Recent Economic Trends in Saskatchewan

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1 Recent Economic Trends in Saskatchewan Presentation to Financial Management Institute of Canada Regina Branch November 23, 2016 Doug Elliott Sask Trends Monitor th Avenue Regina, Saskatchewan S4N 1H

2 Outline The Four Economic Drivers Consumer Spending Government Spending Business Investment International and Interprovincial Trade Unless otherwise indicated, the figures in this presentation are from Statistics Canada. The estimates and forecasts are the responsibility of Sask Trends Monitor. November 23,

3 The Economic Drivers/Engines $60 $ billions The Four Economic Drivers (contribution to GDP of $79.4 billion in 2015, Saskatchewan) One way to look at the provincial economy is through the lens of the four main economic drivers or engines in the economy. $50 $50.8 ($44.2) These four drivers are: consumers; governments; $40 $30 $36.0 businesses; and out-of-province buyers of our goods and services. The activities of these players interact in complex ways. $20 $10 $17.0 $18.9 The economy does well when any three of the players are active. During the recent economic boom, all four contributed. $0 Consumer spending Government spending Business investment Exports (less imports) November 23,

4 Recent Trends in the Economic Drivers $40 $35 $ billions Trends in the Economic Drivers Trade and investment both declined in 2009 when the world-wide credit crunch occurred. Consumer spending slowed. $30 $25 $20 $15 $10 consumer spending business investment government spending The strong economic growth from 2010 to 2013 was the result of strong growth in business investment supplemented by aboveaverage growth in consumer spending. The downturn that started in 2014 was initially caused by a drop in business investment. Consumer spending started to slow soon after. $5 net trade $ November 23,

5 Consumer Spending Retail Sales 8% 6% 4% 2% Annual Growth in Saskatchewan Retail Sales, Adjusted for Inflation 2.1% 4.4% 5.7% 3.7% 2.1% Consumer spending is the largest of the economic drivers and the value of retail sales is the best overall indicator for consumer spending. Retail sales grew more quickly than inflation from 2010 to We were collectively spending more than we were earning in most of those years. 0% -2% -1.5% -0.7% In 2015, consumers used savings at the gas pumps to pay down debt rather than increase spending in other categories. -4% -6% -4.4% f'cast In nominal terms, retail sales will increase slightly in 2016 but, adjusted for inflation, will drop again. November 23,

6 Consumer Spending Employment 4% Annual Growth in Employment There are three drivers for consumer spending. 3% 2.4% 3.1% Only two employment and income are easily measured. The third is psychological (consumer confidence) and can only be inferred. 2% 1% 1.6% 1.0% 0.9% 1.0% The surge in consumer spending from 2011 to 2014 was helped along by rapid growth in employment. 0% 0.5% Employment will decline in 2016 for the first time since % -0.8% -2% f'cast November 23,

7 Consumer Spending Personal Income 4% 3% 2% 1% 0% Annual Growth in Gross Income, Adjusted for Inflation, Saskatchewan 1.0% 1.5% 3.0% 2.4% 1.8% 0.1% The growth in employment was accompanied by quite dramatic increases in earnings and, therefore, in personal income. Incomes barely kept pace with inflation in 2014 and fell behind in 2015 and will do so again this year. The decline in 2015 was not the result of lower wage rates. Instead less overtime and more part-time jobs was the cause. -1% -0.9% -0.6% -2% est 2016 f'cast November 23,

8 Consumer Spending Motor Vehicle Sales 15% 10% 5% 0% Annual Growth in Unit Sales of New Motor Vehicles, Saskatchewan 6.0% 7.3% 10.6% 4.6% A loan is typically required to buy a new vehicle and taking on debt usually means confidence in future income. So economists use sales of big-ticket items as a measure of consumer confidence. Four out of five new motor vehicles sold are trucks/suvs. Some of these sales will be to farms and businesses rather than individuals. -5% -10% -9.3% -1.2% -5.4% -6.8% Unit sales fell in 2014 and 2015 and will do so again this year. The average price paid has continued to increase it is $40,900 right now compared with $36,900 five years ago. -15% f'cast November 23,

9 Consumer Spending Residential Housing Market 50% 40% 30% 20% Annual Growth in Value of Residential Building Permits, Saskatchewan 42.5% 25.0% 27.4% The residential housing market is another big ticket item for consumer spending. The value of residential building permits includes both new construction and major renovations for existing homes. There is price inflation in these figures. 10% 0% -10% -20% -1.4% -12.4% -10.6% After double-digit growth in the late 2000s, consumers are curtailing spending on their existing homes and not building as many new ones. -30% -27.1% -25.4% -40% f'cast November 23,

10 Consumer Spending Bars and Restaurants 7% 6% Annual Increase in Sales in Bars/Restaurants, Saskatchewan, Adjusted for Inflation 6.5% Adjusted for inflation, spending in bars and restaurants will fall this year for the first time in more than twenty years. 5% 4% The slowdown is more pronounced in bars but sales at restaurants are also weak. 3% 2.6% 2.6% 3.0% 2.4% 2% 1% 0% 0.5% 0.4% -1% -2% -3% -2.0% est November 23,

11 Consumer Spending Winter Trips 25% 20% 15% 10% Annual Increase in Trips Abroad, Saskatchewan 21.7% 8.0% Trips to the USA and Mexico in the winter months are typically discretionary. These figures measuring the number of Canadian citizens who return to Saskatchewan after a trip abroad. They will include both business and personal travel. 5% 0% -5% -3.9% 0.1% 1.8% 0.7% The same pattern is evident as in other spending indicators, namely a decline in 2015 and again in % -15% -12.0% -20% -25% -20.4% est November 23,

12 Government Spending $20 $19 $18 $17 $16 $15 $14 $13 $12 $11 $10 Consolidated Provincial and Local Government Spending (including school boards, universities, and health authorities) $ billions revenues expenditures Compared with the other three economic drivers, we have relatively poor data about government spending. These figures measure revenues and expenditures by the provincial and local governments. Spending by health authorities and school boards is included and transfers between government entities are factored out. The most recent data is for which is almost two years old. Expenditures will not have increased in either or With inflation taken into account, this will translate into a decline in spending. November 23,

13 Government Spending - Public Sector Capital Investment $4.0 $3.5 $3.0 $2.5 $2.0 billions Public Sector Capital Investment The three levels of government are increasing capital spending. Some examples include: infrastructure spending (highways, bridges); spending by the crowns (carbon capture); health care (new hospitals); and education (new schools and university buildings). $1.5 $1.0 $0.5 $ intent November 23,

14 Government Spending Institutional/Government Buildings $800 $700 $600 Value of Building Permits, Institutional/Government Buildings millions This is another look at capital spending by governments, namely the construction of institutional buildings such as schools and hospitals. Spending has fallen back in 2016 after spiking near $700 million in $500 $400 $300 $200 $100 $ f'cast November 23,

15 Business Investment New Capital Investment $12 $10 $8 $6 $4 $2 Private Sector Capital Investment in New Fixed and Movable Assets, Saskatchewan, By Sector billions mining, oil/gas all others Business investment is the third economic driver and a good predictor of future economic growth. This figure looks at new investment activity by the private sector. Included are physical structures such as buildings, oil wells, and potash mines as well as machinery and equipment. From 2010 to 2014, the private sector invested an average of $13.2 billion per year in the province, double the level in The vast majority of this investment was in the resource sector, that is, mining and oil/gas. $ intent Excluding the resource sector, investment by the private sector has been effectively flat for the past eight years. November 23,

16 Business Investment Non Residential Construction $1,200 Value of Industrial and Commercial Building Permits, Saskatchewan millions Until 2016, spending on industrial and commercial buildings remained high. $1,000 $800 $600 $400 $200 $ f'cast November 23,

17 International Trade $40 $35 $30 $25 $20 $15 International Merchandise Trade to/from Saskatchewan (customs basis) billions exports imports The fourth economic driver is the interaction with our trading partners. Generally speaking, Saskatchewan runs a trade surplus with other countries and a trade deficit with other provinces. Net international trade (excluding services) doubled from 2009 to 2014 before falling back in 2015 and again in $10 $5 net trade $ est November 23,

18 Summary The Saskatchewan economy has been doing very well since the global financial collapse in 2009, leading the country in many economic indicators. All four economic engines were contributing. Only one or two of the four economic players are currently supporting the Saskatchewan economy. Consumer spending is weak because consumer confidence is low. This is in spite of the fact that incomes are relatively high and interest rates are low. Business investment has slowed because of the drop in commodity prices. Provincial government spending will slow because resource revenues will drop significantly. This will be offset to some extent by local government spending and capital spending on infrastructure projects. The economic situation in the USA, our main trading partner, is too hard to read right now. The slowdown in 2015 was modest because there was a lot of momentum in the economy. The slump continued into 2016 and will do so again in 2017 unless business and consumer confidence improves. Over the longer term, the economy is still too dependent on the extraction of raw materials. The recent decline in commodity prices has revealed that weakness. November 23,