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April 28, 2012
CALGARY, AB, Apr. 28, 2012/ Troy Media/ – We expected it to be good, but not this good.
Alberta’s real GDP expanded by 5.2 per cent in 2011, beating the provincial government’s budget estimate of 3.5 per cent. That was the strongest growth among all provinces, with only Saskatchewan coming close with growth of 4.8 per cent. Nationally, Canada’s rate of growth was 2.6 per cent.
The real GDP is the total value of all goods and services produced in the economy, with an adjustment to account for the effects of inflation. Statistics Canada reports national economic accounts monthly, but annual provincial estimates are published only in April (with a revision to the estimate in November).
Alberta’s strong real GDP showing was prompted by the energy sector. In its press release yesterday, Statistics Canada explains: ‘Higher energy prices led to gains in oil and gas extraction and exploration activity. Construction of oil and gas engineering projects also contributed to the growth. Manufacturing output increased 11 per cent with significant gains in machinery, fabricated metal products, chemicals and wood products.’
As illustrated in the graph, Alberta experienced a very pronounced ‘V’ shaped recession and recovery. The slowdown, which started in ’07 and ’08, turned into a rather steep contraction in ’09 when the real economy shrunk by 4.4 per cent. That was fairly short-lived, however, and by 2011, growth had rebounded to the fastest pace in five years.
With the energy sector firing on most cylinders (the natural gas industry the notable exception), chances are high that the province will enjoy another nation-leading year of growth in 2012.
The Fed stays put on rates
The Bank of Canada (B0C) is considering raising rates, but tightening credit conditions is not on the Federal Reserve’s to-do list. The Federal Open Market Committee, which decides American monetary policy, met this week and once again announced that the majority of its members anticipate exceptionally low levels for the federal funds rate, at least through 2014.
The markets have been digesting the different messages coming out of the respective central banks, resulting in the value of the Canadian dollar moving up over a cent. This is the balancing act BoC Chairman Mark Carney finds himself in. While the higher dollar by itself helps tame inflation, by lowering the cost of imports, a dollar well north of parity will continue to hamper the manufacturing sector.
Housing price in Alberta still stable
Home prices across Canada appeared to cool on a month over month basis in Canada, according to the Teranet home price index. While national prices increased 6.08 per cent on a year over year basis, the index dipped 0.2 per cent between January and February. The Teranet index is a unique index in that it is based of the registered change in prices derived from each province’s respective land registry.
Based on the Teranet survey, prices in Alberta have been relatively calm. In Edmonton the year-over-year increase for February was just 1.1 per cent, in Calgary the equivalent figure was 1.3 per cent. In either city the index hasn’t really changed dramatically since 2009.
Activity in Toronto, by contrast, shows prices are were up 10 per cent compared to last year and is more than 20 per cent higher than where prices stood prior to the recession.
What are we buying?
Statistics Canada released the results of the 2010 Survey of Household Spending this week. The survey looks at how Canadians allocate their budget and it plays an important role in how inflation is calculated, as it helps determine the weighting of the hypothetical basket of goods that the typical Canadian buys.
Canadians spent on average $53,000 in 2010, with shelter accounting for 28.3 per cent, transportation for 20 per cent and food 14 per cent. These are the basics. It should be highlighted that cash spent on taxes, insurance and pension contributions aren’t included as current consumption (if these expenditures were included, households in Canada spent an average of $70,000 in 2010). (Editor’s Note: Read How much tax do Canadians really pay?)
Albertans had the highest consumption levels in Canada, spending an average of $61 thousand on current consumption. Similar to the rest of the country, over 60 per cent of current consumption is spent on the basics of food, shelter and transportation.
Farmers flock to canola and wheat
High canola prices are encouraging Canadian farmers to increase production of the cash crop. According to Statistics Canada, farmers are planning on seeding a record 8.2 million hectares of canola this year (up 7.8 per cent from 2011).
Wheat fields will still dominate (with 9.9 million hectares expected to be seeded in 2012) but the gap is closing. After wheat and canola there is a big drop in production with 3.2 million hectares expected to be dedicated to barley crops.
In Alberta, canola seeded area is expected to be consistent with last year’s crop, with 2.5 million hectares seeded (about 30 per cent of all canola produced in Canada). But farmers have increasingly shifted attention to wheat and canola production. Over five years, Canola seeded area is up 22 per cent and wheat is up 15 per cent, while barley seeded area dropped 18.5 per cent.
Like clockwork, the price of gas at the pump rises during the summer months as North Americans get in their cars and head on vacation. The story may be slightly different this summer, at least south of the border, as the Energy Information Administration (EIA) estimates suggest demand for gas over the summer months is expected to be at its lowest in 11 years.
According to the EIA, Americans are expected to consume an average of 8.8 million barrels of crude during the summer driving season (April-September). That compares to the 9.4 million barrel average recorded back in 2007. It’s expected that high energy prices, combined with a soft economy, are playing a large role in the drop – average retail gas prices are expected to hit a record $3.95/gallon in 2012.
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