The 10 best (non-oil) things about Alberta’s economy

12/17/2015

Special to The Globe and Mail

Published Thursday, Dec. 17, 2015

While it was booming, Alberta’s petroleum sector was a gravitational black hole that sucked up everything else around it. Other industries scrambled to compete for labour, office space and investment capital. It’s a challenge for a tech firm, for example, to open an office in Calgary when a receptionist could command $75,000 a year.

Today, Alberta is grappling with an energy patch that has lost its gravity, at least for now. Oil is below $40 (U.S.) a barrel, and it won’t come suddenly roaring back in 2016. This winter will be difficult for thousands who’ve been thrown out of work.

But Alberta has plenty of fantastic ace cards, none of which depends on the price of oil. It’s time the province starts playing them. Consider this Top 10 list of assets that any economic developer would salivate over:

10. Wind and sun
Given the world’s desire to use less fossil energy, being a very sunny and windy place has its merits. By some measures, Alberta’s potential for solar energy is 40-per-cent better than Germany’s. And in that country, solar energy is not some pie-in-the-sky fantasy for future generations. It’s happening now.

9. Air transport infrastructure
Calgary International Airport is home to Canada’s longest runway, able to handle the largest transcontinental cargo vessels. The continuing $2-billion in development includes the new International Terminal (geothermally heated and cooled), which will further solidify Calgary as the transportation and logistics hub of Western Canada.

8. Leading universities
Both the University of Alberta and the University of Calgary are recognized among the best research institutions in the country, if not the world. We want creative, innovative and adaptable citizens, and these two schools are leading the way.

7. Agricultural resources
The world might want energy, but it needs food. In the 1860s, John Palliser reported back to the British Parliament that this part of the Northwest Territories (now Alberta) was entirely unsuitable for agriculture. It took decades of irrigation canals, advances in agricultural science, drought-resistant seed technology, and plenty of hard work. But today, Alberta exports not only food products, but science and innovation on food production as well.

6. Lake Louise
Enough said.

5. Progressive mayors
In 2015, reputation and leadership are increasingly scarce resources. Toronto was embarrassed on the world stage by former mayor Rob Ford a couple of years ago, while the mayors of Alberta’s major cities helped their municipalities rise to the top. They’ve been featured by the BBC, in The Economist and on Al Jazeera – but unlike Toronto, for all the right reasons.

4. Engineers
With the oil slump, a lot of them have suddenly found themselves with some free time on their hands. But that’s an asset if they can be channelled into other non-petroleum industries. Engineers are great at solving problems, and Alberta has a few at the moment. For example, how can we turn ourselves into champions – rather than chumps – of the war on carbon?

3. Available office space
Construction cranes are still dotting the skylines of Calgary and Edmonton, and a tsunami of commercial office real estate is about to flood the market. That’s a problem for developers, but a bonanza for companies in sectors such as finance, technology and transportation. Leasing deals will be sweet (and a lot of it comes with stunning views of the Rockies).

2. A strong, liberal democracy
Given the level of crazy around the world right now, a strong liberal democracy within a united and peaceful nation is not a bad thing to flaunt. The world is drowning in gun violence, religious insanity and Donald Trump. In Alberta, we debate the financing of new hockey arenas and whether we should redesign our licence plates. When protesters scale oil rigs, we lure them down with hot chocolate.

1. A young, educated work force
A young, educated and entrepreneurial work force is the most valuable economic asset of all. People haven’t moved to Alberta to sit on the couch and play Xbox. They’ve moved here to build something. Tapping into that energy is more valuable than what any hydrocarbon could ever be worth.

• Look at that list: renewable energy, modern infrastructure, great universities, food and crop science, progressive politicians, engineers, plenty of office space, a young and educated population – wrap that all up with jaw-dropping scenery and throw in liberal democracy.

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The only question is: With all of this going for it, how could Alberta not succeed?

Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.

The Red Deer market continues to behave quite normally for this time of year.  Typically sales slow down and the number of active listings go down as well.  Our sales are down only slightly in the first two weeks of December compared to the same period last year while the number of active listings is down from last month, but still quite a bit higher than a year ago at this time.  The current ratio of sales to listings suggests we are now in a “Buyer’s Market”.  It’s time for the other half of the real estate market to have the advantage.

There are two things that we believe are currently contributing to our market.  The first is interest rates.  Today’s low rates make it much easier for those making payments to keep ahead, and for those looking to buy their first home or move up.  There are people not employed in the energy industry that now have an opportunity to take advantage of a bit slower market and those fantastic interest rates.

The second is laid out in the ATB article below.  There have been many times in the past few years when headlines lamented the shortage of workers in Alberta and the high number of unfilled jobs.  It appears that there is a silver lining in every cloud and at least for a little while until oil prices rise, there will be some happy employers in Alberta that can fill their need for workers.

 Employers finding it easier to fill jobs, Todd Hirsch, Chief Economist, Alberta Treasury Branch

The number of unfilled work positions in Alberta fell to 1.6 per cent in August, the lowest level it’s been since 2011 when Statistics Canada started tracking it. It’s also at the level of the national average, making Alberta’s labour market appear to be much more ordinary than it was even a year ago.

For the second quarter of 2015, Statistics Canada reported this morning that Alberta’s job vacancy rate was 3.4 per cent. (The quarterly jobless rate is always higher than the monthly rate because over a three-month period, there are going to be more jobs vacant at some point than during only one month.) That tied us with New Brunswick for the highest in the country.

According to the release this morning, “the job vacancy rate refers to the share of jobs that are unfilled out of all payroll jobs available. It represents the number of job vacancies expressed as a percentage of labour demand; that is, the sum of all occupied and vacant jobs.”

The higher levels of job vacancy in Alberta over the last several years illustrates how tight the labour market was then—and the difficulty that some employers had filling jobs. In this respect, today’s lower job vacancy rate is beneficial to companies because it’s now easier to find qualified applicants.

But the job vacancy rate isn’t low everywhere in Alberta. Canada’s highest job vacancy rate in the second quarter was in Banff–Jasper–Rocky Mountain House, a clear reflection of the great year the tourism industry is enjoying.

Why Alberta’s personal bankruptcies are not drastically rising  12/4/2015

Special to The Globe and Mail Published December 4, 2015

 Of all of the lousy things that can happen to someone, it doesn’t rank as the very worst. Still, being forced to file personal bankruptcy comes with some embarrassment and shame. It also makes it much more difficult to re-establish a proper credit rating, which makes it tough to borrow in the future.

Given the state of Alberta’s energy sector and the general economic recession that has settled across the province, one would assume that personal bankruptcies in the province would be skyrocketing. It’s been 18 months since oil prices started to nosedive. Job losses in the petroleum sector have taken a nasty toll and Alberta borrowers have racked up the highest levels of household debt in the country.

But in one of those apparent twists of logic that so often confound our expectations, personal bankruptcies in Alberta have risen only fractionally. Over the past complete twelve months, to the end of September, 2015, bankruptcies are up by only 100 (2.5 per cent) compared to the previous twelve months. And they’re still nowhere close to levels seen in 2009.

While on the surface this may be surprising, there are a few factors that help explain why bankruptcies are well-contained – at least for now.

The first is employment levels. True, there have been an estimated 25,000 jobs shed in Alberta’s oil and gas sector over the past year – and most of those jobs were well-paying. But in fact, overall employment in Alberta is still higher compared to a year ago. As of October, employment in tourism, construction, education, public administration and health and social assistance are up, year-over-year.

These jobs are generally lower-paying than those in the petroleum sector. But some unemployed oil patch workers have been able to pick up work in these other sectors. As well, many households have at least two income earners. So even in cases where one income was lost, the other income earner is still probably working. That’s propped up total household income and has prevented bankruptcy.

The second factor is the severance packages that have been extended to many of those laid-off Albertans. Certainly, not every worker has been fortunate enough to see a healthy cash severance payment (some may get only a cheque for two weeks’ pay, if that). But workers in management, or in technical, professional and scientific occupations – many of them the white-collar workers in downtown Calgary who are facing job losses – are regularly given between four to eight months of severance pay. Often it’s even more. This has certainly helped households manage their debt payments.

But the third factor is perhaps the most significant: Interest rates have remained near record lows. Making the minimum payment on a line of credit, a car loan or a monthly mortgage is not a smart way to manage debt, especially not in the long run. But in the event of a sudden loss of income, making the minimum payment is just enough to prevent default. The low interest rate reduces those minimum payments. In other economic downturns – especially the 1980s when interest rates were high – scraping together the minimum payment on a loan was more difficult.

For all of these reasons, we have yet to see consumer bankruptcies in Alberta rise anywhere close to 2009 levels. But no one should be too complacent about this. Rather than preventing bankruptcies, these factors are probably just delaying them. Generous severance packages and low interest rates can carry you for a while, but unless there’s a major rebound in Alberta’s economy very soon (and that’s unlikely), we can anticipate bankruptcy rates to steadily rise in 2016.

Todd Hirsch is the Calgary-based chief economist of ATB Financial

Market Update- The Red Deer real estate market is behaving a little better than other, smaller central Alberta markets, and better than we would expect considering the current economic situation in Alberta. Year to date sales in Red Deer are only down 16% when compared to 2014, but are on par when compared to the same period in 2012 and 2013.  Then number of active listings is also higher than this time last year, but is not a concern unless they continue to up significantly.  Red Deer has survived the downturn nicely so far.

A comparison of the West Texas Intermediate average oil price to the number of MLS sales in Alberta since 2007 supports the premise that our real estate market is directly affected by oil prices.  The number of sales is directly correlated to oil prices when prices are dropping, but lags about a year behind when oil prices start to recover.

So, in order to know where the real estate is going, we need to know where the price of oil is going. Historically, prices have recovered within months of a slide, but this time it may take a little longer as the world struggles to rationalize an over-supply and demand that’s not keeping up.  None of the world’s major suppliers are faring very well with current prices and something will have to give.  We hope it’s sooner rather than later.  In the meantime, very low interest rates will help in keeping the market moving.