this week’s ATB Economics Weekly Wrap…

• Factory sales stronger in July
• Wholesale holds its own
• Inflation preview
• Consumer insolvencies increase in 2023
• Chart of the week: Long-term trends in manufacturing employment

Watch for our latest quarterly Alberta Economic Outlook next week on Tuesday, September 19!

Manufacturing sales

Commodity-based manufacturing products drove Alberta’s overall factory sales higher in July, but lower prices have pulled down sales from last year’s record levels.

Compared to June, the seasonally-adjusted dollar value of manufacturing sales in Alberta in July increased by 4.5% ($354 million). The improvement follows a 7.6% pullback in June ($643 million). Higher wood, chemical, food, and petroleum product sales more than offset reduced sales of electronic products and machinery.

It’s a different story on a year-to-date (YTD) basis with factory revenue down by 5.3% over the first seven months of 2023 compared to the same period last year. Lower prices for petroleum, chemical, and wood products this year largely explain the lower YTD performance.

In today’s release, Statistics Canada revised down its estimate for Alberta manufacturing shipments in the second quarter by about 9%. Previously, the agency reported that shipments were holding near record levels despite the pullback in prices.

A large portion of our value-added energy manufacturing takes place in Alberta’s Industrial Heartland (see the interesting fact below).

August inflation report comes out next week

Higher gasoline prices are likely to push headline inflation up in August.

On Thursday, the U.S. Bureau of Labor Statistics reported that headline inflation south of the border was running at 3.7% in August—up from 3.2% in July and from 3.0% in June. While core readings have shown some progress, inflation in the U.S. has moved in the wrong direction as consumers look for relief and the U.S. Federal Reserve is focused on bringing inflation down to its 2% target.

Will next week’s Canadian inflation report show a similar uptick in price growth? We won’t know for sure until Tuesday morning, but we already saw the national Consumer Price Index rise in July to 3.3% from 2.8% in June on the back of rising energy costs, and we know that gasoline prices rose again in August. The Bank of Canada noted last week that higher gasoline prices are expected to push up CPI inflation in the near term. But perhaps more important are the core readings of inflation, which the Bank uses to gauge underlying trends. In the next two inflation reports before the next rate decision, we will be looking for improvements in these core measures. 

Interesting fact: The Alberta Industrial Heartland is Canada’s largest hydrocarbon processing region, producing fuels, fertilizers, hydrogen, power and petrochemicals for domestic and global markets. According to the Alberta’s Industrial Heartland Association, there is over $45 billion of existing capital investment in the 582 square kilometre region near Edmonton. Yesterday, the AIHA hosted its annual conference. A sold out event, it included a number of insightful presentations and panel discussions from industry and government leaders. ATB’s Chief Economist Mark Parsons had the honour of providing an economic update at the event.

The number of consumer insolvency proposals is up so far in 2023, while bankruptcies remain low

Economic headwinds created by inflation and interest rates have contributed to higher consumer insolvencies.

The number Albertans facing consumer insolvency* under the federal Bankruptcy and Insolvency Act has gone up over the first seven months of 2023 compared to the same period last year. At 10,273, the number of consumer insolvencies through July 2023 was 1,693 (20%) higher than in 2022 and pushed up the insolvency rate from 2.4 per 1,000 adult Albertans to 2.8.

Insolvencies peaked in April, and have since come down. However, the monthly data are volatile, and it’s best to focus on longer time periods.

The increase in insolvencies this year is entirely related to proposals. The number of bankruptcies remains near historic lows (we have comparable data back to the early 1990s).

The consumer insolvency rate jumped noticeably during the second year of the deep recession of 2015-16 and stayed elevated in 2017 and 2018 as the Alberta economy was making up the ground it lost during the downturn. Even though 2019 was not technically a recession year, GDP was flat and the insolvency rate rose to 2.8. Elevated inflation and higher borrowing costs are the key factors pushing up the insolvency rate.

*A consumer is an individual with more than 50% of total liabilities related to consumer goods and services. Insolvencies include bankruptcies and proposals. A proposal is an offer to creditors to settle debts under conditions other than the existing terms.

Our Chart of the Week shows that Alberta has, over a long period of time, increased its share of Canadian manufacturing employment. In the mid-2000s, Canadian manufacturing employment started to decline before leveling off. Meanwhile, Alberta manufacturing jobs held relatively steady, but declined during the 2015-16 recession and the first year of the pandemic. Alberta’s manufacturing sector has benefited from its resource strength, with the vast majority of sales related to the processing  of Alberta’s energy, agriculture, and forest resources.

As of August 2023, Alberta’s share of Canadian manufacturing employment was 8.3%. While this is down from the monthly peak of 8.8% in August 2014, the longer term trend has been upward. Alberta’s average share was 4.6% in the 1980s, rising to 5.4% in the 1990s, 6.6% in the 2000-2009 period, and 7.6% during the 2010-2019 decade.

So far this year, manufacturing employment is up 10.7% in Alberta (January through August) compared to the same period last year while it increased by 1.2% nationally.

Daily trivia

Answer to the previous trivia question: The last time the inflation rate in the United States was above 10% was in October 1981 when it was 10.1%

Today’s trivia question: True or false: Alberta has a larger manufacturing sector as measured by sales revenue than British Columbia?