My presentation is concerned with the past five to ten years with a focus on 2012 to 2016. We first begin with the current biggest source of investment and income…
This ten-year period shows the magnitude of the oil price fall in real terms since the start of the financial crisis –the dark shaded area. In real terms we are only back to the low point coming out of the financial crisis of 2007-09.
I wanted to illustrate the very real consequences of the material decline of oil prices on this and the next slide. The breadth of the recession has also touched Stampede parties hosted which have been scaled back as revenue dropped in the oil and gas sector.
An important impact has been the difficult adjustments in the work force arising from the downsides of an economy that relies too heavily on one economic sector. We saw this over-reliance during the 1930s with wheat and again in the 1980s with oil and natural gas. This movie seems to repeat itself like Bill Murray in Groundhog Day!
The next few charts show the impact of the recession on key sectors. Housing starts have been relatively strong over the past two years given the weak employment picture. Note that the last part of 2016 shows the sector’s activity gearing down.
Given the layoffs in the energy sector, this chart is not surprising. What I think is surprising that more people have not been leaving the province. The tendency to remain is, I think, related to ambiguous job prospects outside Alberta and high housing costs in metropolitan Ontario and British Columbia.
Employment insurance has cushioned the economic impact on the housing and retail marketplace up until now. The spike late last year in claims allowed was due to a policy decision to extend EI coverage. Claims are at levels last seen in the early 90s.
This chart and the next chart show different measures of unemployment. The top line is the official rate and the lower lines reveal unemployment rates of one year or more and three months or more. The numbers continue to trend higher in spite of some strengthening of oil prices and promising drilling activity levels.
This somewhat busy chart, coming again from the monthly Labour Force Survey data, reveal more unsettling information of a labour market which is weak. Lower incomes, absent stimulative fiscal policy or new investment, portend weaker growth in consumption.
Consumer bankruptcy numbers provide a sense of financial stress on households. The upward creep implies added stress on families, financial institutions, and knock-on effects for retailers, real estate markets and the hospitality industry. As discretionary incomes fall, the services sector, excluding government, suffers.
This reality is borne out by this next chart. The numbers are in nominal terms and seasonally adjusted. Tough times for Alberta retailers who have become accustomed to Albertans’ high consumption levels.
Given the foregoing depressing indicators of gloom, rising unemployment, falling housing investment and climbing consumer bankruptcies, I am still trying to figure out what is keeping the economy from falling further. As I just said, Albertans have a reputation as big spenders. With a more frugal oilpatch, provincial government fiscal policy has been stimulative especially cushioning the Edmonton economy. Part of the answer has been continued borrowing by consumers, businesses and governments. But how long can this borrowing go on?
I conclude with a few of the policy challenges facing not only government and industry, but institutions and individuals in this province. As our next speaker will discuss, a new administration to the south will probably place federal and provincial governments in difficult positions concerning taxation and climate change. Secondly, the natural economic order in Alberta – oil and gas and energy- will recede and replaced by artificial intelligence, robotics, driver-less cars, and more meaning fewer physical jobs and greater emphasis on human capital.