After at least two years of poor economic performance, it is fair to examine recent economic data to ascertain and to judge whether the Alberta recession is over.
The U.S. National Bureau of Economic Research (NBER), one of the world’s most respected authorities on businesses cycles, defines an economic recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible and real GDP, real income, employment, industrial production, and wholesale- retail sales.” While conventional definitions consider a recession to be two quarters of negative “GDP growth,” the Bureau does not accept this two-quarter definition. The NBER considers a recession to be a period of diminishing activity rather than diminished activity. According to its website, “the Bureau identifies a month when the economy reaches the peak of activity and the later month when the economy reached a trough. The time in between is a recession- a period when economic activity is contracted; the following is a period of expansion.”
Evidence from Alberta
Below are a series of charts that illustrate the course of the Alberta economy in terms of factors that the NBER considers. Not all data is available for Alberta on a monthly basis. (All data taken from Statistics Canada CANSIM)
The above chart shows housing starts in Alberta on a monthly basis from the beginning of 2014 to June of 2017. The trend line is down: you will notice the number of monthly housing starts rises in the early months of 2014 but trends down until just recently. At the beginning of 2017 it appears that we are finally seeing an upward trajectory.
The figure below records the employment picture in Alberta over the past three and a half years. Employment continued to grow up until November of 2015, perhaps a year after the effects of the slowdown due to falling energy prices. The three-month moving average trend-line begins to fall for the next year but began to reverse itself last fall as rising energy prices encouraged higher investment. In addition, provincial fiscal policy has helped stabilize the employment situation for the public sector.
In the Chart below, the goods producing sector sustained losses from mid 2014 and sustained further losses up until the spring of 2017. In sharp contrast, the public sector has seen no downturn in employment (the education sector reflects the “lay-off of some school staff during the summer) with a significant increase in public administration. Without significant capital investment arising from the oil and gas sector, employment growth is not expected to pick up materially.
The Alberta unemployment rate began to rise in early 2015 as the effects of falling energy prices began to be felt. The three-month moving average showed a steady climb over the past two years and began to reverse in early 2017.
Another measure of economic well-being is the evolution of retail sales. Retail sales measure sales of groceries, clothing, large appliance, furniture, electronics, gasoline, health and personal care, and building and garden supplies. This measure does not include restaurant and bar sales. As the chart below shows the pattern of sales is seasonal.
By using the seasonally adjusted data, the pattern of a recession, and now, an uptick is evident. Retail sales showed a much earlier decline than other indicators examined. The fall began in the autumn of 2014 as energy prices slumped. There was a modest, short-lived recovery in the spring of 2015, but the slump resumed over the next year with a bottom last September. Since then, we have seen a sharp recovery in retail sales with levels now exceeding those of prior to the peak in 2014. (This data is not adjusted to account for inflation)
So there is ample evidence to indicate that the definition of diminished economic activity is no longer met. Alberta’s economy by several measures is resuming an upward trajectory, reason to rejoice. Much of the lifting arguably has been done by the public sector with both federal and provincial money preserving government programs along with increases in capital spending. But Alberta is not out of the woods yet. The surprisingly resilient housing sector is facing headwinds as the Bank of Canada has begun a tightening phase. Oil prices remain relatively low in comparison to pre-2015 pricing. A higher Canadian dollar reduces the net-back to producers. Climate change and the desirability of fossil fuels also cast a shadow over the province’s economic recovery.
A key medium-term factor will be the province’s fiscal policy after an expected provincial election in 2019. Whatever party wins the election, the large build-up of provincial debt will limit the government’s capacity to stimulate the economy if oil and natural gas prices stay in the doldrums.