STATE OF THE ECONOMY 2015 Economic Factors Impacting St. Albert and Region. Prepared March 2016

Transcription

1 STATE OF THE ECONOMY 2015 Economic Factors Impacting St. Albert and Region Prepared March 2016

2 TABLE OF CONTENTS HIGHLIGHTS 4 INTRODUCTION 5 A Welcome from Economic Development...5 Research Methodology...5 GLOBAL ECONOMIC IMPACTS 6 Global Events and Their Impact on Canada s Economy...6 KEY ECONOMIC INDICATORS 7 Gross Domestic Product...7 Consumer Price Index...10 Foreign Exchange Rate (Canadian Dollar versus US Dollar)...11 ENERGY & TRADE INDICATORS 13 Crude Oil Prices...13 Natural Gas Prices...15 Exports...16 Imports...17 POPULATION AND LABOUR 19 Population Growth...19 Population Growth Driver: Migration...20 Labour Force...21 Businesses...25 HOUSING MARKET INDICATORS 28 New Housing Starts...28 PROPERTY MARKET ACTIVITY 32 Building Permit Value...32 Industrial Property Market...35 Commercial Property Market State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

3 INNOVATION ENVIRONMENT 37 Capital Region Innovation Ranking...37 SECRET SECTION: ST. ALBERT S ECONOMIC EXPOSURE 39 Secret Section Introduction...39 Past Oil Price Downturns...39 St. Albert Population and Housing Trends During Oil Price Crashes...41 St. Albert Non-Residential Building Growth During Oil Price Crashes...44 Non-Residential Comparison with Edmonton and Alberta...46 Energy Reliance ( or Exposure ) of St. Albert s Labour Force and Business Community Compared to Other Regions...51 CONCLUSION 55 An Overview...55 REFERENCES 56 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 3

4 HIGHLIGHTS Canada s Gross Domestic Product (GDP) grew at an estimated 1.1% in 2015, while Alberta s GDP contracted by about 1.0%. For 2015, most banks and economists estimate Alberta s GDP contracted by about 1.0%. Other resource-dependent provinces such as Saskatchewan and Newfoundland also experienced a GDP contraction. Canada s Consumer Price Index (CPI) growth was about 1.2% in 2015, but should increase to around 1.9% in Alberta s CPI growth in 2015 is estimated at 0.9%, while the 2016 forecast is around 1.3% (Source: Scotia Bank and ATB Economics). The Canada to United States (US) exchange rate was about $0.75 CAN per USD (United States Dollar) in quarter four of 2015, down in response to a number of cuts by the Bank of Canada to overnight lending rates, as well as a strengthening US economy. The loonie weakened further to around $0.70 CAN per USD in early The price of West Texas Intermediate (WTI) crude oil averaged around $50 USD per barrel in 2015, although it ended the year at around $35 USD per barrel. Natural gas prices in Alberta were about $2.50 per Gigajoule (GJ) in Forecasts for natural gas are projecting prices below $3.00/GJ until around Total exports from Alberta decreased from their record high ($121 Billion) in 2014 to about $92 Billion in 2015, driven down by low oil prices. The dollar value of goods and services imported into Alberta decreased relative to the previous year by 0.4% in 2014, after four years of strong growth. Edmonton s annual population growth was estimated at around 2.0% in 2015, as slowing provincial in-migration reduced the population growth relative to previous years. The Agriculture and resource based industries (including oil and gas) paid the highest average weekly wages in Alberta in 2015, at about $2,150 per week. Total St. Albert business licences were around 3,200 in 2015, slightly above the five year average for the city. Edmonton area single family and multi family housing starts are expected to come in at around the 11,000 units per year mark in The Edmonton periphery (including St. Albert) was ranked the third best place in Canada to start and grow a business in 2015 by the Canadian Federation of Independent Business (CFIB). St. Albert s business community is under-exposed to the energy industry relative to Alberta overall, when examining the percentage distribution of business types. Non-residential investment in Alberta and Edmonton were shown to have a strong correlation with North American crude oil prices. 4 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

5 INTRODUCTION A Welcome from Economic Development The City of St. Albert s governing Council has a strategic plan with six primary outcomes, approved in January of One of those desired outcomes is to Cultivate Economic Prosperity: to foster a diversified, robust and resilient economic foundation to support growth and community service delivery. The Economic Development Division at the City of St. Albert strives to achieve this outcome by focusing on three main service areas: business attraction, business retention and expansion, and tourism. To grow the business community in St. Albert, Economic Development must understand the intricacies of the global, national, provincial, and regional economic environments that the City resides in. This allows for the creation of timely, effective, and innovative economic development strategies, driven by research and data. The State of the Economy 2015 report is one of many tools in the Economic Development arsenal that is used to understand the underlying drivers of the ever-changing business landscape. By examining and understanding the economic environment, and how it pertains to the future of St. Albert, the Economic Development Division at the City of St. Albert can support the business community in a way that fosters innovation, growth, and prosperity. The State of the Economy 2015 Report is presented on behalf of the City of St. Albert to give local businesses the information and insight they need to successfully plan for their future. Research Methodology All research for this report was conducted by internal City of St. Albert staff. Data sources were queried to obtain the most up-to-date information possible at the time of report creation. Great care was taken to present the data in the most meaningful and intuitive fashion possible. When applicable, intricacies of the data sets are explained with reasonable depth. Data sources, background research documents, and sources of indicator trend interpretations and forecasts are fully documented in the report s References section. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 5

6 GLOBAL ECONOMIC IMPACTS Global Events and Their Impact on Canada s Economy The year 2015 was filled with many surprises for the world market. WTI oil prices staged a brief rally to $60 USD/barrel during the spring months, only to return to an average of around $45 USD/barrel in the closing months of the year. To make things worse, the first month of 2016 saw oil prices reach the sub-$30 USD/barrel level. This low oil price environment has removed the steam from Canada s economic engine, with growth in Alberta slowing to a crawl in China s stock market experienced an unexpected crash in the late summer of 2015, wiping trillions from the global stock market in just days. Forecasts for demand from China (the world s second largest economy) are looking weak going into 2016, putting further downward pressure on energy prices. The United States economy continues to expand at a healthy pace, and employment levels are finally approaching pre-2008 recession levels. The estimated United States real GDP growth for 2015 is 2.4%, which is the same level as 2014, and the same growth expected for 2016 and The Federal Reserve increased short term interest rates in December of 2015, for the first time in nine years. This is widely viewed as the end of the central bank s stimulus program, which began during the 2008 recession to nurse the American economy back to health. In general, this will lead to increased interest rates by American banks, creating a higher cost of debt burden. Canada and Alberta experienced many changes on the political landscape in In the Alberta provincial election in May, the New Democratic Party (NDP) won a majority government, ending the 44-year reign of the Conservative Party. The new policies being implemented by the NDP have a heavy focus on environmental stewardship, economic diversity, and government transparency. At the national level, the Liberal Party of Canada won the Federal election in 2015, defeating the Conservative Party of Canada and capturing about 40% of Canadian votes. Led by Justin Trudeau, the Liberal government is planning to run deficits up to $10 billion annually for the next three years, before returning to the black in Low energy prices and sweeping political changes have Canadians (and Albertans) adjusting to a new environment of uncertainty, as the new governments begin implementing changes promised during the election campaign, while at the same time trying to minimize negative impacts to the struggling economy promises to be a year of change, opportunity, and challenges for Albertans and Canadians alike. 6 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

7 KEY ECONOMIC INDICATORS Gross Domestic Product Gross Domestic Product (GDP) is the total production of all goods and services in a region. Growth in GDP is often used as a proxy for economic health, as it shows the expansion of the economy on a macro level. Many variables impact GDP; political decisions, demographic changes, labour force shifts, international trade movements, local supply and demand variations; to name just a few. Canada s GDP is influenced by the price of energy on the world market, the strength of the manufacturing industry, the foreign exchange rate with the United States, among other factors. Monitoring the national, provincial, and local GDP growth can give context to the economic situation at each level, helping form a well-rounded story about St. Albert s economic environment Canada, Alberta & Edmonton Real GDP Growth FORECAST PERCENTAGE (%) Canada Alberta Edmonton YEAR Figure.2.1. Canada, Alberta, and Edmonton CMA real GDP growth. Source: Statistics Canada, City of Edmonton. Forecasts: Canada (Scotia Bank), Alberta (ATB Economics), Edmonton (City of Edmonton). Figure 2.1 shows the real GDP growth for Canada, Alberta and the Edmonton Census Metropolitan Area (CMA) from 2005 to 2014, as well as the forecasts for 2015 to Canada s GDP growth for 2014 was around 2.5%, while Alberta s GDP growth came in at closer to 3.9%. At the regional level, the Edmonton CMA s GDP growth was a very healthy 3.5% in The 2014 numbers for Alberta and the Edmonton CMA speak to the strong handoff going into the recent downturn in oil prices. The estimates for 2015 GDP numbers show Alberta and Edmonton CMA feeling the impact of the drop in oil prices, falling below Canada s GDP growth for the first time since During the summer of 2015, most forecasts called for Alberta to narrowly avoid a recession in 2015, with growth picking back up in 2016 and As of January 2016, estimates for Alberta s growth have been downgraded to a slight State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 7

8 contraction in 2015 (about 1.0%). Across the board (nationally, provincially, and locally) economic growth is forecast to reach around 2.0% again as early as Most economic forecasts assume a gradual increase in oil prices in the near-term, returning to the $60 to $70 USD/barrel range in the next few years. Figure 2.2 shows the United States (US) real GDP growth over the same time period as the previous figure for Canada, as well as the forecast for US GDP growth for 2015, 2016, and The United States has managed to claw its way out of the recent global recession, with economic growth stabilizing around the 2.4% mark. Most forecasts predict steady US GDP growth in the 2% to 3% range in the coming years. The strong US economy could help revitalize Canada s manufacturing industry, if the weak Canadian dollar attracts American purchases of Canadian goods United States Real GDP Growth FORECAST PERCENTAGE (%) YEAR Figure 2.2. United States real GDP growth from 2005 to 2014, with 2015 to 2017 forecast. Source: United States Department of Commerce, Bureau of Economic Analysis. Forecast: Economist Intelligence Unit. Figure 2.3 (top graph) shows the ten Canadian provinces (with territories excluded due to their low GDP contribution) and their respective shares of the total Canadian GDP in 2014 represented by the horizontal axis bar width. On the vertical axis, the height of the bar represents the growth of the province s GDP relative to the previous year. This variable width bar chart is a useful economic visualization because the area of each province s bar represents contribution to Canadian economic growth in a given year. Together Ontario, Quebec, Alberta, British Columbia, and Saskatchewan account for just over 90% of the total Canadian GDP. Figure 2.3 (bottom) shows the estimated provincial GDP growth for 2015 (RBC Economics). Comparing the variable bar width for 2014 and 2015 show the impact of the global energy price crash on Canada. With the exception of a handful of eastern provinces, most provinces showed a drop in GDP growth, with Alberta GDP showing a contraction of -1.0% (source: ATB Economic Outlook, January 2016.) 8 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

9 Figure 2.3. (Top graph) Provincial share of the overall Canadian GDP in 2014 represented by width on the horizontal axis, plotted versus their individual GDP growth in 2014 on the vertical axis. The same economic visualization for 2015 is shown on the bottom graph. Source: RBC Economic Outlook, December What it means for St. Albert: The year 2015 was a tough one for Alberta, with oil prices remaining below the $60 USD/barrel mark in most months. The impact was felt across Canada, with the national GDP posting minor decreases in the first two quarters, before returning to positive territory in the closing two quarters. Many new oil sands projects have stalled in Alberta, but most projects that were already underway before the price collapse have continued. A backlog of non-residential projects have been benefiting from an increased labour pool, and sudden lack of competition from energy-based projects. The Capital Region appears to be weathering the storm, with the Edmonton CMA s GDP growth projected to be about 0.6% in St. Albert too, will need to weather the storm, although it may be more prone to secondary impacts of the energy price environment, whereas communities with a greater reliance on energy-based industries may State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 9

10 be more prone to direct impacts. In the next five years, St. Albert is poised to capture a greater share of the Capital Region s non-residential growth, as many new neighbourhoods with industrial and commercial focuses are built. The Anthony Henday Business Park in South Riel, new sites in Campbell Business Park, and the Employment Lands will all create great opportunities for new businesses to set up shop in St. Albert. The completion of the final leg of the Anthony Henday Ring Road will allow St. Albert an even greater connection to the Capital Region. Taking all of the variables into consideration, St. Albert should continue to experience growth in the coming years, despite the economic slowdown at the provincial level. Consumer Price Index Consumer Price Index (CPI) measures the cost of an average consumer s basket of goods, based on eight major items: food, shelter, household operations, furnishings and equipment, clothing and footwear, transportation, health and personal care, recreation, education and reading, and alcohol and tobacco. The change in CPI from year-to-year can be used as a proxy for inflation for the region where the prices of those goods were measured. The Bank of Canada has a target inflation range between 1% and 3%. If the Government (and Bank) of Canada can keep inflation growing at a healthy and steady rate, it promotes an environment for sustainable economic growth. Inflation in Alberta decreased in 2015 (relative to 2014) driven down primarily by the decreased costs of energy products (gasoline and natural gas). The increased cost of imported goods and foods from the United States has caused the cost of many grocery items to increase, causing outcry from consumers with increased grocery bills. Consumer Price Index Year to Year Changes for Canada, Alberta and Edmonton 6.0 FORECAST Canada Alberta 2.0 Edmonton YEAR-TO-YEAR CHANGE (%) YEAR Figure 2.4. Consumer Price Index year-over-year growth for Canada, Alberta, and Edmonton CMA. Historic data source: Statistics Canada. Forecast: Canada (Scotia Bank), Alberta (ATB Economics), Edmonton CMA (City of Edmonton). 10 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

11 Figure 2.4 shows the year-to-year change in CPI for Canada, Alberta, and the Edmonton CMA. Canadian CPI growth tends to be more moderate than the provincial or regional growth, usually experiencing smaller ups-and-downs as compared to provincial CPI changes. It is estimated that Canada experienced inflation rate of around 1.2% in 2015, near the lower end of the desired range. Most banks forecast a gradual increase in Canadian inflation, moving towards the 2.0% mark for 2016 and After experiencing an inflation rate of about 0.9% in 2015, Alberta s CPI growth is expected to increase to the 1.4% mark by Alberta and Edmonton CPI have historically followed a similar trend, which is not unexpected given that Edmonton exists within Alberta s overall economic environment. The Edmonton Census Metropolitan Area inflation is expected to increase at a slightly higher rate than the national average, reaching about 2.3% in 2017 (source: City of Edmonton). What it means for St. Albert: Stable inflation in the 1% to 3% range is a positive indicator for Capital Region businesses, who need to plan for the increased cost of doing business in the future. In a global market with so many uncertainties, a stable and healthy inflation environment can be an alluring condition for international investment. It should also be noted that a key factor weighing downwards on all three of these inflation measures is the decreasing price of gasoline. If global energy prices increase above expected levels in the next few years, the forecasts for inflation across the board will also be revised upwards. Foreign Exchange Rate (Canadian Dollar versus US Dollar) The loonie is the term used colloquially to refer to the price of the Canadian dollar relative to the US dollar. If the loonie loses value relative to the United States dollar (USD), it makes Canadian goods and services less expensive for American consumers and companies. This can drive up the demand for Canadian products, positively impacting Canada s export market. The exchange rate is driven by a number of different variables, such as the fluctuations in demand of Canadian goods abroad, foreign trade patterns, or changes in global economies that buy Canadian products. The general rule of thumb is that a lower foreign exchange rate benefits Canadian exporting companies, and a higher foreign exchange rate benefits Canadian companies that import goods. The trend over the last five years has been a weakening loonie relative to the American dollar. In January of 2016 the Canadian dollar reach a daily exchange rate of $0.69 per USD, a level that had not been experienced in thirteen years. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 11

12 1.20 The Loonie: Canadian/USD Exchange Rate EXCHANGE RATE (USD per CAN $) YEAR Figure 2.5. The Canadian dollar to United States dollar foreign exchange rate. Source: CanadianForEx. Figure 2.5 shows the historical trend for the Canadian dollar foreign exchange rate relative to the US dollar. After reaching a maximum of par (equal) with the American dollar in 2011, the exchange rate has begun to decrease. Although the average for 2015 was about $0.79 per US dollar, the last quarter of 2014 saw the Canadian dollar sitting around $0.75 per US dollar. The strengthening US economy, coupled with weakening commodity prices (which Canada relies on heavily for its export industry) is pushing the loonie down relative to the US dollar. Also influencing the loonie were the two interest rate cuts by the Bank of Canada in 2015, leaving the overnight lending rate at 0.5% as of January These policy decisions contributed to the depreciation of the Canadian dollar, relative to the US dollar. What it means for St. Albert: The declining foreign exchange rate of the Canadian to United States dollar means imported goods from the US are getting more expensive, and exported Canadian goods are less expensive for American consumers. For St. Albert s exporting companies this may help increase sales, as US consumers are lured to Canadian businesses where their dollar receives better value. Local businesses that import materials from the United States will see their costs increase, which may result in those costs being passed on to the consumer. St. Albert companies who import raw materials from the United States can minimize their exposure to the dropping loonie by seeking out new markets in other countries with a more favorable exchange rate. 12 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

13 ENERGY & TRADE INDICATORS Crude Oil Prices The low oil price environment that began in 2014 has continued throughout most of 2015, and into West Texas Intermediate crude oil, which is often used as a benchmark for North American light sweet oil, staged a brief comeback in the spring months of 2015 to around $60 USD/barrel, before dropping back to the $40 to $45 USD/barrel range in the summer and fall months. This drop in the price of oil has impacted all of Canada, but the oil-producing regions especially, with large numbers of layoffs in industries tied to Alberta s energy sector. In the early months of 2016 the situation worsened, amid weakening demand expectations from China. Decisions by Saudi Arabia to abandon the role of swing producer made the supply situation worse, as they continued pumping to reclaim market share from US shale producers. These factors and others drove the price of WTI oil to below $30/USD per barrel in January of 2016; a level that had not been experienced in twelve years. WTI Spot Price - Annual Average Price of Barrel of Oil US $/BARREL YEAR Figure 3.1. West Texas Intermediate (WTI) Crude oil prices (annual average), 20-year trend. Source: Energy Information Organization. Figure 3.1 shows the average annual price of WTI crude oil, in USD/barrel. The average annual oil price graph smooths out some of the more volatile month-to-month changes, giving an idea of the overall price of oil in a given year. Oil prices increased rapidly during the 2000s, coming to a peak around $100 USD/barrel in 2008, before dropping during the global downturn to around $60 USD/barrel. Strong demand from developing countries drove prices back up to the $95 USD/barrel range from 2011 to 2014, until increased supply out of OPEC countries and North American tight oil plays (combined with reduced demand from developing countries) created the current low oil price environment experienced in Oil price forecasts for 2016 and 2017 have been revised downwards during 2015, with a slow price ascent State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 13

14 expected in the coming years. Sproule s oil price forecast for WTI as of late 2015 projects an average of $55 USD/barrel in 2016, and $70 USD/barrel oil prices in Price of Western Canadian Select (WCS) vs. West Texas Intermediate (WTI) Crude WCS PRICE (US $/BARREL) WTI (Texas) WCS (Alberta) YEAR Figure 3.2. Price of Western Canadian Select Crude Oil (Alberta) versus the price of Western Texas Intermediate (Texas) Crude Oil from 2009 to Source: Alberta Economic Dashboard. Figure 3.2 shows the price of what is often considered Alberta oil ; Western Canadian Select (WCS) versus the price of West Texas Intermediate, which is often considered a benchmark for North American light crude. Differences in sulphur content, viscosity, and density of WCS and WTI oils mean they need to be transported and refined through slightly different methods; this results in a differential in prices per barrel. The price differential for WTI versus WCS can be anywhere from around $10 USD/barrel to $25 USD/barrel, depending on supply and demand of each oil type. A smaller differential between the prices for the two types of oil is desirable for sellers of WCS. The decreasing strength of the loonie has been acting as a slight cushion to Canadian sellers of WCS, since oil is priced in US dollars (and mainly exported south). What it means for St. Albert: The oil and gas industry is a major component of Alberta s economy. For this reason, when oil prices drop, a number of dependent industries in Alberta also suffer. St. Albert is slightly insulated from the immediate impact of declining oil prices. This is due to the low number of oil and gas focussed St. Albert businesses, as well as the low fraction of total St. Albert residents employed directly in oil and gas jobs. However, St. Albert still resides within the larger provincial economy, and there are knock-on effects which may manifest themselves in reduced spending and growth locally. Edmonton Capital Region appears to be handling the oil price shock better than the other main population hub, Calgary, which is experiencing a greater relative decrease in house price, and a higher increase in unemployment. 14 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

15 Natural Gas Prices Alberta produces a large fraction of the natural gas for Canada. Most natural gas is used for transportation and for electricity generation, while a smaller portion is used to heat homes. Natural gas prices can vary based on a number of factors, from supply disruptions in the United States, to extreme weather situations drawing increased demand during the winter months. This volatility in both the supply and demand can make natural gas prices hard to predict. The price forecasts for natural gas in Alberta have been reduced slightly since last year; most estimates now put the cost of natural gas below the $3.00/GJ level until about Price of Natural Gas in Alberta (CAN $/GJ) FORECAST NATURAL GAS PRICE (CAN $/GJ) YEAR Figure 3.3. Average annual price of natural gas in Alberta, per gigajoule (GJ). Source: Alberta Energy, forecast: gasalberta.com. Figure 3.3 shows the average annual price of natural gas, in Canadian dollars per gigajoule ($CAN/GJ). The average price of natural gas in Alberta was about $2.50 in Owing to a glut of supply from the United States shale gas fields, natural gas prices have been in decline since about 2008, and are forecast to remain below $3.00/GJ in Alberta for the next few years. On the upside, this may keep the cost of heating dwellings down in the short term. On the downside, low prices weigh on Alberta s natural gas producers. Recent climate change policies introduced by Alberta s government will push forecast prices upwards; one estimate sees the impact of the carbon tax raising natural gas costs by about $1.50/GJ by What it means for St. Albert: Relatively low natural gas prices are good for consumers and businesses that use gas on their cost side. It is not-so-great news for Alberta s natural gas producers. In the next few years, the cost of heating domiciles should be lower than in previous years, which will help businesses save on costs in winter months. Legislation around climate change introduced by the NDP government in Alberta will have an State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 15

16 upward impact on prices in coming years, as a carbon tax is brought into place. The carbon tax will also increase the price of transportation fuels, such as gasoline and diesel. As plans to phase out coal power generation are carried out, natural gas will make up a greater portion of Alberta s overall power generation (70%), creating an increased demand for the product locally. Exports Alberta s GDP relies heavily on exports, accounting for about 40% of the provincial economic output in most years. Canada s total exports also rely heavily on Alberta s contribution; in 2014 Alberta accounted for about one quarter of total Canadian exports. Alberta s exports are tied heavily to the energy industry, with energy products usually accounting for 75% of total export value (in dollar terms). 140 Alberta s Exports, 2000 to 2015 ($CDN Billions) $CDN BIL Non-Energy Exports ($BIL) Energy Exports ($BIL) YEAR Figure 3.4. Alberta s exports (in billions) divided into energy and non-energy (Statistics Canada) Figure 3.4 shows Alberta s exports value since 2000, divided into energy based exports, and non-energy based exports. In 2014, Alberta s exports reached a record level of $121.4 billion. This was mainly due to an increase in volume and price of oil products, despite the price of oil dropping in the later half of It was expected that Alberta s exports would decrease about 17% in 2015; in actuality, they ended up dropping around 25% as oil prices weakened even further, moving from $60 USD/barrel in the summer to lows of around $35 USD/barrel in late December. As the low oil price environment continues and conventional wells are shut down until the price recovers, it is expected that weakness in the Alberta energy export sector will continue into State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

17 What it means for St. Albert: As a resource-driven economy reliant on energy products such as coal, natural gas, and oil, Alberta tends to ride the economic rollercoaster ( boom and bust ) associated with commodity cycles. The large majority of Alberta exports end up in the United States, and a strong US greenback makes Canadian goods more appealing to the American market. This signals an opportunity to expand the non-energy component of the export market during periods of low energy prices and a weak loonie. To increase the value received for Alberta s energy products, the province needs to increase the market access through improved transportation networks. At the local level, St. Albert has a healthy transportation and advanced manufacturing sector. This under-reliance on energy related exports is one of the reasons St. Albert is buffered from the impact of the low-oil price environment. Imports Imported goods and services are an indication about what a region requires for products that cannot be obtained locally. Canada imported about $525 billion worth of goods and services from other countries in While the primary merchandise export for Canada is mineral fuels and oils, the main import to Canada is vehicles (other than railways). Figure 3.5 shows Alberta s imports growth since A negative value shows a decrease relative to the previous year in the total dollar value of goods and services imported marked the first year since 2009 that there was a decrease in the value of goods and services imported into Alberta year to year. The decrease in 2014 was about 0.4%, following four years averaging 10% growth in imported goods and services (2010 to 2013) Annual Change in Alberta Imports of Goods and Services YEAR-TO-YEAR CHANGE (%) YEAR Figure 3.5. Alberta s expenditures on imported goods and services. Source: Statistics Canada. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 17

18 What it means for St. Albert: Imported goods and services show the reliance of an economy on external goods and services. As a region finds ways to make more goods and services locally, the imports will often decrease. Very few (if any) regions are completely diversified and self-sufficient, so imports will always be an important component of the trade balance. One way to help reduce Alberta s reliance on goods and services from other regions is to increase the amount of purchases made from local suppliers and producers. With the weakening Canadian dollar relative to the US dollar, the cost of imported goods from the United States is increasing; these increased costs usually get passed on to the consumer. The increased cost of goods from imported materials could drive a new wave of shop local campaigns, helping spur investment in the local economy. 18 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

19 POPULATION AND LABOUR Population Growth People are the key natural resource of any region, defining the culture and attitude of the community. Alberta has the youngest median age of any province in Canada (36.2), and the strongest population growth of any province or state in North America over the last ten years. This population growth is a double-edged sword. It is one of the factors driving the strength of Alberta s economic growth over the last ten years, but it also creates an increased need for infrastructure. Population growth brings with it increased crime, traffic, and need for social services. Even as Alberta s economy struggles with low oil prices, the province still needs to satisfy the social and physical demands of its population base. Figure 4.1 shows population growth as a percentage for Canada, Alberta, Edmonton, and St. Albert. Nationally, Canada s population growth is normally steady at around 1.1%, although it dropped to 0.9% in Alberta and Edmonton have grown above the Canadian average over the last 14 years, Alberta seeing 2.3% growth annually, and Edmonton growing at 2.5% on average. St. Albert s population growth falls somewhere between the Canadian and provincial average, at about 1.5% growth annually. One trend to note is the sharp decrease in population growth estimated in 2015 across the board, due to weakening economic conditions in Canada Population Growth: Canada, Alberta, Edmonton, St. Albert GROWTH (%) Canada Alberta Edmonton St. Albert YEAR Figure 4.1. Population growth for Canada, Alberta, Edmonton CMA, and St. Albert over a fourteen-year period. Source: Statistics Canada, St. Albert Municipal Census. St. Albert s 2015 forecast value is based on a 14-year historical average of 1.45% State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 19

20 What it means for St. Albert: In St. Albert, population growth is dependant on variables such as housing stock, birth rate, and regional migration. St. Albert experiences steady growth above the national average and does not experience as many ups-and-downs as Alberta s population growth. As new neighbourhoods come online in St. Albert in the coming years, the city may experience above-average levels of population growth, as pent up demand is satisfied with new housing stock. Steady population growth is good for planning purposes; it creates predictable patterns of required increases in service levels and new infrastructure. Reliable growth is also good news for St. Albert businesses, as it allows for business planners to match supply and demand more easily year to year. Population Growth Driver: Migration A key source of Alberta s population growth (especially during boom years) is migration. Generally, there are two types of in-migration; international, and interprovincial. Figure 4.2 shows Alberta s total net in-migration (number of migrants entering, minus emigrants leaving) annually since The ups-anddowns of Alberta s migration are driven by the combination of market conditions, policy decisions, labour market strength, and global events causing people to leave other countries. In 2013 Alberta experienced a record level of in-migration, totalling around 90,000 net in-migrants (international and interprovincial). With the recent downturn in the Canadian (and Albertan) economy, migration into Alberta has softened. In 2014 there was a drop in migration to about 65,000, and the trend is expected to return to historical averages in 2015 (closer to 48,000). Alberta Net Migration, International and Interprovincial (Annual Totals) 100,000 FORECAST 90,000 80,000 70,000 IN-MIGRANTS 60,000 50,000 40,000 30,000 20,000 10, YEAR Figure 4.2. Alberta net migration (international and interprovincial) annually. Source: Statistics Canada, 2015 and 2016 forecast from CHMC State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

21 30,000 Edmonton CMA Net In-Migration FORECAST 25,000 NET IN-MIGRATION 20,000 15,000 10,000 5, YEAR Figure 4.3. Edmonton CMA annual net in-migration. Source: City of Edmonton. Figure 4.3 shows the net in-migration for the Edmonton CMA over the last ten years. Edmonton appears to have a more stable migration pattern compared to Alberta as a whole. This stability may come from the greater economic diversity in the Edmonton CMA, as compared to Alberta overall. What it means for St. Albert: Migration is an important source of population growth in the Capital Region. Increased migration can mean a greater diversity of people attending city events, greater housing growth, and an increase in traffic at local businesses. Understanding this key driver of population growth allows the City of St. Albert to plan for future infrastructure and services in an effective manner. It also shapes the resident and business attraction strategies, as demographics in the immediate economic surroundings change. For a St. Albert business, knowing current and future migration trends in the region can improve business planning and marketing efforts in response to a changing customer profile. Labour Force The labour force growth of a region gives an indication about the health of the local economy, as new workers help drive business growth. Overall, an upward trend in labour force is desired, as it signals a healthy economy experiencing positive growth. Canada experienced a slight labour force decrease during the global recession of 2009, but returned to positive growth in Alberta and Edmonton, in general, have experienced above-the-canadian-average labour force growth over the last five years. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 21

22 Figure 4.4 shows the year-to-year change in the total size of the labour forces for Canada, Alberta, and Edmonton. From 2004 to 2015, Canada s average annual labour force growth was 1.2%, Alberta s was 2.5%, and Edmonton s was 2.9%. Labour force shows the working (or looking for work) portion of the population, so it is impacted by both changes to the total population, as well as changes to the fraction of the population that is able to work. It is expected that growth in Alberta s labour force will moderate in coming years, as the low oil price environment takes its toll on the job market. Dropping levels of in-migration will also have a negative effect on labour force growth. Despite the large number of lay-offs in Alberta in 2015, the preliminary estimates for 2015 labour force growth are not yet negative, indicating a strong hand-off from Total Labour Force Growth: Canada, Alberta and Edmonton 6.00 YEAR-TO-YEAR CHANGE (%) Canada Alberta Edmonton * YEAR *Note: 2015 value is year to date average Figure 4.4. Total labour force size year-to-year change for Canada, Alberta, and Edmonton. Source: Statistics Canada s value was based on the year-to-date average size of each labour force as of November Figure 4.5 shows the average weekly wages by industry for Alberta in At the high end of the spectrum, the Agriculture and Resource-based industries tend to pay the most at about $2,150 per week (this includes Oil and Gas, Forestry, Fishing, Mining, and Utilities jobs as well). These jobs tend to out-pay the second place category (Professional, Scientific, and Technical Services jobs) by about $600 per week. At the low end of the distribution, the Accommodation and Food services pays about $410 per week on average in Alberta in The differences in wages between industries can drive cross-industry labour pool flows. It can also impact short term education trends and migration trends as workers are drawn into high-paying industries. These industry groupings are based on the North American Industry Classification System (NAICS). A detailed description of the NAICS code system is available on the Statistics Canada website. 22 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

23 Figure 4.5. Average weekly earnings by industry in Alberta for Source: Statistics Canada. Figure 4.6 is a variable width bar chart, which shows the Alberta employment force in 2015 by NAICS against the average weekly wage for each industry. The bar width shows the percentage share of that industry for Alberta s employment force (how many workers out of 100 are working in that field), while the bar height shows the average weekly wage for the industry in State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 23

24 Figure 4.6. Variable width bar chart; Alberta s 2015 employment force distribution versus average weekly wages by industry. Bar width represents industry share of employment, bar height represents average weekly wage in The variable width bar chart is rich with context; it shows the largest category in terms of percentage share, Retail Trade, has one of the lowest average wages. Similarly, Accommodation and Food services is a large provider of jobs, yet it has the lowest average wages. The Construction industry has a healthy average share of employment, and the third highest average weekly wage. The Agriculture and Resource Based industry (which includes oil and gas) has the highest average wage by a large margin, and employs a similar amount of people as some of the average-size industries. By examining the diversity in bar heights and bar widths, this chart shows the wide disparity of wages in Alberta, despite the fairly even distribution in employment by industry. What it means for St. Albert: Alberta has led the pack for provincial population and labour growth in Canada over the last few years. This was mainly driven by the strong economic growth in Alberta as Canada pulled itself out of the 2009 recession. The recent downturn in the economy has caused growth (both population and labour force) to decelerate slightly, but most forecasts see growth picking back up in late 2016 and onwards. A slowing economy can cool wage growth in certain industries, and allow businesses a greater advantage in labour force selection. It can also drive down construction costs, as fewer projects are around to compete for resources. St. Albert businesses may find new building costs lower in coming years, and a chance to shore up their staff as the labour pool becomes larger and more diverse. 24 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

25 Businesses Business licenses are an important proxy for the health of an economy. In general, an upward trend in the number of business licenses is desired. New businesses are an important source of employment for any economy. In addition to that, the types of business prevalent in a community can give an indication about the regional demand for certain goods and services. An increase in the number of new businesses in a region can signal that entrepreneurs are capitalizing on local market opportunities. Changes in the patterns of commercial and industrial versus home-based versus non-resident business licenses can inform the government about changing patterns in the business community. Figure 4.7 shows the average number of active business licences in the City of Edmonton from 2011 to The data was obtained from the City of Edmonton s Open Data portal; the values are the average of the monthly number of business licences recorded. The trend in Edmonton s business licenses is very steady, averaging an increase every year of about 1000 new business licenses. 33,000 City of Edmonton Business Licences BUSINESS LICENCES 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25, YEAR Figure 4.7. Total registered business licences in the City of Edmonton. Source: City of Edmonton Open Data Portal. Figure 4.8 shows the total number of business licences in St. Albert from 2008 until 2015, as measured by the average of the monthly recorded business licences each year. On average, St. Albert processes about 3,100 business licenses annually. Examining the change in business licenses from 2008 until 2015 shows an average annual growth of about 1.6%, which is on par with historical population growth rates. It is expected that the total number of business licenses in St. Albert will experience above-average growth in coming years, as new non-residential developments come online. South Riel and the Employment Lands are two developments that will positively impact the business growth in the City of St. Albert over the next five years. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 25

26 3,300 St. Albert Business Licences BUSINESS LICENCES 3,200 3,100 3,000 2,900 2,800 2, YEAR Figure 4.8. Total registered business licences in St. Albert. These include resident (local), home-based, and non-resident businesses. Source: City of St. Albert Business Licensing. Figure 4.9 shows the total number of business licences (in Edmonton and St. Albert) per 1000 residents. St Albert has about twice as many business licences per 1000 residents as compared to Edmonton. Despite St. Albert only having around one tenth of the total number of business licences of the City of Edmonton, it has a comparatively large number of businesses when comparing it to the total number of St. Albert residents. BUSINESS LICENCES/1,000 RESIDENTS Business Licences per 1,000 Residents: Edmonton and St. Albert YEAR Figure 4.9. Number of business licences per 1000 residents for Edmonton and St. Albert. Edmonton St. Albert 26 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

27 What it means for St. Albert: Business growth is an important indicator for a growing economy. This metric is often measured via the labour force, and through business licensing totals. St. Albert s business license growth has held steady over the last five years, but it is expected that growth will increase in coming years as new non-residential heavy developments are brought online. The City of Edmonton experiences business license growth of around 1000 licenses a year, which indicates a growing business community in the main hub of the Capital Region. State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 27

28 HOUSING MARKET INDICATORS New Housing Starts Housing starts are a leading economic indicator. Examining differences between national and provincial housing start trends can show how the smaller components of Canada s housing market are influencing the overall trend. In 2015, housing starts at the national level increased about 4.4% relative to At the provincial level, Alberta experienced a decrease in total housing starts by about 3.5%. This reduction in new housing starts in Alberta is due to the decrease in migration, as well as low oil prices which have been negatively impacting the job market. 250,000 Canada & Alberta Housing Starts 200,000 DWELLING STARTS 150, ,000 Canada Alberta 50, YEAR Figure 5.1. Number of dwelling starts for Canada and Alberta. Source: Canadian Mortgage and Housing Corporation (CMHC). Figure 5.1 shows annual Canadian and Albertan housing starts since Alberta has averaged roughly 35,500 housing starts per year over this time period, and Canada has averaged about 205,000 starts annually. In 2015 there was a reduction in housing starts in Alberta relative to 2014 due to declines in net migration and slowing employment growth. Going forward, new regulations brought on by the federal government in 2015 and 2016 may slow housing growth at a national level, as the housing markets in Vancouver and Toronto are targeted for cooling. 28 State of the Economy 2015 Economic Indicators Impacting St. Albert and Region

29 18,000 Edmonton CMA Housing Starts, Single Family and Multi Family 16,000 DWELLING STARTS 14,000 12,000 10,000 8,000 6,000 4,000 Multi Family Single Family 2, f 2016f 2017f YEAR Figure 5.2. Number of dwelling starts for Edmonton Census Metropolitan Area. Source: CMHC, Edmonton Market Outlook Fall Figure 5.2 shows Edmonton CMA housing starts from 2008 until 2014, with the forecasts from 2015 to The chart shows healthy growth over the last few years, with new housing starts per year in 2015 estimated to double the 2008 value. While single family dwellings have remained fairly steady over the last five years, a large portion of the growth comes from multi family dwellings (condos, apartments, and duplexes). Forecasts in 2015 have been revised downwards from estimates made during 2014, due to the prolonged economic uncertainty surrounding Alberta. CMHC forecasts about 11,000 housing starts total each year in 2016 and 2017, down from the high of over 16,000 housing starts estimated in St. Albert Housing Starts - Historical Trend 600 UNITS BUILT Single Family, Semi Detach Dwellings Apartment, Rental Condos, Senior Homes YEAR Figure 5.3. City of St. Albert housing starts, single family and semi-detached shown against apartments, condominiums, and seniors homes. Source: City of St. Albert Taxation and Assessment Department State of the Economy 2015 Economic Indicators Impacting St. Albert and Region 29