In this week’s ATB Economics Weekly Wrap…

• Canadian jobs bounce back, unemployment steady
• Alberta employment leaps forward
• Bank of Canada - pause, wait and see
• Exports - pushing through disruptions 
• Home construction - lagging population growth 

Lots of new data to digest from today’s jobs report! 

Canadian jobs bounce back in August

The jobless rate holds steady following three straight increases.

The Bank of Canada has been looking for signs that the Canadian economy is slowing under the weight of rising interest rates. In the aftermath of the very weak second quarter GDP report last week, today’s job numbers came in stronger than expected while the unemployment rate held steady.

Employment rose 40,000 following July’s 6,400 decline, roughly double the Bloomberg median survey estimate. Unemployment held the line at 5.5% following three straight monthly increases. At the same time, Canada’s population continues to outpace employment. The employment rate (i.e. those working as a share of 15+ population) fell to 61.9%—the lowest since last September.

Looking under the hood, the new jobs came from self employment with little change in private or public sector employment. The gains were concentrated in three provinces—Alberta, Quebec, and BC. Wage growth stayed firm. Average hourly earnings rose 4.9% year-over-year (just a notch lower than 5.0% in July).

Alberta jobs - summer sizzle

This was a strong report for Alberta. Employment growth accelerated last month, pushing the unemployment rate lower. Alberta continues to outperform the rest of the country in job growth.

Alberta employment picked up steam in August, rising 17,700 following two consecutive 10,000+ gains. This is the largest one-month increase since January.

Holding the line on rates

The economic data were too soft to ignore. Past rate hikes are working their way through the economy, giving the Bank of Canada more breathing room for a ‘wait and see’ approach. Our base case scenario is that the Bank of Canada is on hold for the rest of the year.

The Bank of Canada is now witnessing the cooling effects of its 4.75 point rate hiking campaign—one of the most aggressive since the early 1990s. Just a few days before the decision, Statistics Canada reported that the economy contracted slightly (-0.2% annualized) in the second quarter—in sharp contrast to the Bank of Canada’s expectations for a 1.5% increase.

According to the Bank’s statement: “The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures.” This is in contrast to the resilience message in its July statement: “Canada’s economy has been stronger than expected.”

But the Bank is far from declaring victory. It included an entire paragraph in the statement on inflation being stubbornly high and said it is “prepared to increase the policy interest rate further if needed,” a point reiterated by Governor Macklem’s speech to the Calgary Chamber of Commerce.

We expect a continuation of the wait and see, data-dependent approach. In today’s labour report, the persistence of wage pressures may raise some eyebrows. However, the Bank will have much more data to digest before the October 25th interest rate announcement, with the most important being the August and September consumer price inflation readings.

International exports - pushing through disruptions

Recent improvements in energy prices will boost the value of our exports in the third quarter, but nowhere near last year’s record highs. Volumes are still on track to improve this year.

Last spring and early summer brought its share of challenges for Alberta exporters. In  May, wildfires and maintenance lowered oil and gas production. In July, the BC port strikes impacted trade flows with Asia.

Despite the port issues, Alberta exports improved slightly in July (+1.9%) as higher US bound sales offset declines to many Asian countries. A similar story unfolded nationally where higher canola and aircraft exports offset declines in a number of categories impacted by the strike, such as potash, coal, and pulp and paper (grain terminals remained opened during the strike).

While exports have come off last year’s record high (-16.5% year-to-date), they remain high by historical standards. Summer 2022 was the all time peak for Alberta’s goods exports—even exceeding that of Ontario for one month—as the price of energy and agriculture products soared in the aftermath of Russia’s invasion of Ukraine. 

Keeping up with the population

Residential construction is struggling to keep pace with record migration. We expect housing starts to pick up next year.

Construction activity in 2023 has been held back by higher interest rates, cost pressures and hiring challenges. We’ve been watching closely for signs that homebuilding is turning the corner amid Alberta’s population boom.

On that score, residential permits, a leading construction indicator, took a step back in July following two sizable gains the previous two months. During the same month,  housing starts jumped to 38,500 annualized—the highest since last October. However, as with residential permits, a strong and sustained upward trend has not yet been established.

Non-residential permits have been more resilient this year (up 8% year-to-date), driven by large gains in the industrial sector.

Interesting fact: Of the seven cities included in the Alberta Real Estate Association’s monthly statistical report, Fort McMurray had the highest months of supply of resale housing inventory at 5.1 as of August 2023. At the other end of the continuum was Calgary, at just 1.2 months of supply. The provincial average was just 2.4. All cities saw a significant decline in months of supply from a year ago, as the resale market in Alberta remains tight. 

Chart of the Week: A tale of two farm product groups

The Chart of the Week shows how crop prices in Alberta rose dramatically after the first year of the pandemic. The increase was driven by strong global demand and drought conditions in key growing regions. The Russian invasion of Ukraine at the end of February 2022 pushed global crop prices even higher with the index for Alberta peaking in June 2022. Crop prices have eased since then, but remain well above historical levels.

It has been a different story for livestock prices in Alberta, which have continued to rise in recent months, reaching an all-time high in June 2023. The high price of feed, reduced herd sizes and ongoing demand explain the price spike. With drought conditions still in play and smaller herds the new normal, prices are likely to stay elevated.

Daily trivia

Answer to the previous trivia question: The original Star Trek TV series debuted on NBC on September 8, 1966.

Today’s trivia question: How many cattle/calves were there on Canadian farms as of January 1, 2023?