ECONOMIC REPORT CARD. Quarter 3 (July 1 - Sept 30, 2017)

ECONOMIC REPORT CARD Quarter 3 (July 1 - Sept 30, 2017)

P1 Economic Report Card, Medicine Hat Q3 2017

TABLE OF CONTENTS P3 Key Economic Indicators P5 Analysis P5 Demographics P6 Labour Market P7 NAFTA Renegotiation P8 Analysis P9 Provincial Impact P10 Medicine Hat Impact P11 Summary EXECUTIVE SUMMARY The 2016 pattern of continued job losses has reversed itself in 2017 as Medicine Hat Census Agglomeration (CA) December 2017 year to date employment grew by 1,800 or 4.7% over the same period in 2016. Resource employment rebounded sharply in 2017. Economic Region (ER) employment growth was strong in agriculture, resource extraction, health care, and public administration. The largest drags on ER employment growth in 2017 were in transportation and warehousing, finance, insurance, real estate and leasing, education, other services and, to a lesser extent, wholesale and retail trade, professional services, information, culture and recreation, and construction. Within the Medicine Hat CA, there was also a drop in the number of unemployed by 1,500 from 4,200 in 2016 to 2,600 in 2017. There was also a corresponding decrease in the unemployment rate dropping from 10.1% to 6.1% during the same time period 2016 population was up 0.6% over 2015 largely on the strength of international in-migration. Net inter-provincial migration slowed and net intra-provincial migration continued to be negative. 2017 population will be released in mid-february 2018. Housing starts are down over 2016 but building permits, a leading indicator of construction activity, up over last year, presenting a mixed bag of results for construction indicators. Invest Medicine Hat P2

Data below is for the Medicine Hat Census Agglomeration (CA) Population Indicator 2015 2016 Chg %Chg Population (persons) July 1 84,576 85,081 505 0.6% Net Migration (persons) 399 156-243 -60.9% Employment 38,200 40,000 1,800 4.7% Unemployment 4,300 2,600-1,700-39.5% Unemployment Rate (%) 10.1 6.1-4.0-39.6% Participation Rate (%) 69.4 66.4-3.0-4.3% Employment Rate (%) 62.4 62.3-0.1-0.2% Employment Indicator Dec 2016 Dec 2017 Chg %Chg Dec 2016 ytd Dec 2017 ytd Chg %Chg Employment 41,400 38,400-3,000-7.2% 37,942 40,433 2,492 6.6% Unemployment 3,500 3,100-400 -11.4% 4,167 2,575-1,592-38.2% Unemployment Rate (%) 7.8 7.5-0.3-3.8% 9.9 5.9-4.0-40.1% Participation Rate (%) 68.5 66.9-1.6-2.3% 69.6 66.4-3.2-4.6% Employment Rate (%) 63.2 61.9-1.3-2.1% 62.7 62.4-0.3-0.5% Housing Indicator June 2016 June 2017 Chg %Chg June 2016 ytd June 2017 ytd Chg %Chg Housing Starts Total (Units) 10 13 3 30.0% 65 47-18 -27.7% Housing Starts Single (Units) 8 11 3 37.5% 53 35-18 -34.0% Housing Starts Semi-detached (Units) 2 2 0 0.0% 8 8 0 0.0% Housing Starts Row (Units) 0 0 0 0.0% 0 0 0 100.0% Housing Starts Apartment and other types (Units) 0 0 0 0.0% 4 4 0 0.0% P3 Economic Report Card, Medicine Hat Q3 2017

Data below is for the combined Medicine Hat/Lethbridge Economic Region (ER) Indicator Dec 2016 Dec 2017 Chg %Chg Dec 2016 ytd Dec 2017 ytd Chg %Chg Employment Agriculture 14,600 13,900-700 -4.8% 13,042 14,358 1,317 10.1% Employment Resource Extraction 6,800 7,400 600 8.8% 5,008 7,558 2,550 50.9% Employment Construction 15,100 13,200-1,900-12.6% 13,925 13,525-400 -2.9% Employment Manufacturing 9,800 12,100 2,300 23.5% 9,775 10,742 967 9.9% Employment Trade 19,900 21,000 1,100 5.5% 20,375 20,217-158 -0.8% Employment Transportation and warehousing Employment Finance, insurance, real estate and leasing Employment Professional, scientific and technical services Employment Business, building and other support services Employment Educational services Employment Health care and social assistance Employment Information, culture and recreation Employment Accommodation and food services 4,000 6,800 2,800 70.0% 7,650 6,333-1,317-17.2% 7,100 5,000-2,100-29.6% 6,925 4,650-2,275-32.9% 6,100 7,900 1,800 29.5% 7,075 6,942-133 -1.9% 4,600 5,100 500 10.9% 4,033 4,217 183 4.5% 8,600 8,000-600 -7.0% 12,658 8,983-3,675-29.0% 20,500 18,600-1,900-9.3% 20,858 21,583 725 3.5% 3,900 2,000-1,900-48.7% 3,792 2,533-1,258-33.2% 13,100 8,800-4,300-32.8% 9,108 9,350 242 2.7% Employment Other services 7,500 6,100-1,400-18.7% 8,308 6,400-1,908-23.0% Employment Public administration 5,400 8,400 3,000 55.6% 5,467 6,617 1,150 21.0% Indicator Nov 2016 Nov 2017 Chg %Chg Nov 2016 ytd Nov 2017 ytd Chg %Chg Housing Starts Total (Units) 13 12-1 -7.7% 154 124-30 -19.5% Housing Starts Single (Units) 9 8-1 -11.1% 97 87-10 -10.3% Housing Starts Semi-detached (Units) 4 4 0 0.0% 22 24 2 9.1% Housing Starts Row (Units) 0 0 0 0.0% 7 9 2 28.6% Housing Starts Apartment and other types (Units) 0 0 0 0.0% 28 4-24 -85.7% Indicator Oct 2016 Oct 2017 Chg %Chg Oct 2016 ytd Oct 2017 ytd Chg %Chg Building Permits Total ($000s) 82,397 32,902-49,495-60.1% 598,350 600,630 2,280 0.4% Building Permits Residential ($000s) Building Permits Industrial ($000s) Building Permits Commercial ($000s) Building Permits Institutional and governmental ($000s) 29,699 24,953-4,746-16.0% 231,884 233,813 1,929 0.8% 3,615 4,818 1,203 33.3% 22,677 35,323 12,646 55.8% 6,063 2,004-4,059-66.9% 160,450 107,680-52,770-32.9% 43,020 1,127-41,893-97.4% 183,339 223,814 40,475 22.1% Sources: Statistics Canada Cansim Tables 026-0007, 027-0034, 051-0062, 051-0063, 282-0134, 282-0122, 282-0124 Invest Medicine Hat P4

ANALYSIS DEMOGRAPHICS According to Statistics Canada, Alberta Census Division 1 population (the bulk of which is Medicine Hat) continues to grow, although at a slowing rate. Population increased by 23%, rising from 69,151 on July 1, 2001 to 85,081 on July 1, 2016. Census Division 1 population grew by 0.6% between 2015 and 2016. 2017 population will be released in mid-february 2018. Source: Cansim 051-0062 Driving this increase until 2014/2015 was primarily surging in-migration. In 2014/2015 migration slackened dramatically, contributing to slowing overall population growth. 2015/2016 saw negative net inter-provincial migration with only international migration (Immigrants) remaining positive. Components of population growth) 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 Immigrants 277 227 279 387 562 Emigrants 62 49 149 56 56 Returning emigrants 125 108 62 106 106 Net temporary emigration 18 14 36 16 16 Net interprovincial migration 450 543 348 296-122 Net intraprovincial migration -284-402 -309-228 -228 Net non-permanent residents 59 210 112-276 -144 Source: Cansim 051-0063 Notable among in-migration between 2011and 2016 has been net interprovincial migration, dropping steadily from a high of 543 in 2012/2013 to -122 in 2015/2016. During the same period international immigration surged, growing from 227 to 562 with only little offsetting emigration, averaging 74 persons from 2011/2012 to 2015/2016. International migration was be the largest contributor to population growth since 2011/2012 ahead of natural increase (births less deaths). P5 Economic Report Card, Medicine Hat Q3 2017

LABOUR MARKET Note that only total summary monthly and annual labour market indicators are available for the Medicine Hat Census Agglomeration (CA). Monthly industry detail are available only for the Lethbridge-Medicine Hat Economic Region (ER). These are shown as 3 month moving averages and seasonally unadjusted. Key among the labour market indicators is the increase in the total number of people employed in the Medicine Hat CA. Employment growth was positive in 2014 but dropped sharply (8% or 3,400 positions) in 2015. This pattern continued but at a slowing rate in 2016 with employment only dropping 300 persons or 0.8%. This trend has reversed itself in 2017 as December 2017 CA year to date employment growing by 1,800 or 4.7% over 2016. The drop in oil prices beginning in the second half of 2014 was expected to continue to impact resource employment in 2017. However, resource employment rebounded sharply in 2017. The largest drags on ER employment growth in 2017 were in transportation and warehousing, finance, insurance, real estate and leasing, education, other services and, to a lesser extent, wholesale and retail trade, professional services, information, culture and recreation, and construction. Despite softness in these industries, ER employment growth was strong in agriculture, resource extraction, health care, and public administration. Source: Cansim 282-0124 Within the Medicine Hat CA, there was also a drop in the number of unemployed by 1,500 from 4,200 in 2016 to 2,600 in 2017. There was also a corresponding decrease in the unemployment rate dropping from 10.1% to 6.1% during the same time period. These positive developments should be viewed with caution as the data masks a 2,800 person increase of individuals not in the labour force in 2017. Construction Housing starts are available monthly for the Medicine Hat Census Agglomeration (CA). Monthly building permits by type are available for the Lethbridge-Medicine Hat Economic Region (ER). Most categories of housing starts are behind 2016 levels so far in 2017. Single starts and apartments are 10.3% (10 units) and 85.7% (24 units) behind 2016 levels, respectively. At the same time, semi-detached starts are 9.1% (2 units) above 2016 and row units are up 28.6% (2 units) over 2016 year to date data. Advances in semi-detached and row statrts were insufficient to offset losses in other categories, driving total starts down 19.5% (30 units) in January to November 2017 versus January to November 2016. However, despite weaknesses in total starts, total year-to-date building permits in the ER are up 0.4% over the first 10 months of 2016. The increase is relatively wide ranging with residential (+0.8%), industrial (+55.8%), institutional and governmental permits (+22.1%) outstripping 2016 levels. Only commercial permits (-32.9%) posted a decline over the same time period in 2016. Invest Medicine Hat P6

NAFTA RENEGOTIATION Impact on Provincial and Local Economies - Scenario Analysis The Free Trade Agreement (FTA) was a trade agreement reached by negotiations between Canada and the United States on October 4, 1987 and signed by the leaders of each country on January 2, 1988. The agreement removed a wide range of trade restrictions over a ten-year period, and resulted in greatly increased cross-border trade. The purpose of the Free Trade Agreement was to: Eliminate barriers for the trade of goods and services between Canada and the United States Promote fair competition within the free-trade area established by the FTA Greatly improve conditions for investment within the free-trade area Set up effective measures for the shared administration of the FTA and the resolution of disputes Establish further cooperation to expand and enhance the benefits of the Agreement With the addition of Mexico in 1994 the FTA was superseded by NAFTA. NAFTA was signed by Canada, Mexico, and the United States to increase the prosperity of trade in North America. The agreement came into effect on January 1, 1994. Under NAFTA, the United States, Canada, and Mexico became an integrated market of around 400 million people with $6.5 trillion worth of goods and services traded annually. P7 Economic Report Card, Medicine Hat Q3 2017

Analysis President Donald Trump plans to re-negotiate NAFTA, to what extent he has not said, and if he doesn t believe it s a great deal, favouring the U.S, he would like to terminate the agreement. However, a president does not have the ability to unilaterally terminate or renegotiate NAFTA, which is apparent in article II, Section 2 of the U.S constitution: He shall have power, by and with the advice and consent of the Senate, to make treaties, provided two thirds of the Senators present concur. As such, the potential for a re-negotiation of NAFTA remains unclear. However, some assumption based analysis can be conducted. One possible scenario, analyzed in this article, would be Alberta s US exports returning to 1988 levels and structure. 1988 was the final year before implementation of the FTA. In this case, Alberta s US exports in both 1988 and 2016 (last full year of trade data) are deflated to 2014 dollar levels using Statistics Canada s Canadian Industrial Product Price Indexes (Cansim Table 329-0074). 2014 was chosen as the base year because it is the latest version of the Alberta input-output (IO) accounts, the basis for the provincial economic model, at study initiation. Results of the deflation process are below. Indicator 1988 Alta US Exports (Current $M) 2016 Alta US Exports (Current $M) Difference ($M) Difference in Constant 2014 $M Total merchandise trade 9,086.5 68,126.9 59,040.5 54,308.8 Live animals and animal products. 392.0 2,115.6 1,723.6 1,450.4 Vegetable products 89.8 710.8 621.0 549.0 Animal or vegetable fats and oils ; prepared edible fats; etc. Prepared foodstuffs; beverages, spirits and vinegar; tobacco 29.8 378.4 348.6 318.3 30.0 752.1 722.1 685.3 Mineral products 6,539.3 52,060.8 45,521.6 42,148.2 Products of the chemical or allied industries. 614.4 2,977.0 2,362.6 2,064.5 Plastics and articles thereof; rubber and articles thereof. 389.1 3,841.3 3,452.2 3,109.6 Raw hides and skins, leather, fur skins and articles thereof. 15.4 5.6-9.8-13.3 Wood and articles of wood; 211.7 1,020.2 808.5 674.3 Pulp of wood or of other fibrous cellulosic material; 401.1 926.8 525.7 404.5 Textiles and Textile Articles 4.3 11.3 7.0 5.5 Footwear, headgear, etc. 2.7 0.2-2.5-3.2 Articles of stone, plaster, cement, etc. 7.0 115.1 108.1 101.7 Precious or semi-precious stones, precious metals, etc. 1.3 29.1 27.8 27.3 Base metals and articles of base metal 89.8 518.9 429.2 355.8 Machinery and mechanical appliances; etc. 168.2 1,498.0 1,329.8 1,246.4 Vehicles, aircraft, vessels and associated transport equipment. Optical, photographic, cinematographic, measuring instruments, etc. 37.4 351.6 314.1 299.0 14.2 235.5 221.4 215.3 Arms and ammunition; parts and accessories thereof. 1.1 5.3 4.2 3.6 Miscellaneous manufactured articles 29.3 163.4 134.1 118.3 Works of art, collectors' pieces and antiques. 18.7 409.8 391.2 384.3 Source: Statistics Canada Canadian International Merchandise Trade Database, Cansim Table 329-0074 Invest Medicine Hat P8

The difference in 2014 constant dollars was aggregated into IO industries and used as a Provincial economic model shock. In short, total Alberta merchandise exports drops by $54,308.8M under a return to pre-fta trade levels and structure. The economic model translates this into a drop into industrial output, GDP, jobs, and wages in the province. Implicit in this approach are a few further assumptions: Service exports are not impacted. All changes in structure and value of exports to the US from 1988 to 2016 are due to the FTA and NAFTA. Imports are not impacted meaning that Alberta businesses and consumers will continue to import at the same volume and price either from the US or other countries. Provincial Impact The impact on Alberta of returning to pre-fta US exports is presented by industry below: Trade with other countries is not impacted. Indicator 1988 Alta US Exports (Current $M) 2016 Alta US Exports (Current $M) Difference ($M) Difference in Constant 2014 $M Crop and Animal Production -3,462.6-835.7-10,054-170.8 Forestry and Logging -159.9-57.5-427 -41.6 Fishing, Hunting and Trapping -0.5-0.4-3 -0.1 Support Activities for Agriculture and Forestry -82.6-48.6-540 -28.2 Mining and Oil and Gas Extraction -47,252.5-30,370.7-46,024-7,089.5 Utilities -907.7-582.0-2,138-283.0 Construction -2,334.5-1,194.2-6,524-399.2 Manufacturing -14,027.9-4,240.1-20,657-2,004.2 Wholesale Trade -1,722.7-1,092.8-6,834-635.9 Retail Trade -2,206.0-1,352.8-22,895-935.6 Transportation and Warehousing -1,847.2-956.9-6,992-498.0 Information and Cultural Industries -844.8-521.0-1,884-149.6 Finance, Insurance, Real Estate and Rental and Leasing -7,234.0-4,907.8-16,979-1,318.1 Professional, Scientific and Technical Services -2,429.8-1,528.5-11,786-998.5 Administrative and Support, Waste Management and Remediation Services -1,470.2-992.0-12,562-656.8 Educational Services -51.8-31.5-874 -21.1 Health Care and Social Assistance -407.6-301.2-3,285-157.0 Arts, Entertainment and Recreation -233.2-118.3-2,684-87.0 Accommodation and Food Services -997.7-533.7-11,905-393.0 Other Services (Except Public Administration) -706.3-449.0-6,803-325.0 Operating, Office, Cafeteria and Laboratory Supplies 0.0 0.0 0 0.0 Travel, Entertainment, Advertising and Promotion 0.0 0.0 0 0.0 Transportation Margins 0.0 0.0 0 0.0 Non-Profit Institutions Serving Households -144.4-84.2-1,813-76.2 Government Sector -873.7-567.9-4,690-390.1 Total -89,397.5-50,766.7-198,353-16,658.5 P9 Economic Report Card, Medicine Hat Q3 2017

Medicine Hat Impact Applying the same process as the Provincial Model to estimate Medicine Hat impacts is not feasible because detailed international export data by commodity is not available for the Medicine Hat area and the Medicine Hat economic model does not differentiate between international and inter-provincial trade. However, it is possible to use a location quotient to estimate the proportion of the total provincial impact that may accrue to a particular area. Location quotients are typically based on the proportion of the provincial labor force residing in the area of interest. Location quotients were derived for the Medicine Hat CA as the ratio of employment by industry in the Medicine Hat CA to provincial employment by industry. Utilizing this approach yielded the following impacts by industry for the Medicine Hat region from returning to a pre-fta US export regime. Total Impacts ($M) Medicine Hat CA Returning to pre-fta US exports Gross Output 2016 Alta US Exports (Current $M) Difference ($M) Difference in Constant 2014 $M Impact GDP @ Basic Prices -20.4-246 -4.2 Impact Employment 0.0 0 0.0 Impact (Positions) Labour Income 0.0 0 0.0 Impact -2.0-1.2-13 -0.7 Mining and Oil and Gas Extraction -908.6-584.0-885 -136.3 Utilities -7.2-4.6-17 -2.3 Construction -39.5-20.2-110 -6.7 Manufacturing -193.6-58.5-285 -27.7 Wholesale Trade -21.9-13.9-87 -8.1 Retail Trade -45.1-27.7-468 -19.1 Transportation and Warehousing -27.3-14.2-103 -7.4 Information and Cultural Industries -12.5-7.7-28 -2.2 Finance, Insurance, Real Estate and Rental and Leasing -95.4-64.7-224 -17.4 Professional, Scientific and Technical Services -26.9-16.9-130 -11.0 Administrative and Support, Waste Management and Remediation Services -20.6-13.9-176 -9.2 Educational Services -0.9-0.5-15 -0.4 Health Care and Social Assistance -8.6-6.3-69 -3.3 Arts, Entertainment and Recreation -4.4-2.2-50 -1.6 Accommodation and Food Services -20.1-10.8-240 -7.9 Other Services (Except Public Administration) -13.9-8.9-134 -6.4 Operating, Office, Cafeteria and Laboratory Supplies 0.0 0.0 0 0.0 Travel, Entertainment, Advertising and Promotion 0.0 0.0 0 0.0 Transportation Margins 0.0 0.0 0 0.0 Non-Profit Institutions Serving Households -2.9-1.7-36 -1.5 Government Sector -17.8-11.6-96 -7.9 Total -1,553.8-889.8-3,413-281.4 Invest Medicine Hat P10

In short, provincial GDP could decline by as much as $50.8 billion dollars, roughly 13.5% of current GDP of $376B. In addition employment could also drop by almost 200,000 jobs, roughly 8.7% of current employment of around 2.3 million persons. Total impacts are the sum of direct, indirect and induced impacts. Direct impacts represent the initial shock of a decline in merchandize exports of $54.6B. Indirect impacts are the secondary impact that includes inter-industry transactions or the purchases of inputs from supporting industries. Induced impacts are the spending impacts of the additional income earned by employees of the direct and indirectly impacted sectors. GDP is the measure of net economic activity within a prescribed geographic area. It represents the payments made to final factors of production: labour, unincorporated business profits, and other operating surplus and excludes the value of intermediate goods and services used in production. GDP is the appropriate measure of the size of and economy. Returning to pre-fta US exports could result in a loss of 3,400 jobs, 8.6% of total Medicine Hat employment, and $890M in GDP, approximately 13.5% of regional GDP. Agriculture, mining and oil, manufacturing, finance, retail trade, and accommodation and food services are particularly impacted. Implications for Business While returning to a pre-fta US trade pattern represents an extreme case in a renegotiation of NAFTA, if a renegotiation is even possible, the results of the scenario analysis demonstrates the importance of international trade, particularly with the US to the provincial and local economies. Exporting businesses must continue to diversify into other export markets. Although the future of trade with the US contains many unknowns, it is clear that over-reliance on this single export market is not necessarily a sound strategy. P11 Economic Report Card, Medicine Hat Q3 2017